Power cuts and the PA

By Dr. H. N. S. Karunatilake
Since 1977 power cuts have been introduced for the common reason that the water levels in the hydro reservoirs have gone down or due to the non-availability of generating capacity to meet the peak loads. However, most of the hydro schemes on the Kelani and Mahaweli basins were completed before 1986 and their capital costs, that were based on concessional credits were largely repaid, and power from these schemes have been available at relatively low prices as compared to the cost of thermal energy at current prices. It would appear that the CEB that is now facing a severe financial crisis has resorted to hydro generation to minimize overall expenditure resulting in heavy depletion of the water levels in the reservoirs. Since March this year the CEB may have done this in anticipation that the May/June South West Monsoon rains would replenish the reservoirs. To start with the monsoon was weak and most of the rain came in July that contributed to increase the water levels in the reservoirs in the Kelani basin notably, Castlereigh, Mousakelle and Kotmale. There is evidence that the CEB planning was faulty and it should not have drawn down the water levels in these reservoirs to the extent that it did. Presumably due to the parlous state of its finances the CEB did not use adequately the available thermal capacity of 453 MW of the CEB and 174 MW belonging to the private sector. If the CEB did not face the ongoing financial crisis that started in 2000, it may have achieved a more rational balance between hydro and thermal sources.

The CEB cannot hereafter make the excuse for the power cuts that the water levels in the reservoirs have got depleted. It is necessary that irregularities in the pattern of rainfall and delayed monsoons should not be made the scapegoat for bad planning and mismanagement. The CEB should be in a position through proper planning and management to provide a steady power supply irrespective of what happens to the incidence and distribution of rainfall. There is no need for some sections of the media to depict diagrams showing the incidence of rainfall and the water levels of hydro reservoirs. Electricity generation should be a function of all sources of supply to include hydro, thermal, solar and wind, that are the sources currently available in Sri Lanka. At present the CEB has a hydro capacity of approximately 1137 MW and thermal 453 MW, while the private sector has a thermal capacity of 174 MW and hydro 12 MW. The thermal share of generation has steadily increased to around 627 MW or 35 per cent of capacity. Future additions to capacity would come almost entirely from thermal generation. The largest hydro plant under construction is the Kukule Ganga project 80 MW that is due for completion in May 2003. In addition there are 8 mini hydro plants under construction with a total capacity of 18 MW and approval has been given for 49 mini hydro plants with a total capacity of 147 MW. The continuous operation of these mini hydro plants would depend on the rainfall in the areas where they are located. If these plants are associated with substantial reservoir storage, they could enhance the supply to the national grid.

Other than a few privately operated mini plants there has not been any addition to capacity by going in for new hydro plants. It would appear that PA has been keen on additional thermal power because of the commissions and kickbacks that politicians and officials have received. Equally attractive has been the hire of private generating plant at exorbitant cost. The classic example has been the hire of plant from Aggreko International Power Projects, which is a firm with Dutch links based in the UK and the Middle East. The first Agreement with Aggreko was concluded in 1996 and one observes that all those in the CEB and outside who were associated with this project are extremely prosperous and have made enough money to engage in other shady money making deals. The second agreement was concluded in January 2000 by the former chairman of Samanalawewa Bungalow fame, who came in for barrages of continuous criticism from his own employees and from the public. The question that has to be asked from the Minister of Power and the President is why were these men of doubtful quality appointed as Chairmen and why have not their deals and transactions investigated, unless they have had the blessings of corrupt politicians. Aggreko’s terms of hire were a rental of Pound Sterling 1 million per week (imagine the rupee profits they have made since the float of the rupee) and the full cost of fuel. The total payments to Aggreko per month were over Rs 570 million. The CEB had purchased power from Aggreko at Rs 12.40 per unit and retailed it at Rs 5.70, resulting in a loss of Rs 6.70.

