More diesel generating capacity ordered to saboteurs’ delight

By Dr Tilak Siyambalapitiya


A power sector regulatory commission was established in 2003, called the Public Utilities Commission of Sri Lanka (PUCSL). With the new Electricity Act of 2009, PUCSL was empowered to be the regulator of the electricity supply and use. More utility services are proposed to be added to PUCSL’s mandate: petroleum and water supply.


The Electricity Act 2009 says, “The functions of the Commission shall be to act as the economic, technical and safety regulator for the electricity industry in Sri Lanka, and—


(a) to advise the Government on all matters concerning the generation, transmission, distribution, supply and use of electricity in Sri Lanka;”….


The latest plea of PUCSL last week for more generating capacity arose as a result of three actions: (i) the new Government of 2015 cancelled the on-going Sampur power generation project, and along with it, the Sampur No 2 project that was also in the pipeline, and PUCSL remained silent, while CEB protested heavily, (ii) when PUCSL refrained from approving the long-term generation expansion plan of CEB in 2016, approving only oil-burning power plants, and (iii) PUCSL unilaterally changing CEB’s generation expansion plan of 2017, approving and publishing it, with CEB declaring the intervention to be not according to the Commissions legal mandate.

The PUCSL is right that the country’s electricity supply is in grave danger. This is no revelation. We said so in these columns when the governments and CEB dragged their feet on this project for over five years (2010-2014), and more emphatically, the day the present government cancelled (or postponed, or whatever they may like to call it), way back in 2015; what PUCSL has not said in the media releases are the reasons, causes and parties specifically responsible for that grave danger.


Ministers will always be quick to blame the crisis on the weather and purchase more and more emergency power. More contracts to be awarded, once every few months, is good for them.


Cancellation of Sampur


A large power plant, be it hydropower, coal or gas (terminal and power plant), requires ten years to build and complete, from the day the solid decision is made. Many readers would surely refuse to believe me. Among the large power plants, Victoria 210 MW power plant, Sri Lanka’s largest at that time, was perhaps the fastest (seven years 1977-1984); Samanalawewa (nine years, 1983-1992); Norochcholai (ten years, 2004-2014). The above were built with full Presidential blessings, with the respective Presidents leading from the front with no Prime Minister throwing a spanner in the works. Such large power plants have lower costs of electricity production, and they have a longer life than the tiny diesel power plants.


The Presidents of 1977 and 2005 knew that the growth in the economy lies with vigorous infrastructure development, while the present-day leaders run away when they see a protest against a major power plant. Of course, there are no protests against diesel power plants. No cry from PUCSL, either.


Here are the steps in building a major power plant: siting study, pre-feasibility study, including it in long-term generation expansion plan (if the power plant meets the technical and economic criteria), land allocation, social impacts assessment and relocation of affected persons, feasibility study, environmental impact assessment and approval, calling for bids, bid evaluation and decisions, due financial diligence, financial closure, project and financing agreements, review of contractors’ designs, construction on the ground, testing, commissioning, test runs, and declaring commercial operation. Additionally, there are factors such as dealing with protest marches and the inevitable long-drawn trouble at the Cabinet to decide on the winning bidder when different politicians back different bidders.


So, all the above take time. A house costing Rs. 10 million takes two years from the day you say “go” up to the day you have the housewarming ceremony. What for? To design with numerous visits to the municipality for approval, and visits to bank for the loan, to build. So, is it a surprise to say that a major power plant costing Rs. 150,000 million takes ten years to build and finish?


However, it takes only one minute for a President and a Prime Minister to cancel a power plant project, and then cry for years that there is no generating capacity, awarding emergency diesel contracts all the way until they are thrown out at the new election. It has happened many times in the past, and happening, right now, at this moment too.


Your President, the Prime Minister, and their advisor(s) if any, who perhaps have no experience with building power plants, or for that matter, with any “project”, thought that cancelling one power plant and building another is as easy as flipping a light switch. In 2015, our President asked Prime Minister Narendra Modi to “convert” the Sampur power plant to operate on gas! Modi must have been laughing all the way back to Delhi, amused by the ignorance of our political leaders. We don’t expect our political leader to be proficient in power engineering and economics, but at least to have their numbers worked out and ready, before they make a one-billion dollar decision. Indian PM gets good advice from knowledgeable advisors, before “cancelling” projects or agreeing to “convert” projects; our leaders speak spontaneously, with no analysis of consequences, with absolutely noidea of how long it takes to build a replacement power plant. India quietly sent word to the President, saying that conversion is not on. So, Sri Lanka is back to square one. The clock was turned back to year 2010, when another President forced CEB to negotiate with India to build a power plant in Sampur, whereas the obvious choice would have been to let the private sector invest on the second coal power plant in the country. Negotiations they did for five years, only to be cancelled by the present President. Probably the only decision on which both the present President and the Prime Minister ever agreed, at a price of Rs 150 million per day extra for fuel, for at least ten years! Did somebody say the bond scam was the largest in the history?


