Subsidies for low-end consumers intact, High-end consumers out:

Norochcholai's third phase to ease burden by April 2014

By Manjula Fernando

Regretting the cheap political tactics of the Opposition the UNP and the JVP who are exploiting the CEB tariff revision as a political weapon to win their lost vote, CEB Chairman W.B. Ganegala said even after the revised bill his institution will incur a loss of Rs. 26,000 million per annum by subsidising power for low-end consumers.

Excerpts of the interview:

W.B. Ganegala

Politicians have made many baseless allegations and exaggerated facts about the revised electricity tariff. As a layman I too would have believed their words.

As required by the law the request to the Public Utilities Commission of Sri Lanka (PUCSL) for a tariff revision was submitted on March 7. The PUCSL is the regulatory authority, we requested the body to consider a tariff hike as the losses incurred by the CEB was turning unbearable and also because the Ceylon Petroleum Corporation was demanding due payments. We produce electricity at a higher rate and sell it to the consumer at a lower rate. There is a huge gap between cost and income due to the subsidy given to low income groups.

Power generation was hundred percent dependent on hydro power. But this has changed since. Now only 25 - 30 percent of energy is generated using hydro power.

The rest is from high cost petroleum products and coal. The total annual expenditure of the CEB amounts to Rs. 256 billion but the annual income is only Rs. 178 billion.

Of the total expenditure, Rs. 198 billion is consumed by the costs for petroleum products and for purchasing coal. This is equivalent to 75 percent of the total expenditurer.

The gap between income and cost is a staggering Rs. 78 billion. In the backdrop of repayment demands by the People's Bank and the CPC we were in urgent need to somehow bridge this gap or at least to lessen the gap. This has been the situation for the past so many decades. Since the setting up of the CEB in 1969, consecutive Governments have been subsidising the electricity bill to help the under-privileged.

It has come to a stage where the CEB can no longer put off paying back loans to the People's Bank, Ceylon Petroleum Corporation and the Independent Power Producers (IPPs).

We have to pay Rs. 42 billion to the Bank, Rs. 21 billion to IPPs and Rs. 17.4 billion to the CPC. We expect to generate about Rs. 45 billion from this proposed tariff increase. The balance will be managed by internal financial arrangements.

Once the proposal was handed over to the PUCSL, it gave three weeks for the public to make submissions, until March 28. About 260 written submissions were received in response to this call. Then a public consultation process was organised by the PUCSL on April 4.

CEB representatives were also present at this event. We resubmitted our proposal there and the session went on till about 8.30 pm. Many interested parties and individuals including professors, political party representatives, religious leaders, trade unions, NGOs presented their views at the consultations. Most of the speakers objected to the methodology of the tariff revision but acknowledged the fact that there should be an increase in the tariff structure. The common agreement was that the price should be cost reflective.

After all these consultations the PUCSL approved the CEB proposal with some amendments. The new tariff structure is effective from April 20.

Briefly this is the background. Those who criticise the new tariffs claim that it has put an unbearable burden on low-end consumers, while protecting the rich and affluent. One may feel that this is true on the face of it but if an in-depth analysis is made you will realise how the Government is struggling to retain the subsidy for low-end consumers.

Even after the tariff revision, the CEB will incur a loss of Rs. 26,000 million per annum due to subsidies to consumers who remain using less than 90 units. Why can't the critics of the CEB and the opposition at least give some credit to this fact.

After the tariff revision is effected, consumers in the categories of below 30 units, 60 units and 90 units will have their bills increased by only Rs. 75, Rs. 104.20 and 432.60 respectively. It is true that the percentage of increase is high but as far as real figures are concerned it is a nominal increase. This is there for everyone to see.

Even after the tariff revision the CEB will incur a loss of Rs.3.5 billion to provide electricity for 1.1 million households who consume below 30 units, the loss to subsidise electricity to the next category that is between 31 - 60 units, will be Rs. 11 billion. There are 1.3 million consumers in this group. Likewise the CEB will bear up a loss of Rs. 12 billion to subsidise power to 1.2 million households that use less than 90 units. Critics should also talk about these figures.