High crude oil prices have been made the excuse for increasing the electricity charges. It is true that oil prices rose to peak levels in September/ October 2000 when they temporarily exceeded US$ 32 per barrel. But during most of 2001 prices have varied between a low of $22 and a high of $28, at the present moment prices are around $24 per barrel. The rise in oil prices in 2000 resulted in the cost of generation for the CEB to rise from Rs 2.37 per unit to Rs 4.01. For power purchased from private power plants the CEB had to pay Rs 5.51 in 2000 as compared to Rs 4.37 in 1999. The average cost of hired power plants to the CEB was very high at 9.25 per kwh or unit. In 2000 the fuel cost for hired power plants was Rs 1.88 billion, and the rental, Rs 1.55 billion. The major financial problem confronting the CEB has risen mainly from the hire of private power plants. The COPE has found that many of the private plants that are being operated are second hand and relatively inefficient equipment with a very high consumption of fuel. The outcome of this was that the CEB in 2000 had a revenue of Rs 26.3 billion and operating expenses of Rs 33 billion resulting in a loss of Rs 6.7 billion. To cover up these losses the CEB imposed a 25 per cent surcharge in 2001. Aggreko has been given unwarranted concessions. It is not only tax free but it has charged Pounds Sterling 191,250 for the transport of a single machine and, furthermore, the CEB has met all the costs of loading and unloading the plant, site development and the supply of water and lubricants. The latter expenditure is all outside the cost of hiring the plant. Furthermore, The CEB has issued an international bank guarantee worth millions of sterling against default. Aggreko has operated four plants at Peliyagoda of 20 MW, Ambatale 9MW, Kotugoda 20 MW and Kosgama 40 MW, making a total of 99 MW. Pressures are being brought about to further extend the Agreement, although the CEB has decided not to extend it. The COPE has strongly recommended that the

Agreement should not be extended. One of the major causes for the heavy losses incurred by the CEB last year and this year has been the Aggreko Agreement and it is perhaps the worst example of corruption.

Apart from this the CEB’s losses have been compounded by several other factors. It is reported that more than 400,000 consumers, out of a total of some 2.81 million, have not been fitted with meters and it is quite obvious that most of them are new consumers who have relatively high rates of electricity consumption and are now being undercharged. There has been an ongoing tussle in the tenders for meters. Tenders for 400,000 meters have not been awarded due to a complaint from a rejected tenderer. The CEB has not been able to reduce the system losses that are now running at 21.3 per cent, while, Lanka Electricity Company operates with transmission losses of 8.5 per cent. These high losses are not entirely the fault of the CEB. They are due to factors such as illegal connections, delays in repairing breakdowns, delays in fixing meters and expansion of rural electrification. The latter has to some extent been influenced by politics because sometimes politicians have gained mileage by opening electrification schemes which involve long transmission lines to villages with a very few households.

The government propaganda machine has been working overtime in support of the CEB. The justification for the increase in the electricity tariff has been the increase in oil prices over the last ten months. But it has to be mentioned that between 1982 and 1985 crude oil prices stood at much higher levels and tarrffs were not increased. In 1982 the average cost of a barrel of crude was $32.24, in 1983, $33.12, in 1984, 30.97 and in 1985, 29.03. However, in 1998 the Ceylon Petroleum Corporation imported over 2 million MT of crude oil at an average price of $ 13.47 and made a profit of over Rs. 8 billion and the CPC was able to supply fuels to the CEB at relatively low prices. The accumulated losses of the CEB are over Rs. 12 billion and this has been financed from overdrafts from banks and the interest on the overdraft costs the CEB over Rs. 1.7 billion per annum. To add to all these problems it is reported that at present the post of Financial Controller in the CEB is vacant. There have also been irregular payments to various suppliers. For example, a Japanese company was paid a commission of 20 per cent instead of 10 per cent that has amounted a colossal sum of Rs. 900 million. The CEB has also been involved in discriminatory transactions against local enterprise. One example has been the award of a tender to a foreign firm bypassing a local enterprise, Jembo Cable and Wire situated at Biyagama, with Malaysian equity participation for the procurement of aluminum cables. The evaluation team had distorted the analysis by double counting GST and NSL thus inflating the price of the local tender.

