Development of electricity sector in Sri Lanka – Some non-initiatives



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By Dr. Janaka Ratnasiri


In a letter written to The Island of 04.04.2016, Neil Perera (NP), a former employee of CEB from its inception and who has held high positions in it, has said the CEB’s Long Term Generation (Expansion) Plan was never allowed to be implemented fully, by politicians and environmentalists, and the entire country is suffering as a result.


There have been a few questions in my mind about the recent development of the electricity generation capacity, and since NP claims to be familiar with the doings of CEB, I would like to seek NP’s clarification assuming he will be good enough to spare his time to clarify them.


Previous attempts to expand capacity


After completing the development of the Kelanitissa Thermal Power Complex and the Sapugaskanda Thermal Power Complex in the eighties and nineties, adding 509 MW to the national grid, government wanted to introduce more thermal power capacity into the system. A feasibility study for a coal power plant in the West Coast has already been undertaken by an Australian company in the late nineties.


This prompted the Deputy Secretary to the Treasury, serving as the Chairman of the Cabinet Appointed Negotiating Committee, to insert a press notice in September 2001, calling for Expressions of Interest (EOI) from reputed companies for the supply of 3x350 MW power plants on a Build Own & Operate (BOO) basis to be carried out as a BOI project.


The closing date for submissions of the EOI was initially set for November 5th, but later extended to November 26th. The power plants were to be commissioned by January 2004, 2007 and 2011. An important condition set out in the notice was that the fuel option was kept open, to be one of heavy fuel oil, natural gas, coal, gas oil, and the developer was to identify the site for the project. However, without assigning any reason, the EOI was indefinitely postponed a few days before the closing date.


My first question is who is responsible for this indefinite postponement of the project. Was it a politician or an environmentalist or an insider of CEB?


Energy Supply Committee


An interesting policy development that took place subsequently was Parliament passing a new law called Energy Supply Act, enforced by an Energy Supply Committee, by which country’s environmental laws were suppressed for two years in respect of energy projects. Though several environmental organizations and myself, in my capacity as the General President of the Sri Lanka Association for the Advancement of Science in 2002, expressed concerns about this short-sighted law, it remained in force for two years.


A year later on 29.11.2002, EOIs were again invited, without any reference to the previous call, for the selection of a developer to build 3x300 MW of thermal power plants with the fuel option as coal, with the proviso that if the developer may, if he so desires, propose alternative fuels. This time, the Energy Supply Committee had called the proposals identifying Trincomalee or Hambantota as suitable sites.


Just before the closing date, however, a new press notice appeared on 27.01.2003 limiting the fuel to coal and withdrawing the proviso for alternative fuels. A third press notice appeared on 14 July 2002, extending the closing date to 30 September 2002. But there had been no news as to whether the matter was pursued thereafter or not.


My second question is a) who was responsible for withdrawing the fuel option other than coal in this EOI? b) Was it a politician, environmentalist or an insider, and c) was it done because someone was scared the other fuel options could have been cheaper than coal?


Invitation for pre-qualifying


individuals


A year later, for the third time, on 21.08.2003, the Energy Supply Committee called applications from pre-qualifying parties, for the supply of an around 300 MW of coal power project and associated infrastructure on a BOO basis. An interesting feature in this notice was that the developer could be any party from any country, with or without a domestic partner, and the party could be a company, corporation, firm, joint venture or other entity (?).


Applications which were to be submitted to the Secretary to the Ministry of P&E, closed on 30.09.2003, and as in previous cases, nothing was heard about any outcome.


My third question is was it a politician or an environmentalist who blocked this attempt to purchase a power plant in a transparent manner?


Fourth call for EOI for 1200 MW coal plant


After having called proposals for thermal power plants on three occasions, without taking any action to assess the proposals and select a suitable supplier based on these proposals, in 2005, former President Kumaratunga visited China accompanied by the then General Manager of CEB, and agreed to purchase a coal power plant offered by the Chinese Government. Wasn’t this a total violation of tender procedures which was mandatory for any purchase by the government? Viewers may also recall her allegations with regard to the amounts agreed upon.


A fourth Call for EOIs for a 4x300 MW coal power plant was advertised on 14.1.2006, this time by CEB itself, to be built on the southern coast around Hambantota as a BOO project. At least in this case, the applicants had to have prior experience in building power plants of capacity not less than 200 MW rather than individuals, and the applications were received by the CEB General Manager. However, this too appears to have suffered the same fate as the previous three calls, because any follow up action was not made public.


