Power crisis and shortsighted policies

By Ranjith Perera
Presently working for Singapore Power Former Engineer - Lakdhanavi Power Plant

While on a short holiday in Sri Lanka, I happened to read the article by Arjun Deraniyagala the former Chairman of the CEB, in The Island of 30th June 2001. He has sought in this article to make out that the shortfall in hydro in the years 1999/2000 were unusual and to justify the procurement of Emergency Power from Aggreko by the CEB as otherwise power cuts would have been inevitable.

Shortsighted policies and protracted procedures of procurement of plant have resulted in the CEB having to impose power cuts on eight occasions since 1980. Is it possible that the former Chairman who has lived and worked as an engineer for over 40 years was unaware of the fact that hydro shortfalls are far from unusual?

The power crisis of 1996 had a devastating effect on the economy of this country and Deraniyagala who took over the chairmanship during the 1996 power crisis - some in fact claimed that he had been brought in to save the country from the repetition of such crises - should have been aware that emergency power was costly and that in the national interest it was necessary to avoid purchasing such power. Moreover, one of Deraniyagala’s earliest tasks was to enter into Power Purchase Agreements (PPA) with the first Independent Power Producers (IPP) - Asia Power and Lakdhanavi (Pvt) Ltd; Though Asia Power was provided with cheap residual fuel by a direct pipeline Lakdhanavi, that had to transport its more expensive furnace oil, was the cheaper of the two. Lakdhanavi was a subsidiary of Lanka Transformers a Joint Venture of the CEB and ABB Kraft of Norway, and Deraniyagala was the Chairman of Lanka Transformers as well.

Thus as Chairman CEB, it was Deraniyagala’s responsibility to carry through the Board’s prime duty of providing the nation with an adequate and reliable electricity supply at the lowest cost. His article shows that he is in total agreement with the decisions taken by other Boards and Committees. But is there any indication that these decisions were in the interest of the power sector and the consumers.

It is relevant to note in this context that the first ever thermal power station established on a BOO basis in Sri Lanka- a 24 MW medium term plant, was by Lakdhanavi - in a record time of ten months following the 1996 power crisis. I was privileged to work on this project with a young team of dedicated engineers. The plant was commissioned in Nov. 1997 and is in continuous operation since then. This is the most efficient medium term plant in the country and provides energy at the lowest tariff compared with all other Power Purchase Agreements signed by CEB.

Lakdhanavi also offered to set up more medium term plants at substantially lower cost at even greater speed than the first plant. But a decision was taken for some strange reason (with Mr. Thilan Wijesinghe former Chairman BOI now facing a charge of corruption in the Courts of Law playing a major role in the decision making) that Lakdhanavi should not take part in any further Power Generation Projects. The decision was purportedly on the ground that Lakdhanavi is a subsidiary of Lanka Transformers Limited. In fact this should have been a reason to promote Lakdhanavi because the major part of the profit of Lakdhanavi will accrue to CEB and strengthen its finances. After this decision by the Government, I left Sri Lanka out of shear frustration and joined the Singapore Power in Singapore, a country where all the encouragement is given to local investors.

By this decision the offers made by Lakdhanavi to set up two 20 MW thermal power plants in 1997 were rejected though it was the cheapest. If not for this unreasonable decision two medium, term thermal plants of Lakdhanavi, operating on furnace oil, would have been functional by 1999 and the need for the procurement of emergency power would possibly not have arisen.

After rejecting Lakdhanavi’s offer made in the year 1997-to set up two medium term plants at the lowest cost out of all offers received, and despite Lakdhanavi’s proven capability to establish such power plants, the award was made to another party. But these plants are yet to materialize four years later. The economic cost to CEB by not having the two 20 MW medium term plants on time, which gave rise to purchase emergency power is conveniently not mentioned in the article of. Deraniyagala.. The loss to CEB on this account alone is reckoned to be well over Rupees four billion.

The former Chairman CEB has stated that for a purely short-term requirement it is unwise to make Medium Term arrangements because it will be a burden on the CEB once the need for these plant is over when coal is commissioned. He has therefore asserted that it is correct to resort to emergency arrangements for the short period though the cost is high.

However, the short-term arrangement made in January 2000 just for six months, has continued throughout the year 2000. The capacity of the short-term arrangement was further increased in the year 2001 and continued up to end June 2001. The prohibitive cost of the emergency power has ruined the finances of the CEB to a position that they are unable to continue any further with such arrangements. Therefore after operating emergency arrangements for 18 months continuously, the CEB has now decided to dispense with the emergency arrangements and instead resort to Power Cuts from 2nd July 2001.

The hydro availability in the year 2000 was low but CEB should have been prepared for such situations. Hydro availability in the year 2000 was 31S4 GWh. In the year 1991 it was 3116 GWh, 1992 it was 2901 GWh, and 1996 it was 3247 GWh. Mr. Deraniyagala who assumed duties following the 1996 power crisis should have made arrangements to meet situations of such low hydro availability.

The manner in which that additional 40 MW power was arranged and awarded raises a multitude of questions Letters for this procurement were sent out on 21st December 2000 which reached the suppliers after the Christmas vacation requesting offers before 28th December and the additional capacity operational before end January 2001. Aggreko forwarded an offer conforming to the request. Lakdhanavi forwarded a cheaper offer but said that they can begin operation only by mid February 2001. The offer was made to Aggreko and even before the contract was signed with Aggreko their machines have been unloaded at Colombo Harbour. The machines apparently have been already shipped even before the letter calling for offers were sent out. Another all important matter is that the machines did not start operation even by the end of February 2001 though the cheaper offer of Lakdhanavi to provide supply from mid February 2001 has been in the meantime rejected on the ground that the power is needed much earlier.

Medium term arrangements will become a burden on CEB only after the Coal Power Plant comes into operation. But construction on Coal Plant has not even started yet and is years away from starting as offers are yet to be called. It will take at least six years to commission the first 300 MW coal plant. The demand growth in the meantime would have surpassed this 300 MW. The Power Sector needs an additional l00 MW capacity each year to cope with the growth in demand.

It would appear that the various decision making committees were not sufficiently knowledgeable about the factors that impact and contribute to ensuring economic power development. Mr. Deraniyagala’s plea that the decisions were duly and properly taken by appropriate committees would not absolve him. He, as the Chairman of CEB, the statutory body solely responsibly for the power supply in this country, should have been a catalyst in causing correct decisions in the interest of the country, the power sector, the electricity consumers and the organizations which he was heading. The present situation confirms that he has not done so.