The country is facing a power crisis with daily power cuts due to the mismanagement of the PA government and the CEB. The minister in charge of should be squarely held responsible for this situation and he should honorably resign. One of the reasons for having had to use private generating agencies and resort to excessive thermal generation through petroleum fuels has been the delay in commissioning the much talked about coal fired power plant. Politics has got heavily entangled in this question and many people who know very little about the use of modern technology in coal power generation have raised objections on frivolous grounds. These include a religious dignitary on the grounds that a shrine some 20 kilometers away will be affected and that the site will be a threat from the terrorists. He seems to believe that the ongoing rebellion will last for all time and that the government does not have the capacity to provide security to the power plant complex. The President ignoring the national interest, for purely political reasons has yielded to these unwarranted pressures. The site at Norochcholai is a bare 350 acre block with some 35 small dwellings that could be relocated at a minimum cost.

Those who know little about this subject should be taken to visit modern power stations both in the East and the West. For instance Hongkong has a 4000 MW coal fired plant in the heart of the residential area. India has over 40 coal burning plants spread all over. Furthermore why are these modern NGO funded environmentalists talking about pollution when in the period up to 1950 all the 200 odd locomotives of the CGR were coal burning and they were belching tons of lethal carbon dioxide laden smoke every day? Have they not forgotten that during the season Nuwara Eliya was a veritable smoke stack with huge columns of smoke from wood and coal being discharged into the air? Today most of the business concerns and industries are using auto diesel driven generators and they all combined, in the Colombo district alone, emit more carbon dioxide than a 300 MW coal power station. Although there is a powerful NGO led environment lobby, perhaps secretly funded by petroleum interests, the only means by which the CEB can supply the country’s power needs for development is by a steady base load power supply by using low sulphur coal fired power stations. Demand for energy in these depressed economic conditions is increasing at about 8 percent and the available large new hydro schemes are not there, other than the Kukule Ganga scheme 80 MW now under construction and due for completion in 2003. The cost of coal power generation in the west coast is about Rs 3.97 per unit although this has been disputed by recent writings by paid environmentalists who have wrongly argued that capital costs have not been included. Even with the projected high costs coal power is cheaper than an petroleum based fuels excluding residual oil. Even future hydro plants that have been planned are more costly than all forms of thermal. For the Moragolla hydro plant the cost per unit is Rs 9.70 per unit, for Uma Oya Rs 9.70, Broadlands Rs 8.66, Gin Ganga Rs 5.24, and the thermal Combined Cycle Rs 4.30 per unit. CEB projections are that the share of coal power will increase from 28 per cent in 2004 to 61 per cent in 2013. At present 22 developed countries in the West and 13 countries in Asia are using coal. Low sulphur coal could be imported from Australia and South Africa.

There is another significant advantage arising from the use of coal, the price of coal has been falling steadily since 1995 from $ 44 per MT to $ 28 per MT in 2000. This factor does not seem to have been taken into consideration by those who have written about the unit cost of generation by coal. While economic petroleum resources are expected to last only for another 40 years, coal resources are widely distributed and will be available for at least another 230 years.

What is the solution to the ongoing crises? Firstly to cut down on costs the CEB must dispense with private companies like Aggreko. They should not hire plant, even the barge mounted plant, instead buy generating plant outright. By October this year 110 MW would be available from the Combined Cycle plant at Kelanitissa out of its total capacity of 165 MW and the balance 55MW would be generated next year. Many of the approved mini hydro plants would also be supplying power in the next ten months. Recently the SW monsoon has given a considerable amount of rain to the hydro reservoirs in the Kelani basin, Kotmale’s storage has gone upto about 45 per cent, while that of Mousakelle and Castlereigh that feeds Canyon, Old and New Laxapana, Wimalasurendre, and Polpitiya now have storages of over 52 per cent. Since the monsoon has been late more rain can be expected in August and substantial inter monsoon showers in September, that will help to further replenish these reservoirs and bring some rain to those in the Mahaweli catchment, such as Bowatenna, Ukuwela, Rantembe and Randenigala and also to Samanalawewa on the Walawe. A "return" of the monsoon, though late, could be expected. In the meantime the base load station at Sapugaskanda using residual oils should be run to capacity as it is now the lowest cost available generating facility at less than Rs 3.30 per unit and this will help to give marginal relief to the grave financial crisis in the CEB. Until the NE Monsoon sets in October/ November the CEB may find it necessary to conserve water storage by using the thermal least cost facilities. In the meantime the CEB should immediately start work on the west coast coal plant. Furthermore, by metering all supplies and reducing system losses, including illicit tapping the CEB could instantly enhance its cash inflow.