• Electricity Sector Reform Act and new consolidated Electricity Act being drafted
• Govt. attempting to privatise CEB, say TUs; no such move, says committee 
• All CEB TUs including CEBEU invited to give proposals, only CEBEU didn’t: Dr. Perera 

The process of drafting new legislation for the proposed restructure of the Ceylon Electricity Board (CEB) is expected to be completed by the end of January by a newly-appointed committee comprising senior lawyers and other State officials, The Sunday Morning learns.

It is understood that the new committee will draft two pieces of legislation, namely, the Electricity Sector Reform Act (ESRA) and a new consolidated Electricity Act as recommended by the committee appointed to study and review the ‘scope’ and ‘institutional framework’ laid down in Chapter VI of the Electricity Reform Act No. 28 of 2002 and make recommendations on restructuring the loss-making State-Owned Enterprise (SOE).

Reorganisation 

As per the recommendations mentioned in the report submitted by the committee last month, The Sunday Morning understands that the ESRA is necessary to facilitate the immediate implementation of the proposed reorganisation of the electricity sector, including the separation of the functions of generation, transmission, and distribution and sale of electricity, and setting up the separate and independent successor companies to take over the business of the CEB.

The ESRA will include, inter alia, the provisions for preparing and publishing in the gazette by the minister in charge of the subject of electricity, a scheme for transition and reorganisation of the electricity supply industry (the Transition Plan – TP), and placing the said TP before the Parliament for its information within a period of not more than six weeks of ESRA coming into operation.

ESRA will also provide the mandate to the minister to complete the implementation of the TP, including the setting up of a number of successor entities under the Companies Act No. 7 of 2007 and in terms of the Conversion of Public Corporations or Government-Owned Business Undertakings into Public Companies Act No. 23 of 1987, no later than 12 weeks after the publication of the Transition Plan; and enabling the transfer of debts of the CEB to a separate entity, the form of which shall be decided at the discretion of the secretary to the Treasury.

The act will also include provisions for enabling securities held by the CEB in other entities that shall stand transferred to the secretary to the Treasury in terms of the Conversion of Public Corporations or Government-Owned Business Undertakings into Public Companies Act No. 23 of 1987, to be disposed of in a manner that avoids conflicts of interest through share ownership, and in a manner that is best calculated for the General Treasury to receive the maximum benefits, and further granting the discretion to the secretary to the Treasury to utilise whole or part of those proceeds to set off a portion of the debt currently incurred by the CEB.

Furthermore, the proposed act will also provide the mandate to the secretary to the Treasury to take necessary action to eliminate the dependency of the sector on Government subsidies within the shortest possible time, including by encouraging public ownership through stock market listing, seeking strategic partners to invest in the appropriate successor entities, and enabling the assignment of Power Purchase Agreements (PPAa) and other such contracts entered into with the CEB to the relevant successor entity.

As recommended by the restructuring committee, it is also proposed to amend the Sri Lanka Electricity Act No. 20 of 2009 to ensure harmonisation with proposals as contained in the ESRA.

Accordingly, Sections 9, 13, 16 (b), 16, 17, 18, 30, 43, 24, 25 (3), and 39 have been recommended to be amended by the committee. The committee is of the view that for the required reforms to be successful and usher in a change of culture, unbundling, corporatisation, and commercialisation must be undertaken as a single package.

Six independent companies

The committee has recommended six independent companies to take over the business of CEB’s generation division, comprising the Laxapana Hydro Power Complex, Mahaweli Hydro Power Complex, Samanalawewa, other hydropower plants, the Norochcholai Coal Power Plant, oil-fired thermal plants owned by the CEB (Kelanitissa, Sapugaskanda, Barge, etc.), and the Mannar Wind Power Park. 

In deciding the policy with regard to the ownership of these six companies, the committee recommends that due regard be given to the multiple uses of water resources governed under different legal regimes including the Mahaweli Authority of Sri Lanka Act No. 23 of 1979 and the Irrigation Ordinance No. 32 of 1946.

