No tariff revision in the near future :

Making CEB a viable commercial entity, my aim - Power and Energy Minister

By Manjula Fernando

Power and Energy Minister Champika Ranawaka speaks his heart out on the CEB’s threefold crisis and his short, medium and long-term plans to overcome the challenge of providing ‘cheap electricity’ in Sri Lanka. He avowed “We will reform this as a viable commercial entity.”

Q: Will there be any immediate relief to electricity consumers in the near future to ease the cost of living?

A: The electricity bill is under the purview of the Public Utility Commission now. The CEB alone can’t increase or decrease the electricity tariff.

The CEB’s total cost per unit - including the generation cost, transmission cost and the distribution cost is about Rs. 17.51. We are charging only Rs. 13. We are running at a deficit of nearly Rs. 4.50. Our direct loss this year would be Rs. 40 billion.

Therefore, I must frankly say that, at this stage, however, we are not in a position to reduce the electricity tariff.

But for the low income group the electricity tariff per unit will be just 4 rupees. It is the lowest rate in this part of the world.

Q: Any idea to do away with the fuel adjustment charge?

A: Fuel adjustment charge was imposed in 2008 because of the high fuel prices.

As you know 65 per cent of our national grid is generated by thermal plants. We are heavily dependent on liquid fuel. Due to the Treasury’s intervention the Ceylon Petroleum Corporation is supplying fuel at a subsidized price to the CEB. Still our short-term debt to CPC is about Rs. 55 billion. Therefore we need to retain the fuel adjustment charge, but it is only imposed on the hotel and commercial sector. We will not apply it to industrial sector and householders are also exempted.

Q: How do you assess the current plight of the CEB?

A; As far as the CEB is concerned today it faces three inter-connected crises; a technical crisis, financial crisis and a socio structural crisis. Due to the technical crisis our power sector faces some form of instability. This is created by ad-hoc power injections. If there is some natural calamity like lightning to high tension cables, there is the danger of a total blackout.

My first priority is to upgrade our system and increase its reliability and stability. My second step will be to come out of this gigantic financial crisis. Our operational loss this year is Rs. 40 billion. Our total expenditure per annum is about Rs. 159 billion out of which Rs. 127 billion is the generation cost. Nearly 90 per cent of this amount is paid to the CPC and a huge amount for independent power producers.

Our annual revenue is about Rs. 119 billion, which means we are incurring a loss of nearly Rs. 40 billion. We need an additional Rs. 25 billion to run this institution, for maintenance, wages and salaries, etc. For the upkeep of transmission lines alone we need Rs.7 billion each year.

It is not a secret that the CEB is facing a serious debt crisis. Our loss for the past ten years is about Rs. 148 billion.

The expected loss for the next decade will be Rs. 391 billion. I can’t simply run this institution like this. Also, our short-term loan component is Rs. 161 billion. This is nearly 140 per cent of our annual revenue.

We have to fix this. Unless we take immediate action, soon we will have to declare bankruptcy.

Q: How do you propose to overcome this crisis?

A: First of all, we are trying to change our power generation plan. Re-negotiate the conditions with the IPP (Independent Power Producer) and also the duration to pay back our dues - It takes two and a half months for the CEB to receive payments from consumers. So we need at least three months to pay back our dues. We will be talking to the CPC and our other debters. Under the present agreement we have to pay the IPP within one month. This is the principal reason why we face such a huge cash problem.

We are trying to re-mix our generation cost as well, so that we can reduce our fuel bill. Talks are on to have a fixed rate from the CPC so that we can predict our future cash flows. There are also moves to re-schedule our debt repayment plan. Cutting back on our own expenditure is also on the cards.

The CEB is also trying to optimize the generation plan and my aim via all these efforts is to introduce a customer-oriented service. For example a call centre will established shortly where customers can contact the CEB to inform about problems and offer various suggestions.

Q: There is an allegation that it is unfair on the part of taxpayers, to get the Treasury to settle CEB bills since only 85 per cent of the householders currently have power?