Rotating stakeholders?


A new coal power plant has a specific cost of about USD 1,500 per kW, and therefore a 900 MW plant will cost around USD 1,350 million or LKR 135 billion in 2005 when 1 USD fetched LKR 100 then. An accredited agent generally gets about 10-15% commission (or even higher) for which he is expected to provide after sales service and maintenance of the plant and is responsible for its satisfactory operation.


However, with the high stakes involved in the order of LKR 15-20 billion just on commissions, obviously many within the government were eyeing this. In today’s context, the commission alone will be in the order of LKR 23-30 billion. Otherwise, what was the reason for changing the bidders from reputed suppliers to any individual and keep on cancelling EOI calls and recalling them?


Also, the authority calling proposals has been rotating, from the Treasury to the Ministry to Energy Supply Committee and to the CEB. It appears that everyone wanted a say in the decision making process of buying a LKR 135-150 billion piece of equipment. The reasons are quite obvious. At the end of the day, these appear to be the driving force behind these purchases, not technical concerns or environmental concerns, but the benefits to those in the system.


I must also add that the cancellation of proposals for power plants four times would have brought much disrepute to the country. There are only a handful of reputed manufacturers of thermal power plants in the world, and they would have spent an enormous sum of money to visit the country and submit proposals, in addition to paying for bid documents and providing bank guarantees etc. When they realize that the Sri Lankan authorities are just playing a game without being serious, would they take any future calls for proposals from Sri Lanka seriously?


Cheap electricity from natural gas


Had the government pursued the very first call for EOI announced in 2001 with fuel option open, and assessed proposals received for coal along with proposals for other fuels such liquefied natural gas (LNG) in respect of both financial terms and environmental benefits, I am certain that the latter would have scored high, exposing the myth that LNG is an expensive option. The CEB had to wait till 2015 to realize that when realistic externalities are included, coal power plants will have to be replaced by LNG power plants as described in its latest LTGE Plan 2015-34.


An analysis done by the writer recently shows that even disregarding the externalities, under prevailing costs of power plants and natural gas prices in neighboring countries, the levelized cost of electricity (LCE) generation from natural gas is cheaper than with coal. The LCE from the Sampur plant, without externalities will be US cts/kWh 9.24, and from LNG plant will be UScts/kWh 8.33, and when externalities are added, these will be US cts/kWh 16.93 and 8.76, respectively. These computations were carried out using plant performance given in the CEB LTGE Plan 2015, except the prices for gas and terminals which were taken from literature available on the web.


Party responsible for the current situation


I hope NP will accede to my request in naming the person responsible for indefinitely postponing the EOIs and limiting them to coal only, without making them open to any fuel, because he has to bear the full responsibility for the current situation in respect of poor performance of the Chinese coal plant, and causing much damage to the environment when there were better options which the government was unable to consider because of his short-sighted action.


In this regard, we cannot put the entire blame on the CEB. The entire system, including the Ministry of P&E and the Treasury are equally responsible for this poor show by the country. When the financial regulations insist that the government or semi-government organizations need to follow strict tender procedures, what was the reason for bypassing these procedures altogether, making a purchase amounting to several hundreds of billions of rupees without any financial or technical evaluation of any sort of the products offered?


Sri Lanka being taken for a ride


Is it because our professionals and decision makers do not have the competence to evaluate the suitability of these power plants and make a selection meeting their specifications, or are they under pressure to accept whatever a third party offers for other reasons? Norochcholai was the first. The second is Sampur, where the Indians twisted our arms to accept a coal plant of their choice which is even inferior to the Norochcholai plant, according to its EIA report. A third is on the way from Japan, again a plant of their choice and not ours. In all these cases, Sri Lanka has been taken for a ride, sadly with the connivance of our decision makers.


Before anyone in the electricity sector tries to blame the environmentalists for delaying power projects, they should look inwards and see for themselves whether they have done their part right. From the foregoing it becomes obvious that the environmentalists had no say in cancelling calls for EOIs not once, but three times, or withdrawing the non-coal options which were the main reasons for the current situation in the electricity sector.


 
 
 
 
 
 
 
 
 
 
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