Electricity is not just Arithmetic, Sir!
View(s):By Chandrasena Maliyadde,
Former Secretary, Ministry of Plan
Implementation
There were several articles on electricity in the newspapers recently. They were mainly focused on electricity costs and prices. Most of these articles were authored by experts on electricity. I am not an expert in any sense and only a consumer of electricity. Yet, I am told that the consumer is the king. So, with an elated mood I feel like a king and decided to share my royal feelings and pride. After all, survival and/or the sustainability of the electricity industry do not depend on experts but on consumers.
One expert has labouriously explained the cost and price of electricity and concluded that electricity is a matter of arithmetic. He ended up his article titled “Talk sense about electricity costs and prices” with a warning … “Do your Arithmetic”. The article contained several additions and subtractions. This reminded me of my Grade 3 teacher who taught my arithmetic. If electricity is a matter of arithmetic, I wonder whether all these Ministers, officials, experts and a large number of institutions maintained by the public (2013 estimates provides a staggering sum of Rs.28.6 billion under the Ministry of Power) are required to do the arithmetic. My Grade 3 teacher would do a much better job and will be very cost effective.
These days many arguments are being waged for and against the electricity tariff revision. Advisors and officials of the Ministry sans the Minister (I am told that a prize awaits for the person who would locate the Minister) and the Ceylon Electricity Board (CEB) argue that cost of electricity is rising and that CEB can no longer provide subsidized electricity. On the other hand, another group argues that the cost of electricity is high due to corruption, bribery, mismanagement and inefficiency. I am not competent and also have no intention to tire the reader by discussing corruption and bribery. Those who are interested can refer to many a report published by COPE, Auditor General and the media. They are in the public domain.
Electricity in Sri Lanka is currently being generated using two primary sources; thermal power (which includes energy from biomass, coal, and all other fuel-oil sources) and hydro power. Hydroelectricity is the oldest and most dependant source of electricity generation in Sri Lanka, taking a share of nearly 45 per cent of the total available grid capacity. First generation of power stations at Laxapana, Castlereagh and Moussakele were built before the establishment of the CEB. At the time it was the Electricity Department. The entire capital investment cost of these reservoirs and power plants were borne by the General Treasury. Power stations built with Government funds were transferred as assets to the CEB which has to bear the Operations and Maintenance (O&M) cost only. The next generation of power plants is served by reservoirs built with Mahaveli water. These reservoirs are operated and maintained by the Mahaveli Authority. Does the CEB pay for O&M? I inquired from Ministry of Irrigation and Water Resources Management. The answer was ‘not a single cent’ and ‘never’. In fact the matter had been taken up with the CEB on many occasions but without success. So, when it comes to hydropower, the CEB has to bear only the O&M cost of its power plants.
The Minister of Petroleum Industries has stated a few days ago that the Ceylon Petroleum Corporation (CPC) is unable to supply oil to the CEB any more as the latter has not settled staggering bills amounting to billions of rupees. Its inability to pay for oil reflects the fact that the CEB gets the other input – oil free of charge as well. In practice, both sources of input of electricity generation (water and oil) are virtually free to the CEB. In this scenario one would wonder whether the stated cost or the arithmetic is correct.
Moreover, all electricity projects are funded with foreign assistance. They are negotiated and repaid by the Government and not by the CEB. The late Anuruddha Ratwatte, Minister of Power and Energy once made a presentation (prepared by the CEB) before the President on the cost of electricity. He stated that the CEB cost of production is the lowest and no private entity could produce electricity at a lower cost. In his comparison he applied the concessionary interest rate (nominal service charge) attached to donor assistance. I humbly pointed out that the cost of production between the CEB and a private entity cannot be compared using two different interest rates. I suggested that the market rate should be applied. The late Minister, unlike the Ministers today, agreed and thanked me.