A; I agree, the electricity bill should be paid by electricity consumers. The Rs.40 billion loss to the CEB means each consumer must pay an additional Rs. 2,000 to the Treasury. That means we are selling our electricity at a subsidized rate. The treasury has been compelled to meet the loss. To do that it has to impose various taxes. This means those who are not using electricity are also compelled to bear the burden.

This crisis is due to bad decisions of the management, especially during 1999 to 2000. This was the period when grave mistakes that would ultimately drag the CEB to its current predicament was made. A Power Generation plan was not implemented as planned. The outrageous IPP was introduced at that time. This was a financial trap and an economic hit-man. Serious economic hit men were introduced to the energy field during this time. That is the principal reason why we are entrapped in this debt cycle.

During Marcos’ time in the Philippines several American companies were introduced to supply energy. The same companies were invited here. At the time the electricity tariff was Rs. 4.60. These hit men outright raised the tariff to Rs. 12. Our total revenue now is Rs. 119 billion, out of this

Rs. 87 billion goes to these eleven companies. Every operation in the CEB has been outsourced.

This liquidation process was started during J. R. Jayewardene’s period. This bad precedent was created under the accelerated Mahaweli Project. All the consultancies and construction work were done by foreign agents. That practice is still remains within the CEB structure. Every work has been simply outsourced; transmission construction, constructing electricity plants and even simple clerical work!

This is why the CEB is facing a serious socio and structural problem. Skilled engineers and technicians are no more there. There is no capacity to do anything within the CEB.

We will definitely change this. There is an urgent need to upgrade our capacity.

Q: Do you think it is an easy task to change this set up?

A: We have outsourced our projects to foreign companies. They have simply sub-contracted their projects to local companies. Why can’t we directly contact local companies instead of going through a third-party? Our aim is to do away with these economic hit men.

Q: How can we be sure that these are not just mere words?

A: We have already put together three plans. One is a six-month plan which will be introduced from June 1 this year. It’s a customer-oriented plan. From January 1, 2010 we will be implementing our medium-term action plan. The long-term generation plan will also be introduced in January.

We are now reviewing our corporate plan and the long-term generation plan. By reassessing these we hope to bring in much needed amendments and changes to revive the CEB. A new corporate plan for the CEB as well as the Sustainable Energy Authority and the Atomic Energy Authority will be introduced. My aim is to achieve a break-even target within a five year period.

Q: We used to experience power cuts during the dry season. But now there are power cuts during the rainy season as well? The CEB last week cut power supply to some areas in Colombo North and Kelaniya attributing it to floods.

A: The problem is that in Colombo the power is supplied through under ground cables. Thus there are substations.

When a substation gets inundated, the entire area gets affected, if there is a leakage. The conductivity of the water is very high. Everyone who gets into contact with water could get electrocuted. To prevent such a calamity, there is no option but to shut down the substation.There should be a permanent solution to the flash flooding every time there is a downpour. Because of the climate change and polarization we are going to experience such weather patterns more and more in the future.

Q: Is there a proposal to list the CEB in the Colombo Stock Exchange?

A: No. There is not.

Q: But was there a move by the earlier administration?

A: Yes. But I would not discuss that. We will reform this institution as a viable commercial entity.

Q: You are an environmentalist. What do you feel about the coal power generation in a green country like Sri Lanka?

A: Yes the emission level in coal power is comparatively very high. There are two coal power plants under construction; one in Norochcholai and the other in Sampur. By January next year the Norochcholai plant will be completed. The result will be cheaper power.

As far as Sri Lanka is concerned, we are a low emission level country, with per capita emission level at about 600kg.

This is well below the environmental permissible level set by IPCC which is about 2,100 kg per person. Of course there are other problems connected to coal power generation. But the issue is that we have no other source to meet our huge demand. By injecting coal power to the national grid the CEB is in a position to supply cheap power to our consumers. Our main concern at the moment is that - reducing the electricity bill as soon as possible.

We are seriously contemplating projects to tap renewable energy sources as well. An action plan to expedite renewable energy sources will be introduced shortly. My aim is to lay a concrete foundation in this regard. Bio mass, wind power and solar power will be the alternative sources we are contemplating to generate power. The possibility of using Geo Thermal energy will also be explored.