Ravi vs. PUCSL clash reaches climax

By Maheesha Mudugamuwa

An intense battle between Power and Renewable Energy Minister Ravi Karunanayake and the Public Utilities Commission of Sri Lanka (PUCSL) has reached a climax.

In the Cabinet Memorandum No. 47/2019/PE on 7 April 2019 requesting approval for the implementation of medium and long-term measures to improve the electricity generation capacity, Karunanayake had sought approval to amend the Sri Lanka Electricity Act in order to implement favourable regulatory mechanisms in the country and resolve the issues between the Ceylon Electricity Board (CEB) and the PUCSL by empowering the Cabinet of Ministers for economic and technical regulation and the PUCSL for consumer protection and safety regulation within the electricity industry. This was first approved by a ministerial committee appointed to review Karunanayake’s proposal and was subsequently approved by the Cabinet.

With Cabinet approval received to curtail some of the powers vested with the PUCSL, which currently operates as the regulator in the electricity industry, several power sector experts warned the Government that if they divest the powers of the Commission, especially economic and technical powers, the PUCSL would only act as a safety regulator and would lose its influencing capacity. In other words, the reduction of its powers as proposed by the Minister would convert PUCSL into a mere “ombudsman” of the electricity industry.

They further claimed that reducing economic and technical powers would pose a huge threat to the country’s electricity sector and also negatively affect the consumers at large. According to experts, if said amendments come into effect, the transparency of data pertaining to electricity would vanish. In the same way, since economic powers would be vested with the Cabinet, the tariff could be increased by the Cabinet as they wished.

In addition, they also warned that there could be an increase of emergency purchases and signing of agreements harmful to the government as well as lapses in proper monitoring of electricity quality and efficiency of the supply.

New appointments at PUCSL

The PUCSL was established under the Public Utilities Commission of Sri Lanka Act No. 35 of 2002, and with the powers given by the Sri Lanka Electricity Act No. 20 of 2009, it currently act as the economic, technical, and safety regulator of the electricity industry in Sri Lanka.

The powers and functions of the PUCSL are clearly described in the PUCSL Act as to “protect the interests of all consumers, promote competition, promote efficiency in both the operations of and capital investment in public utilities industries, promote an efficient allocation of resources in public utilities industries, promote safety and service quality in public utilities industries, benchmark, where feasible, the utilities’ services as against international standards, and ensure that price-controlled entities acting efficiently do not find it unduly difficult in financing their public utilities industries”.

But as questioned by some other experts, it is highly doubted whether the Commission itself is functioning as an independent regulator at present or whether it had been given the powers to act in such a way by the relevant ministries.

Speaking to The Sunday Morning, former CEB Engineers’ Union (CEBEU) President Eng. Athula Wanniarachchi said the clash was not between the two institutions – the CEB and the PUCSL – but between officials who were appointed by the line ministry at present – the Ministry of National Policies and Economic Affairs.

At present, the term of four out of five members of the Commission has expired, and the term of PUCSL Chairman Saliya Mathew, as confirmed by PUCSL Director of Corporate Communications Jayanat Herat, is expected to end tomorrow (15).

He told The Sunday Morning that the Ministry had already nominated several names to be appointed and had submitted them to the Constitutional Council for recommendations.

Expressing their ambition to work with the new PUCSL officials to be appointed, Eng. Wanniarachchi urged the Ministry to appoint eminent officials so that the two institutions could work together for the betterment of the future of the electricity industry in the country.

He went on to say: “We need good regulations, but unfortunately, the people who handle the regulatory body are not up to the expected standards. At present, we’re highly dissatisfied with the officials. Once the new commission is appointed, we’re eagerly waiting, if they allow us, to meet them to express our views.”

Amendment to curtail powers

Commenting on Karunanayake’s proposal to amend the Electricity Act, he stressed that the engineers of the CEB were not informed of any amendments as yet, adding that when amending the Act, the authorities should be mindful to proceed only with the necessary amendments.

“When it comes to the amendment of the powers vested with the PUCSL, we are of the view that if the right people are there to regulate the industry, there is no need to amend the powers of the Commission,” he added.

However, elaborating on the possibility of various motives behind the plan to amend the Electricity Act, Wanniarachchi said the engineers should be involved in the amendment process and that they would question the Ministry as to what sort of amendments it plans on making.

Highlighting the fact that the engineers were not consulted before or during the decision-making process, which affects the CEB, he stressed that they were, in fact, not even allowed to comment on the proposals.

