Features
Proposed CEB Tariff Increase: Is it sensible?
by Romesh Bandaranaike, Ph.D.
A few months ago, the CEB tariff was increased for all consumers. The average increase was approximately 75%. The Minister of Power and Energy has recently stated that there needs to be a further large increase in tariff in January, around 65%, if the CEB is to provide continuous power to the public. Without the increase, he says, there is likely to be eight-hour power cuts.
There were numerous protests relating to the original tariff increase. These protests have come from many different types of consumers including hoteliers, industrialists, temples and residential consumers. Hoteliers and industrialists have gone so far as to say that the increase will have serious negative impacts on the viability of their businesses. They now claim that a further increase as mentioned by the minister would push them to insolvency.
Is the tariff increase mentioned by the minister sensible? Is there any other alternative? Based on my wide experience, there are two reasons why a further CEB tariff increase is necessary. First, not increasing tariffs will adversely impact renewable energy generation growth in the country. Second, it is the fairest and most efficient way to fund power generation cost in the current economic context.
Let me start with my credentials. My dealings with the CEB go back over 20 years, as CEO of the then largest private company building small hydro power plants (40 MW connected to the grid) and later as the executive chairman of a company which built and operated a four MW biomass plant, all selling power to the CEB grid. I have also worked for many years in the policy sphere, primarily in the Ministry of Finance, originally as the CEO of the Plantation Restructuring Unit and later as the Director General, Economic Affairs.
What are the adverse impacts on future renewable energy?
One of the key policy proposals of the Government relating to the power sector is to substantially increase the share of power generated through renewable energy (RE), mainly, small-hydro, wind and solar. The capital cost of RE plants is high, running into hundreds of millions of Rupees per MW. In spite of this, they are financially viable to build and operate because their fuel — wind, sun and water flow in rivers – is free. The policy is to have the private sector undertake the large capital investments in these power generation technologies and sell their generated power to the CEB grid.
The levelized average cost of power generated by RE power plants, even after including their large capital costs, is lower than that of power plants based on fossil fuel, such as coal and oil. RE plants are also much better for the environment compared with fossil fuel-based plants and, increasing their share of power generation will also substantially reduce foreign exchange requirements to import coal and oil.
In spite of the last large increase in tariffs, the CEB is still experiencing major financial difficulties. Faced with these difficulties, the CEB has saved cash for purchasing coal and other fossil fuels and for other expenses such as salaries, by not paying the amounts due to private RE producers who have entered into contracts with the CEB to supply power. The CEB owes a staggering Rs 22 billion to these producers. In many of the cases, invoices going back for over a year have yet to be paid. These producers have continued to supply power to the CEB in spite of the payment delays, primarily because in the case of wind, hydro and solar, there is no fuel cost and these producers have only to pay their operating costs and their bank loans.
To handle their cash flows and to keep going, these producers have begged their bankers for support. How long they can keep it up is anybody’s guess. Biomass and private thermal power producers who have not been paid by the CEB have mostly shut down because they simply cannot afford to pay for fuel. Small-hydro and wind power producers may also close down if the CEB payment delays continue and the developers do not have the financial resources to pay their operating costs and bank loans.
The present grid connected RE plants were almost all built at a time when the CEB was paying the invoices submitted by these plants on a regular basis, with maximum delays of one to two months. In its present financial situation, the CEB is not paying the large arrears owed to these power producers. Clearly, no sensible private sector investor will want to undertake future large investments in RE plants under such circumstances. The only way for the CEB to return to timely payments for power supplied by private RE plants is with a further tariff increase as proposed by the Minister. Without such payments, it will be the end of the Government’s plans for substantial private sector led increases in RE’s share of the grid, along with their attendant benefits enumerated earlier.
How should the cost of CEB’s generation be funded?
We are stuck today with an inefficient CEB with monopoly power. Even if it were possible, it will take years to reduce these inefficiencies. As a result, power costs are higher than they could be with a more efficient operation. The question is, who should bear the cost of the inefficiency today? From an economic policy perspective, there is only one answer. It should be electricity consumers. The alternative is for the tariff not to be raised and the CEB’s losses to be met by the Ministry of Finance (MoF).
MoF, in turn, can raise the funds by either printing money or taxing people. Even printed money is not free, as we have found out recently. It results in everyone having to pay large price increases in the future. In practice, the Government subsidies of the CEB come in small bits and pieces which the CEB has to beg for. In the interim, faced with severe cash flow issues, the CEB reacts by cutting power and not paying RE power suppliers. The cost to the economy of power cuts is also much higher than the adverse effects on businesses and consumers of a further raising of the tariff.
As I indicated at the start of this article, numerous commercial parties, including hoteliers and industrialists have claimed that a further increase in tariff will push them to insolvency.
