SL mulls discontinuing private sector-generated power deals
The government is considering discontinuing the purchase of privately-generated power or reducing the purchasing price aimed at cutting current power tariffs by at least 75 per cent through renegotiation of Independent Power Purchase (IPP) contracts, a top official said.
Power and Energy Ministry Secretary M. M. C. Ferdinando told the Business Times that the Ceylon Electricity Board (CEB) Chairman W.B. Ganegala has given an assurance to renegotiate these agreements soon, in response to his request.
He disclosed that the CEB had failed to implement the 2007 Cabinet decision to renegotiate the IPP contracts despite repeated directives issued by him to all previous CEB Chairmen to attend to the matter without delay.
The CEB would have saved billions of rupees by today if it had heeded his directives, he added.
When contacted, CEB chairman W.B.Ganegala said that action will be taken to settle this issue but he declined to make further comments adding that this matter was in existence during the past six years.
Mr. Ferdinando said Treasury Secretary Dr. P. B. Jayasundera wrote to him stating that if the CEB had taken measures to reduce average cost per unit supplied by independent power suppliers, the government could have saved at least Rs. 27 billion per annum during the past four years.
The CEB has been directed to renegotiate the terms and conditions of the Power Purchasing Agreements (PPAs) of seven thermal power plants which are currently in operation and to report the progress to the Ministry.
He said that four out of 11 thermal power plants which have entered into contracts with the CEB are not in operation at present.
The government is considering the possibility of not extending the PPAs with IPPs as and when it comes up for renewal in the future.
The CEB entered into these agreements between 1995 and 2005 and some of the conditions demanded by the private sector were not acceptable, he added.
IPPs are run by several local firms including Aitken Spence and Hemas Power. Some have foreign investors and even the Asian Development Bank as shareholders.
The total installed capacity of these power plants is 782 MWs. Private sector power per one kilowatt hour (Kwh) costs Rs. 22.13 to the CEB which sells it at a subsidized rate of Rs.15.65 to the public, thus incurring a loss, he said
A spokesperson for the IPPs told the Business Times that an IPP is typically paid through a ‘capacity charge’ which contains a fixed profit margin for the capital invested and a usage charge which is mostly a pass-through running cost of burned fuel and lubricants.
IPPs have not been officially informed about a plan to halt the power purchases from the private sector, he said adding that, if this happens, the government would have to pay the capital invested by them in accordance with the agreement.
But Mr. Ferdinando said though the private power plants are allowed to operate under strict and complex agreements, the government could take unilateral action to cancel it any time as private sector power is very expensive.
According to industry sources, several thermal power suppliers are currently exploring the possibilities of relocating their existing plants in a few countries in the African continent.
The Ceylon Electricity Board (CEB) has been buying private power since mid-90s following the introduction of the IPPs to overcome electricity shortages the country was suffering from.
IPPs such as Hemas Power Ltd currently operates a 100 MW thermal power plant, Heladhanavi, a joint venture with Lakdhanavi Ltd, while Aitken Spence operates Ace Power Embilipitiya, Matara and Horana with a capacity of 100 MW, 24 MW and 20 MW, respectively.
The other thermal IPPs include Asia Power, Lakdhanavi, Colombo Power, AES-Kelanitissa (state owned), Aggreko-Chunnakam and West Coast Power.
The PPA of the largest thermal power generating plant in the Aitken Spence group, Ace Power Embilipitiya, with a capacity of 100 MW will expire in 2015.
The PPA between Heladhanavi, a joint venture between the listed Hemas group and state-owned Lakdhanavi and the CEB is set to expire next year.
Follow @timesonlinelk
comments powered by Disqus