It is further proposed to establish two separate entities under the Companies Act No. 7 of 2007 as follows: “one company to act as the custodian trustee and to manage the CEB provident fund and CEB pension fund of the employees opting to take up employment in the successor entities discussed above” and “one company to take over those functions and activities of the CEB other than those entrusted to the successor companies under those above”.

Legally unbundling the businesses of generation, transmission, and distribution of electricity under independent boards of directors would increase transparency as the separate functions would develop auditable, independent financial statements and transactions governed by legal contracts. Further, tariff determination by the Public Utilities Commission of Sri Lanka (PUCSL) would be direct and transparent, largely helped by the separate financial statements and the ease of determination of a reasonable rate of return based on the specific risk profiles of the businesses.

A cost-reflective tariff is already ensured under law, but the issue has been the failure of the sector institutions to respond to this requirement commercially. Therefore, it is proposed to strengthen the legal provisions for implementing a cost-reflective tariff and adhere to the published tariff methodology for revising tariffs. 

“A tariff setting founded on the principles and assumptions of cost recovery and financial viability of all independent entities will be a prerequisite for attracting investments to the power sector. A tariff will ensure efficient use of the network, fair allocation of risks, and provide incentives for improving performance, transparency, and fairness, as well as adherence to prudent expenditure by the licensees.”

The total debt of the CEB as of 31 August 2022 had soared to approximately Rs. 333.5 billion ($ 904 million), comprising payments (in both foreign currency and LKR) owed to suppliers of goods and services and outstanding payments for fuel and energy purchases (coal, LPG IPPs, and renewable-based energy producers) amounting to Rs. 796.2 billion ($ 532 million), and outstanding loans (commercial banks and LECO) amounting to Rs. 132.3 billion ($ 372 million).

Privatisation

Meanwhile, Trade Unions (TUs) attached to the CEB alleged that the Government was attempting to privatise the CEB and sell off the power plants and other components of the board consecutively in search of immediate cash.

Speaking to The Sunday Morning, Lanka Viduli Sevaka Sangamaya (LVSS) General Secretary Ranjan Jayalal alleged that several investors from Korea who were recently in Sri Lanka had inspected hydropower plants.

“The Government is desperately looking for money. It wants immediate cash and it is trying to solve the issues it is facing now. That’s why it is attempting to sell power pants,” Jayalal said.     

However, former Additional General Manager (Transmission) of the CEB and member of the Cabinet-appointed committee Dr. M.N. Susantha Perera said the committee had made no recommendations with regard to the privatisation of the CEB.

“Such recommendations were beyond the committee’s mandate. The committee has recommended the appropriate organisational structure for the electricity industry (based on Chapter VI of the Electricity Reform Act No. 28 of 2002) that would enable independent regulatory action and provide an environment conducive to attracting funds for its infrastructure development needs,” Dr. Perera said.

He explained that the legal position was that the proposed independent entities would be wholly owned by the Government upon their formation under the Companies Act, as all assets transferred to those companies were presently owned by the Government and what the Government may decide afterwards was a matter of Government policy.

He said the formation of several companies to handle generation assets owned by the CEB presently was a logical step, considering that each generation entity would sell electricity to the transmission operator on individual agreements – similar to present PPAs of Independent Power Producers (IPPs).

“All trade unions in the CEB, including the Ceylon Electricity Board Engineers’ Union (CEBEU), were invited by the Ministry of Power and Energy to present their views to the committee in September. All trade unions except the CEBEU presented their views at this meeting (the committee met each TU separately). The two CEBEU representatives informed the committee that the time allocated for them was not sufficient and agreed to provide a detailed report, which they claimed had been prepared by a special committee of the CEBEU headed by CEB Deputy General Manager Ronald Comester – soon to be an Additional General Manager of the CEB.

“However, no such report was submitted by the CEBEU until the committee had finalised and submitted its report on 20 November 2022. In addition to the TUs, CEB management (corporate management team) comprising all AGMs and FM made a presentation to the committee and submitted its report on the subject. The Institution of Engineers Sri Lanka (IESL) also made a similar presentation and submitted its report as well. We considered all views presented to the committee when preparing our report,” Dr. Perera added.