The total cost to produce one unit of power at the current rate is Rs. 23.30. The CEB for the first category of consumers bears up Rs.699 of the total bill while consumers get billed only Rs. 217. In the second category the Government pays up Rs. 1,398 while consumers are required to pay Rs. 546. The third category of consumers pay Rs. 1161 while the subsidy costs Rs. 2097 to the Government.

The JVP and other bankrupt political players who have been rejected by the people are trying to mislead the masses about the tariff revision in a bid to win them over. Their intention is to create chaos and gain political mileage.

Another popular allegation of our critics is that if you consume one unit more than 90, the increase in the bill is Rs. 1000. This structure has been made to discourage the overuse of electricity. The formula that we have used is such, it increases according to a 'block system'.

If we did not go for a power tariff hike, the other option we had is to impose power cuts but we did not want to do that instead we will maintain an uninterrupted power supply but it will come with a revised tariff. In the case of state imposed power cuts, the rich and affluent can afford generators or other alternative sources like inverters to enjoy uninterrupted power, only the poor will once again be affected. Therefore, we will continue to buy from expensive IPPs until the Sampur plant and Norochcholai Phase II and III are completed.

I will quote the unit price for some of the high-end consumers, to enable you to make out a simple comparison. The consumers in 121 - 180 unit category the increase per unit will be from Rs. 21.40 to Rs. 35.35. For them the power does not come at a subsidised rate. For 181 - 210 units, the increase is from Rs. 25.54 to Rs. 37.90. Therefore it is further from truth to say that the burden is on the low end consumers alone.

As far as the allegation of buying energy from expensive sources, there has been a total of 12 such agreements with IPPs entered into by earlier regimes on a policy decision reached in 1993. The CEB has retained services on competitive bidding. The prices were determined by the volatile situation in the country at the time due to terrorism.

These agreements were for less than 20 years and already four of such agreements reached term and have been discontinued. Four such private plants have already been closed. Others will also be closed shortly.

It is true that some of their rates are higher than the CEB. We will not entertain any such expensive private participation in the future. We are concentrating more on coal power, alternative energy sources and mini hydro power projects.

We are looking into the possibility of renegotiating the existing expensive IPPs. I am hoping to study these legal documents and explore what the CEB could do to bring down the prices and if there is legal means to alter the original agreements.

We have almost completed the negotiations for the Sampur power plant. The CEB and its Indian counterpart will sign the agreements in two months. We need time to get Cabinet approval for the agreement. Thereafter, constructions will be commence. The target is to add 500 MW to the National Grid in 2016.

Despite the allegations the Norochcholai coal power plant works at maximum capacity. It gets tripped off sometimes but that is to be expected and is not a major fault. The second phase of Norochcholai will be completed this year and it will lessen the burden on the CEB to a great extent. We hope to commence the third phase by December.

Japan has expressed willingness to assist Sri Lanka in establishing a hi-tech, coal power plant in the south of the country. This will be an environment friendly, low cost coal power plant to replace the high cost fuel generators.

The CEB Engineers travelled to Japan and made inspections. These plants use ultra modern technology and until you set foot inside, none can believe its a power plant. On top of the burners there is a hotel. This is a concept that CEB is very much interested in and hopefully there will be discussions between Japan and our counterparts soon.

The CEB expects a lesser burden on the consumer once the Norochcholai 2nd and 3rd phases are completed at the end of this year and April next year.

I don't think there is any truth in the accusations that the CEB is secretive about the losses it has incurred. Whatever the losses that have been incurred have been published in our annual report, I agree that there are some shortcomings and delays in the reports. Annually these reports are submitted to Auditor General's Department and to the COPE. I have the minutes of the COPE meeting held on November 19, 2012. There have been many suggestions on the CEB corporate plan, HR division but no serious allegations have been levelled about the finances.