The CEB gets millions of rupees from the Decentralized Budget and Provincial Councils for expansion of rural electrification. This is an additional source of cash inflow and more than that it is free funds to the CEB. Bulk of the rural electrification projects are fully financed by these funds. Capital cost is borne by these sources and the CEB is benefitted by additional sources of revenue. More often than not, there is an inordinate delay in providing connections to villages. This results in the money, allocated for this purpose, being unutilized for years in banks and in generating additional source of revenue to CEB through interest earnings. I wonder how much of these go into arithmetic.
There is a Ministry for the subject of Power headed by a Minister and assisted by a Deputy Minister and an army of officials. Then there is the CEB with another battalion of officials and professionals. I have not included advisors, experts and some others in this list. Public funds allocated for the maintenance of the Ministry and the CEB in the form of overheads, remuneration and some capital and recurrent expenditure are not reflected in the cost of electricity production. When one argues that the private sector cannot produce electricity at a cost lower than that of CEB, arithmetic teaches us that this expenditure should be built into the CEB cost structure.
The Mahinda Chinthana places heavy emphasis on promotion of renewable energy. The CEB insists that renewable energy producers connect their output to national grid. I cannot understand why? Renewable energy can be supplied in the location where it is generated. I spent my childhood days on a tea estate in Kandy. I can still remember that estate generated all its energy requirements using water streams flowing all over the estate and bio-gas using the refuse generated by its dairy farm. What was possible then should be more feasible today with the advance technology. Further, the CEB spends a fairly large amount in taking electricity to rural areas. I believe this is what is called ‘wire’ part in the electricity jargon. These costs could be saved by promoting renewable energy generation in rural areas.
The CEB is, however, reluctant to promote renewable energy on two main counts. One is ‘high cost’ of production compelling CEB to purchase electricity from the private sector at a high price. The second reason is the ‘irregularity’ of power supply by the private sector. The CEB argues that the renewable energy producers do not guarantee continues supply and it will cause difficulties to the CEB. The two reasons cited by the CEB are equally or more applicable to the CEB itself. What is more important as a national priority is not what the Mahinda Chinthana says or exploiting foreign exchange saving environmental friendly local natural resources for electricity generation but the convenience of the CEB and its officials.
Even if electricity is boiled down to arithmetic we can see that simple arithmetic does not work. Electricity goes much beyond arithmetic. Electricity is an important input in industry and service sector. Any increase in electricity tariff will have a corresponding proportionate increase in the cost of production. It will have a direct impact upon inflation and export competitiveness. Both consumers and investors will be affected adversely. The entire economy will be affected by any tariff increase. There cannot be anything worse than the CEB believing it could survive at any cost to the economy. It will be a short lived wish. It is time the CEB turns its attention to the Mission Statement of the Ministry of Power:
“to provide electricity for all and to meet the demand for energy services with affordable, reliable, diverse, safe and environmentally acceptable choices for people of Sri Lanka”.
The CEB believes that no one or no sector deserves a subsidy at the expense of the CEB. Agreed, but does the CEB have a moral right to deny s subsidy to its clients when the CEB itself gets free water for its 45 per cent generation of electricity and petroleum on loan facilities and funds from Treasury, donors, DCB and Provincial councils. What is not right for the consumers has become a permanent feature of the CEB.
The tariff revision of the CEB comes with an advice: “Conserve electricity to reduce the electricity bill.” Adhering to the letter, the households who burn 3 bulbs from 6 in the evening till 6 in the morning next day, burn 2 bulbs from 8 in the evening till 5 in the morning next day after the tariff revision. Street lights which burned from 7 in the evening till 5 in the morning next day are now burning for a much longer period. Courtesy CEB, the public burns public bulbs. The CEB has, always, been great in not adhering to its own advice offered to the others. The other day, I was passing a well illuminated office building at Kotte. Bright high watts bulbs helped me to see three large bill boards. One contained a birthday wish by the CEB management to a VVIP. The second was with an advice to switch off unnecessary bulbs; the third was the sign board of CEB.
(The writer can be reached on
Chandra.maliyadde@gmail.com)
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