Short-term policies cause of power crisis

 What is the composition of the council and its mandate?

We would be looking at very serious policy and long-range issues. Although the CEB, CPC and the Ministry of Power and Energy are supposed to cover those issues, they tend to fall between the cracks.

Prof. Munasinghe speaks at a press conference called by Power and Energy Minister, Karu Jayasuriya, where a series of measures on the power situation was announced.

The second reason is a practical one. The present crisis is because we have overlooked the medium and long term - just living day by day for the short term. We are short of energy, we are short of money and we are short of water. Our staff is at a very low morale.

Eight persons who are knowledgeable in the energy sector and reasonably independent will be appointed to the NEC. About half would come from the government and the balance from civil society. From the government one would expect representatives of the power secretary, the CEB, CPC, Treasury - the reason being that a lot of the data that we use in the deliberations would come from those sources and also because the objective of the NEC is policy analysis, policy formulation and recommendation - not implementation.

We will rely on the ministry and the two corporations to implement these proposals and recommendations. Chambers, private sector and civil society will be represented.

The council other than myself has not been appointed we have a power crisis on our hands and we are busy with this problem, which will take some weeks to sort out. After that the council will be set up.

The government is very keen on full transparency. The lack of transparency (in the past) was one of the reasons that we are in the present mess. Nobody understood the gravity of the situation because data was not readily available.

The NEC will publish all their findings promptly and make it available to the public. This information will also be made available to parliament including the opposition through possibly the parliamentary select committee on power and energy.

 What are the energy areas that you are looking at? Water, fuel, power…

We are looking at four sources of energy – fuelwood and non-traditional sources, electricity (hydro and thermal), petroleum (refinery, distribution, pricing) and emerging (renewable) sources like solar, micro energy hydro.

We need to have a comprehensive and integrated plan like what we had in 1985 when I was energy advisor to President J. R. Jayewardene. We developed an energy plan for the country, a ten-year programme.

Institutions like the CEB have their own plans which is quite good but nothing has been done to integrate these with petroleum, coal, the role of LP gas, etc.

We need to have a comprehensive strategy on what to do when one (energy source) goes up and the other comes down.

There are two principal objectives of the national energy strategy. One is to see that the economic needs are met like the government economic targets. Usually if the growth rate of GNP goes up by one percent, the growth rate of energy goes up by maybe 1.2 pct. The growth rate of electricity goes up by 1.5 pct. That is the number one priority as energy is the engine of growth and thus we have to meet the economic needs.

The second priority is the least cost option. We want to find out the cheapest and least costly way of providing power.

The third is security considerations where we should not be over dependent on any particular energy.

We need to use indigenous sources as much as possible like hydropower and fuelwood to reduce our dependence on imported energy.

Another option is to diversify imported fuel. Instead of relying only on oil, it would useful to have coal as an option.

The NEC will be looking at a 15 to 20-year plan. Beyond the ten years we are looking at energy sources like liquefied natural gas (LNG) and emerging technologies that may come up.

LNG is uneconomical at the moment. If economic growth targets like five percent growth are met then we need eight percent growth in power generation. That is about 150 megawatts of capacity, equivalent to the size of the Victoria scheme.

We need to look at all the technology on power generation.

The NEC has a small taskforce and our present emphasis is to solve the power crisis in the next six months. This is not our job but that is the priority - to survive.

Energy unsupplied is the most damaging to the economy. Our estimate is that for industrial and commercial consumers, every unit that they don't get costs them at least 40 rupees per kilowatt hour. It could go up to 100 rupees per kilowatt hour in terms of people who are idle, lost output, damage to raw materials, etc.

The priority is to get out of the shortage situation as soon as possible. In the medium term we have a number of concerns like reforming the energy sector, like restructuring the present monopoly at CEB and CPC in such a way that the number of the services and products can be split into several businesses or profit centres. By this process we can identify the profit centres.

At the moment these are two huge conglomerates. If they are making profits - fine but if there is a loss, it is difficult to track down the loss.

 What about private sector involvement in the energy field?

Reforms include a number of steps. There is restructuring – commercialisation like LECO for instance. In the LECO case, ownership was retained by the government while the management was in private hands. It is working much better than the CEB.

These are the commercialisation steps. Restructuring would mean splitting up the generation companies but under state control in the first instance. You could have the Mahaweli complex, the Laxapana complex under separate companies. You could have a separate company running the transmission systems.

Distribution could be spread to four companies like the four sectors in force for the power cuts much like the LECO-type model of government ownership and private management.

In time a regulator would also have to be appointed.

The other way of private sector involvement is by outsourcing a number of products. Services that the CEB have centralised could be outsourced easily and made more efficient.

 What are the government's short-term options?

The NEC task force has come up with four or five recommendations, which have been announced.

The power cuts will increase to two hours. There is a massive programme to accelerate repairs to existing machines. Several of the gas turbines and thermal power plants are defective with routine maintenance being delayed. We are making an effort to speed up this process.

