With the expediting of the restructuring process of the State-owned Ceylon Electricity Board (CEB) by the Government, concerns have been raised as to whether the ongoing restructuring mechanism will address the issues faced by the power sector, including high electricity tariffs.

At present, the CEB is struggling to meet the country’s energy demand due to a shortage of around 300 MW in the national grid stemming from the delay in commissioning the pre-planned power plants over the past several years.

As a result, the board currently spends billions of rupees for the generation of power from thermal oil in order to meet the country’s energy requirement. The CEB recently introduced a new tariff formula to meet the power cost, which was criticised by many, who claimed that it was unaffordable to a majority of Sri Lankans.

Nevertheless, in a backdrop where people are struggling to pay their electricity bills, concerns have been raised by experts in the field of power and energy as to whether the public will be further burdened by the current restructuring process, especially since once the CEB is divided into separate entities and new companies are formed under the Companies Act, additional costs borne due to the expansion and formation of companies will be passed down to consumers, since the main objective of the restructuring process is to convert the currently loss-making institution into a profit-earning one.

Tariff reduction unlikely

Speaking to The Sunday Morning, a highly-placed source close to the subject said that any future tariff reduction in the electricity sector would be impossible due to the creation of a competitive performance-based environment, as the process was accompanied by millions of other add-ons to safeguard each entity, with additional costs for insurance and legal representation.

“The focus has now been diverted. The general public, a majority of which represents the middle class, expects a tariff reduction. That is why the majority supports CEB reform, but as per the current trend, it is highly doubtful whether the ongoing reforms will address the issues faced by the common people,” the source stressed. 

According to the CEB’s Long Term Generation Expansion Plan (LTGEP) (2023-2042), at present, both the fixed cost and the variable cost of producing and supplying a unit of electricity and losses decide the final cost of electricity supplied at the end user level.

The fixed cost component consists of the fixed generation cost and the costs pertaining to transmission and distribution of electricity, while the variable cost component is mainly determined by the cost of fuel used for thermal generation and the variable energy charge paid to renewable sources.  

It is further stated that due to different hydrological conditions, the thermal dispatch varies and the cost of generating a unit of electricity could vary significantly.

“This could be heavily impacted when market prices of imported fuels that are used to generate from thermal plants fluctuate. Energy generated through renewable sources is also dependent on seasonality and variability by nature. To combat these variations in renewable power generation, grid interventions are needed which involves high capital investment. Generation planning studies are carried out to find the most economical technology mix under various hydrological conditions occurring in different probabilities with varying renewable resource profiles,” the LTGEP states.

The source alleged: “At present, the CEB’s tariff depends on the generation costs. However, when separate companies are established, the tariffs will be decided based on several criteria, which also includes the generation cost. Ideally, these companies should be established under Lanka Electricity Company (LECO), but the restructuring committee doesn’t seem to have an interest in doing so. At the same time, it is imperative to continue compulsory competitive bidding to ensure that the public will be offered the lowest rates.”

Accordingly, the ongoing restructuring process of the CEB had its own defects, the source noted.

The source further revealed that there were issues among the members of the committee appointed to look into the restructuring process, since there had been diverse opinions expressed by various experts on the committee. “Even the members of the same committee do not agree with some of the concerns,” the source said, adding that a number of issues would arise once the CEB was divided into separate entities for generation purposes.

As per the LTGEP, the entire electricity system was owned by the CEB until 1996. Since 1996, the private sector has also participated in the power generation business. The existing generating system in the country had approximately 4,184 MW of installed capacity by December 2021, excluding rooftop solar PV installations, which amounted to approximately 516 MW.  

Further, the LTGEP highlighted that the country’s electricity demand had grown at an average rate of 3.2% during the last five years.

Vehement opposition

Meanwhile, the Public Utilities Commission of Sri Lanka (PUCSL) rang alarm bells over the Government’s attempts to abolish the Ceylon Electricity Board Act and transfer the CEB’s resources to 14 companies established under the Companies Act No.7 of 2007.