Of course, to build a diesel power plant, the time taken is between one day (go to the shop, buy and bring home) to about three months (for a large one). Operating cost is three times that of a large power plant. That is precisely what your government is pressing the CEB to do with the blessings of the power regulator, the PUCSL.


So do you know, with Sampur cancelled, how your President and Prime Minister provide electricity? You may think electricity comes from solar panels; not really, they come from diesel power plants, at three times the cost of the electricity the ‘cancelled’ Sampur would have produced, and they emit noise and the same amount of Sulphur and even more harmful emissions, uncontrolled, in various parts of the country.


How others make policy changes


Policy changes are made by other countries, too. For example, a few countries in Europe decided to phase out nuclear power. Did their Presidents and Prime Ministers decide overnight and cancel on-going power plants? No. Are there any emergency diesel power plants operating in those countries? None! They continue to manage the policy transition very carefully, over a long period of time, without harming their economies with high electricity costs and power outages, and if possible, strike a deal with France to buy electricity (of course from nuclear power plants) across their land borders.


What do our leaders do? Cancel first, make the country the laughing stock of our neighbours and competitors including India, and then get into a fix, and order emergency diesel power plants at three times the cost. Awarding diesel contracts once every few months is better than awarding a big power plant contract once in a few years, isn’t it?


So, coming back to our storyline, where does the Power regulator, the PUCSL, lie in this debate? Nowhere; PUCSL not only kept silent when leaders were playing havoc with power plants back in 2015, did not exercise powers vested with the Commission to advice the Government at least as loud as the frequent press release crying for more generating capacity, of the consequences of ad-hoc decisions on major power plants. And the Commission is now desperately looking for excuses for not doing its job in 2015. On its part, CEB has been consistent and coherent, in what it says is best for Sri Lanka’s future power generation, from both technical and economic considerations. ie a mix of all the competing generating technology/fuel options, now that coal, liquefied natural gas, wind and solar costs have all come to the same range, each with its own technical, commercial and environmental merits and de-merits, strengths and weaknesses.


However, in its desperate attempts to toe the line of the Government, PUCSL has forgotten that its obligations are not to politicians but to electricity customers! However, now it is too late, even for PUCSL to change its mind. As we said very clearly, the crisis has already hit the country, bleeding the economy off an additional Rs 150 million per day for diesel and fuel oil.


Now it is coming up to three years since Sampur power plant was “cancelled”, and there isn’t at least a firm decision on how to replace it with, and what, where and by whom. “Yes, we have appointed a Committee”, some Ministry (not the Energy Ministry) will say. India and Japan who were to invest on Sampur must be laughing all the way to Delhi and Tokyo!


Power plants are no longer built by CEB or private investors, supervised by the Ministry of Energy. They are built (ie not built) by committees sitting in various Ministries, except in the Energy Ministry, cracking their heads to find ways and means of avoiding the competitive bidding procedure, swiss challenge included, and finally getting nowhere. This is precisely the approach followed over three past periods of time and now:


1992-1994: Ended up with blackouts in 1996


1995-2000: Ended up with blackouts in 2000-2001, plus eight new oil power plants


2001-2004: Ended up with two more small oil burning power plants, to make it ten.


2015 to date: No end in sight, already three diesel new power plants are in operation, more are on the way. More contracts, and remember, at three times the cost of “cancelled” power plants.


Look carefully at the above dates. It is exactly the same individuals sitting in various Ministries, who try to run the energy sector from outside the Energy Ministry, over each one of the three previous intervals over three decades, and now too, since 2015.


The game is the same. The players in 1992, 1995, 2001 and now are surprisingly,exactly the same, in spite of their advancing age. The result (diesel and more diesel) cannot be different. The difference is that there is now a regulatory commission to readily approve diesel and more diesel power plants, making the external meddling of the energy sector appear to be perfectly legal. The only hope is that hearing these electricity supply uncertainties and more, investors to manufacturing industry will turn their back, and electricity sales will not grow.


The growth in electricity generation up to end September 2017 was just 4%, but in 2016, it was 9%. Investors are surely running away to countries with more stable, cheaper electricity supply, indeed. If that is what the country’s leaders and the regulator want, so be it.

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