Aug 22, 2022

Electrifying truth about price hikes for inefficiency, corruption and loss Featured

The Public Utilities Commission of SL (PUCSL) has documented their reasons and justifications of the approved price hike on electricity with details the impact of the Rupee depreciation has on cost of power generation and distribution.

Their document “Decision on Electricity Tariffs – 2022” effective from 10 August, says in its second paragraph under opening title “Background”, the revenue requirement as estimated by the Ceylon Electricity Board (CEB) for this year (2022) is LKR 505 billion. This revenue needed it is said, excludes LECO cost, which is a subsidiary of the CEB and does only distribution. The same PUCSL document thereafter says, “When the proposed Tariff revision is applied, the overall revenue increase is forecasted at 512 billion (including LECO sales) meaning a 79% increase” in tariff. Yet on cost calculations made by the CEB their total revenue need for this year is revised as LKR 518.4 billion. This estimated need leaves much confusion with LKR 06.4 billion short of PUCSL’s mention of overall revenue forecast.

PUCSL has also taken much pain to establish their claim this tariff increase is unavoidable with the Rupee depreciation from 127 per USD in 2013 to 368 per USD in end July 2022. They claim this depreciation had resulted in a tremendous fuel price increase; diesel up by 255 percent, coal by 550 percent and furnace oil up by 365 percent. Further the PUCSL says two thirds (over 65 percent) of “electricity generation is presently based on coal and liquid fuel.” (Background paper item no.08)

Answering concerns on “reasonableness of tariff increase” the PUCSL says they have imposed binding conditions on “next tariff revision” with deadlines. Sadly, none of the conditions laid down for the 2013 tariff revision were carried out by CEB. Nor is there any indications the PUCSL demanded their enforcement till now.

There is a very subtle way in providing selected information by the CEB, leaving out necessary details of their annual cost, never probed by the PUCSL. The “Consultation document” provided for revision of tariffs in year 2022 by PUCSL, quotes costs to be incurred tabled in very technical terms as “Generation – Energy Cost. Generation – Capacity Cost, Transmission Revenue Cap, BSOB Revenue Cap, Term loan, Distribution Revenue Caps and Retail Cost,” totalling a cost of LKR 518,434 million. This is the CEB estimate for “revenue needed”. Does this cost include recurrent expenses of the CEB as an administrative, management and a regulatory body? PUCSL is totally silent on that.

There had been many serious concerns raised at public consultations the PUCSL called for without much publicity. The PUCSL says they received 1,324 written responses from 28 June to 18 July (2022) and 46 oral submissions in a single day on 18 July. The whole process of public consultations had been reduced to a narrow process of mere collection of ideas, with only a summary made public with PUCSL commenting on each issue, making their response the final answer. (Summary of the Comments Received at the Stakeholder Consultation and the Response of the Commission) From information the PUCSL provided for public consultation it is clear they have not asked the CEB for their annual budget for salaries, allowances, incentives, and benefits for this year 2022. There is therefore no comparison with year 2013 when the previous price hike was affected.

Depreciating of the Rupee is not the only factor that increased cost for the CEB. Heavy increase in the annual recurrent budget including salaries, perks and privileges and rampant corruption certainly adds on to increasing cost, the PUCSL conveniently ignores. Issue of cost increase due to cadre expansions accommodated during the past 09 years have also not been accounted for in deciding tariff revision. This when raised during public consultations (No.4b) the answer had been “PUCSL has conducted cost benchmarking studies and they are within the regional norms. However, there may be scope for improvement which is incentivized via the revenue cap regime, in case the CEB management is interested in maximizing profit” How does that response, “there may be scope…if CEB management is interested” relate to tariff increase? To say, within regional norms, South Asia is no less corrupt than SL for such comparison.

Another allegation had been, “CEB/PUCSL has not proven the costs that are to be recovered are reasonable/fair. It is unfair to revise tariffs to cover costs that arise as a result of inaction by CEB.” (No.04)

In response to that PUCSL says, “It is correct that the information requirements are not fully fulfilled by CEB, …..” Though information is lacking, the PUCSL goes ahead in approving a tariff increase as necessary due to “…. the extraordinary nature of the very high-cost increases (that) needs to be accommodated”. Its again the highly depreciating Rupee that matters for PUCSL. Not even other necessary information.

Whatever the argument, the PUCSL was stubbornly defending their decision to increase tariff by 75 percent and was not prepared to compromise on anything less, although they say, they rejected two proposals by CEB for increasing electricity prices. On a request to limit price increase to 50 per cent (No.01) the PUCSL response was “Affordability concerns are accommodated as much as possible through cross-subsidies as the Treasury is not providing additional subsidies” and their decision remains. Adding to this, the PUCSL says, “Agreed, However the extraordinary nature of cost increases (fuel price increase, etc) is beyond the short-term cost cutting possibilities” to a public consultation proposal (No.04c) that said price increases need not be the only solution as cost cutting is also possible and that was not about “short-term”.

