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Power and energy crisis: Severe blow to economic growth

23 Apr 2022

  • Generator-fuelled business unsustainable: Energy expert
  • Diesel generator power 3-4 times costlier than grid electricity: NCE
  • Power disruption increases cost of exports: CCC
  • Uninterrupted power supply will bring in more export revenue
By Vinu Opanayake  The prevailing power and energy crisis will hamper the growth of Sri Lanka’s Gross Domestic Product (GDP), according to business chambers and experts.  This, as the State is yet to formulate a long-term solution for the ‘man-made crisis’ – a term Power Secretary M.C.C. Ferdinando used to describe the crisis in a letter to the Power Ministry earlier this year. Energy expert Dr. Vidura Ralapanawa told The Sunday Morning that businesses could not function with interrupted electricity supply and a severe shortage of fuel and indicated that this inability to function smoothly was impacting economic growth.  “People and businesses cannot function amidst fuel shortages and power cuts because not everyone has generators to keep their businesses running. Businesses are heavily impacted,” Ralapanawa stated.  He further noted that running businesses using power generated by generators also results in additional pressure due to the prevailing fuel shortage.  According to him, running businesses on generators will dent the profitability of companies as a unit of electricity generated by generators costs around Rs. 60 whereas a normal unit of electricity is priced between Rs. 15-25. “This means companies have to incur an additional cost,” Ralapanawa added.  When asked about solutions for this issue, he said that the only solution at the moment was to bring in oil as the current system was designed around renewable and coal energy combinations.  Exporters hit Meanwhile, National Chamber of Exporters (NCE) Secretary General and CEO Shiham Marikkar, commenting on the impact of power and energy disruptions on exports and thereby on the economy, stated that the energy price increases and oil shortage had definitely affected exporters.   “Cost of sales has gone up now. Even with the price increases, there is still no uninterrupted supply,” he complained.  Marikkar noted that authorities had come up with a plan where exporters could pay US Dollars but added that the process had not been streamlined.   “Authorities introduced a new mechanism for exporters to get fuel. There is a cost factor involved there. The price we obtain is higher than the prices at petrol sheds. In addition to this, there is also a maximum quantity imposed,” he stated.  The Central Bank of Sri Lanka (CBSL) has approved a mechanism allowing exporters to pay in US Dollars instead of Sri Lankan Rupees when securing their diesel requirements from the Ceylon Petroleum Corporation (CPC), Lanka Indian Oil Company (LIOC), and Jaya Container Terminals Ltd. of Sri Lanka Ports Authority (JCT Oil Bank).  Speaking to The Sunday Morning last week, Energy Secretary K.D.R. Olga stated that a mechanism had been introduced to allow US Dollar-earners to utilise their export proceeds to source their diesel requirements. She further stated that the mechanism had been approved by the CBSL in terms of its powers to do so under the Exchange Control Act of No. 24 of 1953, and that the mechanism had been in operation for around two to three weeks.   Marikkar on the same note said that at the moment the only avenue of dollar inflows to the country was exports, with tourism and worker remittances taking a slump due to the prevailing situation, indicating that a loss of export revenue would severely hamper the economy.   “I do not think the export earning numbers will continue to be above $ 1 billion in the coming months. Worker remittances are already not up to the mark because workers are not sending money due to speculation about a further increase of US Dollar rates. If exports also break down, we are going to face a bigger problem,” Marikkar added. Pros and cons However, former Central Banker and Advocata Institute Senior Research Fellow Dr. Roshan Perera stated that the energy price increase had both pros and cons in an economy.   “Our energy cost is still lower than most of the other countries; we cannot have lower energy prices and have no energy, so you have to have a cost effective mechanism there. At this current price of fuel, at least we can break even and provide sufficient energy,” she added.   Further, she noted that individuals needed to be more conscious about energy and go for energy-saving techniques while on the supply side the Government needed to look at our energy mix for our long-term energy security to ensure that we have a low cost, uninterrupted supply of energy.   “To keep the economy and the poor unaffected by this, the Government should provide some cash transfers to those who are most affected by the fuel price increases,” Perera suggested.    Further, she proposed a surcharge tax to be introduced on consumers whose electricity usage goes beyond a certain limit which, according to her, would also encourage them to be conscious about their usage.   Tackling power and energy issues Meanwhile, the Ceylon Chamber of Commerce (CCC) too expressed concern that its members and all sectors of the economy had been adversely impacted by the ongoing interruptions to the supply of electricity coupled with frequent disruptions to the availability of fuel and urged the Government to restore the supply of these two commodities.   The Chamber opined that these issues were all ramifications of the shortage of foreign exchange experienced by the country, adding that urgently addressing the currency issue was the fastest way in which the power and energy issues could be tackled in the short-term.   The Chamber through its Energy Sector Committee recently proposed immediate revision of the electricity tariff and band structure along with eight key short-, medium-, and long-term recommendations to address the current energy crisis.   Supporting its suggestion to increase tariff rates, the statement added that the increase in the cost of coal and oil were challenging the sustainability of maintaining the current tariff regime and the necessary processes outlined in the tariff methodology needed to be implemented so that the regulator would have sufficient information to make equitable pricing decisions.  The CCC stated that the shortage of foreign currency in the banking system had revealed deep vulnerabilities in the planning and fiscal management of the energy sector.   The Chamber emphasised that this had underlined Sri Lanka’s overdependence on imported fossil fuels and highlighted the slow shift towards renewable energy. The Chamber opined that the national energy generation plan should be based on factors that would ensure economic stability instead of being overdependent on imports.   “This requires pricing predictability over a planning cycle short enough to respond to changes in input pricing and increasing renewable integration to smooth out the volatility of external markets,” the Chamber’s proposals added.   Out of the other eight recommendations that were submitted to the Minister of Power and other relevant policymakers, six were short-term measures and two were long-term measures.  The short-term measures suggested ending the moratorium on Covid-19-related payment deferments above a certain value so that people who can afford to pay their electricity bills will be opted out of payment deferments.   

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