Addressing the media last week, PUCSL Chairman Janaka Ratnayake said that a bill had already been drafted by a committee of seven experts. He charged that should the proposals in the relevant draft be implemented, national energy security would be under the control of companies that would take over the Mahaweli, Laxapana, and Uma Oya power plants, other hydro power plants, and all thermal power plants including Norochcholai.

Ratnayake further stressed that the inclusion of the provision that the rivers and reservoirs supplying water to the power plants should be managed according to the priority of the companies that own the hydropower plants, would challenge the rights of the people related to agricultural and drinking water needs.

He claimed that all power plants of the Laxapana Hydroelectric Power Complex would be transferred to another company.

“The hydro power plants including Samanala Wewa, Uma Oya, and Kukuleganga will be transferred to another company. The Norochcholai Power Plant is also to be transferred to another company. In this manner, all power plants belonging to the CEB are to be transferred to six companies. The national transmission system as well as the distribution systems are being broken up into separate companies. 

“The power to purchase electricity will also be transferred to another company. Moreover, the controlling power over the CEB employee welfare fund will also be transferred. It has been proposed that any assets that remain after making such allocations should also be transferred. If this proposal is implemented, it is clear that the energy security of this country will be threatened due to the privatisation of these distribution companies in the future,” Ratnayake said.

As highlighted in the LTGEP, the existing CEB generating system has a substantial share based on hydro power (i.e. 1,383 MW from hydro power out of 3,040 MW of total CEB installed capacity), and approximately 45% of the total existing CEB system capacity is installed in 17 hydro power stations. Further, approximately 33.7% of the total energy demand was met by the major hydro power plants in 2021.

In addition, the majority of the present thermal power generating capacity in the country is owned by the CEB, with a total capacity of 1,554 MW. This includes the Lakvijaya Coal Power Plant of 900 MW, Kelanitissa Gas Turbines of 195 MW, Kelanitissa Combined Cycle Plant of 165 MW, Sapugaskanda Diesel Power Plants of 160 MW, Uthuru Janani Diesel Power Plant of 27 MW, Barge Mounted Plant of 64 MW, and Containerised Emergency Power Plants of 50 MW.

Six independent companies

Nevertheless, as per the report submitted by the committee several months ago for the restructuring of the CEB, it is recommended that six independent companies take over the business of the CEB’s Generation Division and that due regard be paid to the multiple uses of water resources governed under different legal regimes, including the Mahaweli Authority Act No.23 of 1979 and the Irrigation Ordinance No.32 of 1946. 

The Generation Division comprises the Laxapana Hydro Power Complex, Mahaweli Hydro Power Complex, Samanala Wewa, other hydro power plants, Norochcholai Coal Power Plant, oil-fired thermal plants owned by the CEB (Kelanitissa, Sapugaskanda, Barge, etc.), and the Mannar Wind Power Plant.

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 as above”.

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, with outstanding payments for fuel and energy purchases (coal, CPG 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), according to statistics.

Nevertheless, when contacted by The Sunday Morning, Dr. Susantha Perera, a member of the committee appointed to draft guidelines for the new Electricity Act, said the act was currently being drafted and the entire process would be completed by the end of this month. “We expect to present the act to Parliament by the end of this month,” he said.

Ministry denies plans to increase tariffs

Meanwhile, when contacted by The Sunday Morning, CEB Chairman Nalinda Ilangakoon said that he had no involvement in the CEB’s restructuring process and that it was an external mechanism undertaken by the Ministry of Power and Energy through an expert committee. 

Further, a senior official attached to the Ministry of Power and Energy, who is also a member of the CEB restructuring committee and who wished to remain anonymous, told The Sunday Morning that the committee had already submitted a road map to the Cabinet and that the committee was currently working to achieve the milestones mentioned therein. 

Moreover, the official rejected allegations regarding the tariff hike, claiming that all restructuring work was being undertaken to make the CEB a profitable venture and that there was no plan to increase tariffs through a restructuring process.