When at public consultations there is clear allegations of “Delay” in construction of low-cost power plants like LNG and renewable energy (No.4a) the PUCSL says they agree and therefore has included such in the policy advice to the government. This short comment by PUCSL is insanely stupid. Since 2005, every government accepted options like LNG and Renewable Energy sources for future development in the energy sector. There were many attempts to initiate LNG and renewable energy projects, and in 2016 the “Yahapalana” government called for tenders to construct a 300 MW LNG power generation plant at Kerawalapitiya. But the first LNG power generation project with a capacity of 300 MW was approved by cabinet in early November 2020 almost 02 years ago, to be constructed at the Lakdanavi power site after policy guidelines were adopted in April 2019. Thus, what more “policy advice to government” from PUCSL?

It should also be said here, the CEB Engineers union that stood for coal power and claim they played a historic role in establishing the Norochcholai coal power plant (coal price up by 550 percent), was strongly opposed to the LNG power generation project in Hambantota in December 2016. As reported in Sunday Times (ST) of 22 January 2017 titled “CEB Engineers oppose China power plant in H’tota” this LNG power plant project was a two-phase project designed to generate a total of 1,000 MW. Their opposition was solely due to the absence of any mention of a LNG power plant in our “Long-Term Generation Expansion Plan” (LTGEP). CEB engineers also stand firm in holding on to a monopoly in planning future power projections and generation. They have told ST, planning of electricity generation and transmission is a job for qualified professionals trained in energy planning and is not for politicians and businessmen to decide. Their planning over the past decades have left the CEB with continuing losses in billions of rupees.

Corruption is also part reason for high cost in procurement and dispatch processes, long delays in completing funded power generation projects with continued costs incurred by CEB on project management. This corruption too had been raised at public consultations. On “power procurement process” (No.5a) the PUCSL says without much seriousness, “Tender process is closely monitored by PUCSL, and such inefficient costs are not recovered through tariff.” In plain language it means, although they monitor closely there is corruption, PUCSL prefers to call “inefficient costs” and says that is not dumped on the consumer. On “dispatch process” (No.5b) the PUCSL response is, “Annual independent Dispatch Audit is being conducted by PUCSL, as CEB is slow to respond.”  

Many serious issues of importance had been raised at public consultations that have been answered without serious commitments. All responses have been to allow the overall 75 percent price increase decided by PUCSL and approved without necessary information available and without any opportunity to consider other options. PUCSL accepts, “Cost of service models available with PUCSL was last updated in 2013, however they are not reliable due to lack of accurate load profile data. Action is taken to conduct such studies with the Assistance of USAID” (Response to No.10).

PUCSL had reason to bluff over most issues other than the Rupee depreciation for which they are not responsible. They have also been party to long undue delays in approving generation plans and leaving the country without much needed new renewable energy generation the People now have to pay for in many ways; daily power cuts, economic hazards in service and production sectors, loss of informal sector employment and shrinking of daily income.

The present “Long-Term Generation Expansion Plan” (LTGEP) 2022 – 2041 lays total blame on PUCSL for long delays in approving plans since 2013 and then for having had to abandon the previous LTGEP 2020 – 2039. Here is the explanation, “Since 2013, when the approval of PUCSL was made mandatory to Long Term Generation Expansion Plans (LTGEP), the three generation plans submitted for PUCSL approval had taken over 13 months for approval, due to varying reasons. The last LTGEP 2020-2039 could not obtain the approval even after 20 months, before it was completely abandoned, and preparation of this new plan was commenced. As generation plans are prepared once in two years, and as preparation of a plan itself takes more than ten months, securing the approval within a reasonable time frame is important.” (p/21)

That being how the PUCSL had been operating, IF all information are not available, if CEB is late and slow in providing annual “Dispatch Audits”, if there is corruption the PUCSL is happy with a less degrading term as “inefficient costs”, if the cost of service models are almost a decade old and is not reliable and in short, if the PUCSL is not interested in considering proposals to turn the loss making giant into an efficient service provider, why should People accept the PUCSL approval for any price increase purely on Rupee depreciation, the whole society anyway is heavily burdened with?

It is therefore time for People to demand immediate withdrawal of the present electricity price hike and request the PUCSL to immediately furnish,

01.  Annual recurrent budget of CEB including salaries, allowances and other benefits enjoyed by different trades and professions and the approved cadre in year 2013 and year 2022

02.  List of private power supplying agents, the annual cost of electricity procured from them in year 2021 and price of an electricity unit procured from them during last quarter of year 2021

03.  Details including project staff and their remunerations, responsibility of CEB, if feasibility study done, who is responsible for the study of on-going power generating projects with due dates for completion and their status for now.

Also to demand from the Minister responsible for Power to propose names of 05 independent and competent persons for public approval, before appointing them as a Committee to study alternate solutions to restructure the CEB to be efficient and profitable in accordance with section 11 of the CEB Act that mandates the CEB to "develop and maintain an efficient, coordinated and economical system of electricity supply for the whole of Sri Lanka." and also the PUCSL to be held responsible on that same mandate to the parliament and People.  

- Kusal Perera
2022 August 20(