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Finance Ministry rejects power ministry’s plans to extend deals with three companies
The Finance Ministry has rejected the extension of agreements with three furnace-oil fuelled private power plants based on a Power Ministry Cabinet paper that had inflated the price per kilowatt hour.
The relevant Cabinet paper has also wrongly called the three plants–Ace Power Embilipitiya, Ace Power Matara and Asia Power–“auto-diesel fired” when they run on furnace oil. The discrepancy is significant as furnace oil costs Rs 70 per litre while auto-diesel is Rs 96 per litre.
Power sector sources this week expressed concern that facts were misrepresented to fix procurements in favour of costly diesel-fired emergency power. Independent power producers (IPPs) are distinct from emergency or “supplementary power” producers. The latter comes in generators and can be set up anywhere. The IPPs are fixed on ground engines.
The three IPPs that together produce 170 megawatts (mw) for the national grid are due to be disconnected in April next year. But a Ceylon Electricity Board (CEB) board in September recommended its extension on technical and financial grounds.
“Energy costs of these plants as per latest fuel prices are Rs 19.41, Rs 19.81, and Rs 19.95 respectively per kilowatt hour (kWh),” the Board paper said. “This price is significantly lower than auto diesel power plants, for those the fuel cost is generally above Rs 25.00 per kWh.”
Despite this, the CEB on Thursday signed letters of intent for an extra 130mw of auto diesel-fired emergency power. The commitment violates the “least cost principle” enshrined in the Sri Lanka Electricity Act which requires electricity to be supplied to consumers at the lowest possible cost.
In his comments on the Power Ministry’s Cabinet paper in October, Finance Minister and Prime Minister Mahinda Rajapaksa has disagreed with a proposal to direct the CEB to obtain regulator permission to negotiate the extension of the power purchase agreements (PPAs) with the three IPPs till 2023.
But the Cabinet memorandum on which his response is based contradicts the information and tariffs stated in the CEB Board paper. The Sunday Times has seen both documents.
The CEB Board points out that a 2019 contract with Asia Power allows the CEB to lengthen it by another year–at the CEB’s sole discretion but with mutual agreement–and also to acquire the facility for one US dollar at the end of it.
Thus, the fixed cost component of Asia Power would be lower than at present for the extended period if the contract is renewed till 2023, the Board says. “Further, if negotiations are carried out early (while CEB has other options at hand), the capacity (fixed) cost of other two IPPs too could be lowered for the three-year extension envisaged (until 2023),” it points out.
Apart from the 170mw from the three IPPs, the Board paper envisages meeting the country’s anticipated electricity shortfall with a further 130mw from auto-diesel fired engine-based power plants. Each would have a capacity of 24mw or less and be placed at different grid locations. The contracts would be for one year, with option to renew.
The Power Ministry’s subsequent Cabinet memorandum refers to the three IPPs as “auto diesel fired supplementary capacities” in the first instant. But elsewhere, it correctly calls them “furnace oil fired plants”. The bigger issues, however, are in a table which cites the total cost per unit of electricity produced by the IPPs as being far higher than it is.
The memo then compares these inflated prices with a recent unsolicited proposal by US companies M/s New Fortress and General Electric (GE) for a liquefied natural gas (LNG) venture to generate emergency power at, reportedly, US$ 0.099 (Rs 17.09) per kWh.
The US companies claim they could install 100-150mw in two to three months–a proposition most sector experts interviewed said was “impossible”. There has been neither a full proposal from the US parties nor progress from the Power Ministry since the initial approach.
Furnace oil is a by-product of the Ceylon Petroleum Corporation’s Sapugaskanda oil refinery and not a direct import. Meanwhile, all three IPPs are already in the CEB’s least cost generation plan.
“From our observations, it seems like this is a manipulation rather than a simple mistake,” an industry source said, requesting anonymity. The IPPs accept they will be needed for only two to three years, he continued. That is because permanent power generation options are now in the pipeline. But if the Cabinet does go for the more expensive diesel-fired emergency power, the loss to the CEB will run into billions, he claimed.
The CEB has also written to the Power Ministry Secretary questioning the Cabinet’s decision not to extend the three IPP contracts.