However, this statement cannot be sustained. In 2022 the Sri Lanka rupee exchange rate vis-a-vis the US dollar depreciated by around 80% and inflation as per the NCPI was around 70%. As a result, the rupee prices of every item in the country increased by at least this amount. This includes the price of items sold by hotels (room rates) and items locally produced by industry and farmers, whether it be cement, rice, eggs, fish, vegetables, chocolates, cleaning supplies, toiletries, and so on.
Imported and domestically sourced inputs into industry, hotels, farming, and so on also increased. Power supplied by the CEB is one such input, and the cost to the CEB of producing this power has also increased. It is only rational that the price charged for electricity should also be increased. In the case of industry and commerce, the recent performance figures published by quoted companies show very large increases in rupee profits. Of course, these are devalued rupees. A further increase in electricity price, will reduce these rupee profits somewhat, but, by how much depends on what the electricity cost share is of total input costs. (None of the industries and commercial establishments that are objecting to the past or proposed future tariff increases, has provided any hard financial analyses on the impact on their bottom line of such increases.) It may well be that hotels will go under because there are no tourists. If the Government wants to provide relief to such hotels, this should be done directly, not by subsidizing the price of electricity.
An added benefit of charging electricity consumers the CEB’s inefficiency cost is that a further increase in electricity price will result in a reduction in demand, which will, in turn, reduce the requirement for more costly imported fossil fuels to run the CEB’s power plants. A clear example of such an impact is the recent large increases in transportation fuel costs, which, as reported in the press, has resulted in a 50% reduction in the demand for fuel.
One last point on the social impact of tariff increases. Electricity is fundamental to modern life. Everyone should be able to afford some minimum level of electricity consumption. A further increase in tariffs may put electricity out of reach of the poorest consumers who are struggling to survive today. To protect such consumers, it would be best that those who consume only a small amount of electricity each month be given a special lower tariff. The CEB already has such a tariff for residences consuming less that 60 units (kWh) a month.
A household consuming 30 units in a month only pays Rs 360 under the present tariff, and those consuming 60 units pay a monthly bill of Rs 900. With the latest proposed increases, their respective bills would increase to Rs 1,300 and to Rs 2,960. These increases look large if expressed as a percentage. In absolute rupee terms they are not, compared to the present official poverty line income threshold of Rs 55,000 – 60,000 per month for a family of four. The additional Rs 940 for those consuming 30 units in a month, would be about the same as one meal for a family of four. If the Government wishes to reduce the special tariff for consumption from 30-60 units, the impact on CEB revenue of any such adjustment could be covered by slight increases in the tariff revision to other consumer categories.
What of the longer-term prospects?
The CEB is a mammoth organization, an order of magnitude larger than the largest private sector companies in Sri Lanka. It is abundantly clear that the CEB, like most Government ventures, is not the most efficient of organizations. There is much that can be done to improve its efficiency, but this can only be achieved in the long-term. The minister has proposed the first step, the “unbundling” of the CEB, where the generation, transmission, and distribution parts of the CEB are divided into separate entities. In the case of generation and distribution, these could be divided even further. The idea is that these smaller entities could be better managed, and more importantly, that it should be possible to bring in private sector management into some portions, or even privatize them completely.
The minister’s proposal is not new. Several past attempts were made to do just such an unbundling; one during the time I worked in the Ministry of Finance, around 20 years ago. The engineers who run the CEB, fully aware of the loss of their monopoly control of the entire power supply of the country with such unbundling, blocked these attempts. The present minister thinks he can easily get it through this time. The CEB engineers, who are very smart about looking after their own interests, are biding their time and, I predict, they will put up a fight, and may well succeed in blocking the break up, as they have done in the past.
Politicians across the board, even those who are part of the Government, have been reported in the press as objecting to a further tariff increase by the CEB. None of them have any alternate proposals for how the revenue shortfall of the CEB can be met, other than to make glib comments like “reduce the inefficiency of the CEB,” “recover the money stolen in the sugar scam,” “cut Government waste,” and so on. These things are not going to happen in the coming year or two. The problem is here now. No politician has highlighted the serious adverse impact of no tariff increase on the Government policy to substantially increases RE’s share of the grid which I have highlighted here.
Government has to bite the bullet and take the hard decision to increase CEB’s tariffs now. Becoming current and staying current with payments due to RE producers should also be a condition of the tariff increase. If possible, it should leverage the decision with a mutually acceptable agreement with the CEB’s engineers to support the unbundling of the CEB towards improved efficiency.
The author has extensive work experience in renewable energy in private industry, and in policy formulation and implementation in the Ministry of Finance of the GOSL.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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