Units that were not functioning have been revived. One such scheme is the hydro unit of 16 megawatts at Kotmale which has been repaired plus we are going to purchase emergency power. A tender was published some weeks ago seeking such offers.

The emergency power purchased will come into effect only at the end of March because of the normal bidding, procurement process and connecting this power to the national grid.

Unfortunately our calculations show that the crisis will occur in late February. The emergency power will be in place only at the tail end of the crisis. To meet the crisis head on we need to go for the B option that is buying captive sources of energy.

Commercial and other industrial establishments have large (generator) installations that they use mainly during the power cut hours. We will provide a reasonable inducement to run their generators during the non-power cut hours also and stay off the grid, thus saving some energy and water (in the reservoirs) which could be used during the dry period in February/March.

 Is there a lot of power that can be generated from this source?

Quite substantial, in the region of 300 to 400 megawatts.

 What about the cost of using generators? Wouldn't this power generation be too costly for commercial establishments as against national grid power?

The electricity selling price is about Rs. 5 or 6 while the cost of generator power is Rs. 8 or 9. Some inducement would have to be paid or they would prefer to use normal power.

This process can be implemented very quickly within a week to ten days from now.

The C (third) option is a massive effort towards conservation. This has been grossly under emphasised. This should have been done more than a year ago through civil society and the business community.

The first step is voluntary - behavioral changes like using three lights instead of five at home. Reduce use of air-conditioners and fans. Industrial consumers can also play a big role in improving the efficiency of energy.

We will run advertisements urging consumers to conserve but hope the media would also play a crucial role in this effort. We are also considering issuing a leaflet with every electricity bill explaining to consumers basic conservation measures at home and in office.

We may even consider a sticker on conservation measures. We need the people's support as it is a national problem.

Tariff increases

The level of irresponsibility is incredible. In 1994, when the CEB was handed over to the PA government, there was a cash balance of Rs. 6 billion and excess capacity of 500 megawatts (capacity of 1,350 mw as against demand of 800 mw). Now the capacity has fallen to 1,200 mw because many plants are not operating and the cash situation has become minus 16 (billion) instead of plus 6 (billion).

If we had continued with the power cuts in October/November/December, there wouldn't have been any need for power cuts today or emergency power purchases.

Part of the financial recovery programme is a price increase. Industrial and commercial consumers will pay more while there would be relief for smaller consumers.

The price increase would come into effect in around April. By this process, the cash flows of the CEB would improve in around April/May/June.

On power generation, the CEB has a deficit of 100 to 200 megawatts and this will continue till the end of February with demand rising. The available capacity in the hydro complex will also go down.

By March 1, a big gas turbine now under repair will come on stream. Emergency power purchases would come in by the end of March, hopefully easing the power cuts.

However, since there are very little reserves, any power generation machine breakdown means we are in trouble.

With short and medium programmes that we hope to put in place through emergency power purchases, conservation and new power being added on, our power requirements can generally be met through 2003 without resorting to power cuts.

We have promised to end all power cuts within six months. If we can do it sooner, that's much better. However, it would depend on the monsoons in March. Yet we need to get out of this syndrome of being dependent on the rain.

Our target is to stop power cuts in six months and even better if the rains come, because it would be sooner that the target.

 What about the petroleum sector?

There will be a significant increase in storage and refinery capacity. The Muthurajawela storage complex is a good project and will bring in good returns.

There are prospects of privatising the complex instead of the government running it.

The use of the Trincomalee oil tank farm would depend on the progress of the peace process.

Given rising power needs, we may require more than one coal power plant and many sites have to be considered. We need to be prepared. That's what the NEC will do. We won't wait for a crisis to occur. We will develop a site while running feasibility studies on another one so that we have projects on stream every four to five years, depending on the long-term requirements.

We are looking at 900 mw of power per site. Each site would have 300 mw and then expand upto 900 mw in three to six years. A decision on the Norochcholai site would probably be announced in the next fortnight.

 Other energy sources like wind power?

There is potential for several hundred megawatts of wind power. We need to develop this. Solar is another option as is denro thermal (fuel wood) which is using wood in a closed cycle.

It means growing forests and cut it for fuel use. This depends on availability of land. In economic terms it would be competitive with oil, not coal. However, it is an indigenous source and would reduce dependence on external resources.

Yet all these other energy sources would bring in five to ten percent of power.

 How do you raise business confidence in this gloomy power environment?

By deed. Promises have been made in the past like exporting power to India for instance. There is a low credibility on government pronouncements. 

But there is some faith in the general economy and in this government if one looks at how the stockmarket is faring.

If we say the crisis would be over in six months, then we have to deliver in six months. We have to meet our targets. We need to get the private sector involved. We could get the chambers involved in monitoring progress on indicators and tell us if we are falling short of the target.