When The Sunday Morning contacted the Ministry to find out the reason behind its plan to curtail the powers of the PUCSL, Ministry of Power and Renewable Energy Director – Development and Media Spokesman Sulakshana Jayawardena said the main idea behind the decision was the Ministry’s opinion that the economic aspect of the regulatory mandate should be with the Cabinet.

As explained by Jayawardena, there were various reasons behind the decision, including the delay in commissioning power plants.

“The approval of the Long Term Generation Expansion Plan was stuck with the PUCSL for more than one-and-a-half years. They amend the CEB-submitted Long Term Generation Expansion Plan based on their assumptions, which they can’t do as per the Act as well as the Attorney General’s (AG) opinion. The PUCSL cannot get the public’s opinion. According to the Act, they can get the views from licensees, including generation, distribution, and transmission licensees. They can get their opinion and review it,” Jayawardena asserted.

When asked whether the Ministry had discussed its decision with other relevant authorities before seeking approval from the Cabinet to divest the PUCSL of its powers, Jayawardena noted that it had several discussions with the CEB before the cabinet paper was put forward by the Minister.

While the Ministry and the CEBEU are of the view that the delay in commissioning the power plants was due to the delay of the PUCSL in approving the Least Cost Long Term Generation Plan prepared by CEB engineers based on the power requirement of the country, the officials at the PUCSL denied the allegation claiming that they did not delay the generation plans. PUCSL officials noted that even though they approved two generation plans, the authorities failed to implement either of them.

However, as The Sunday Morning learnt, the PUCSL was of the view that the CEB was not taking any advantage of the existing resources to fill the generation gap and was instead opting for costly emergency power purchases.

Non-cabinet Minister of Economic Reforms and Public Distribution Dr. Harsha de Silva informed the President that he was against the decision to whittle down the powers of the PUCSL as there was no necessity to do so at the moment.

CEB’s mounting losses

Meanwhile, speaking to The Sunday Morning, Dushana Widu Nethin Secretary Eng. Anil Ranasinghe claimed it was predicted that the CEB would incur a loss of Rs. 100 billion this year, mainly due to the “illegal” emergency power purchases and the delay in commissioning power plants.

According to Ranasinghe, an independent commission is a pressing requirement for the electricity sector of the country, especially as it is a monopoly in Sri Lanka. There is no competition and therefore, the consumers are compelled to purchase electricity at whatever stipulated price. Basically, what would happen if there is no electricity regulator is that the CEB would increase the tariff to reduce its losses, Ranasinghe stressed.

With regard to the losses incurred by the CEB, the engineers are of the view that it was the prime objective of the regulator to minimise the losses either by increasing the tariffs or decreasing the generation costs. On the other hand, the PUCSL claimed that the CEB had not obtained the approval for emergency power purchases and it therefore incurred a loss due to unregulated power purchases.

However, due to whatever reasons, according to the Mid Year Fiscal Position Report 2019 released by the Ministry of Finance, the CEB, at the end of the first four months of this year, had incurred an operating loss of Rs. 23,114 million, compared to Rs. 17,535 million in the same period of 2018.

According to the report, the cost per unit increased to Rs. 22.05 per kWh in the first four months of 2019 from Rs. 20.46 per kWh recorded in 2018, and the total outstanding obligations to the banks of the CEB increased to Rs. 80,218 million, compared to Rs. 54,365 million in 2018.

Furthermore, the total outstanding obligations to the Ceylon Petroleum Corporation (CPC) and independent power producers (IPP) increased to Rs. 103,191 million as at end-April 2019 from Rs. 85,304 million in the corresponding period of 2018.

However, according to the Ministry of Power, the losses were not due to the emergency power purchases which were obtained through Cabinet approvals, but due to the gap between power generation and selling costs.

In this regard, Jayawardene explained: “Everyone assumes that the losses were due to the emergency purchases, but it’s actually because of the subsidies provided by CEB. Most of the time, the CEB was compelled to purchase emergency power because if not, it would have to impose load-shedding as it did a few months ago.”

“The Ministry always tries to provide an uninterrupted power supply and therefore, in certain situations, it had to go for emergency power at the lowest rate possible,” he noted.

Meanwhile, former CEBEU President Wanniarachchi said that CEB was incurring an annual loss which is much higher than what the Government incurred due to the alleged Bond Scam.

According to him, the average production cost is Rs. 21 per unit and it sells at Rs. 16, which means that there was a loss of Rs. 5 per unit. Currently, the CEB generates 15 billion units per year, and when calculating the loss, CEB incurs a loss of around Rs. 75 billion per year.

Where is the industry headed?

Taking into account and comparing all the above statistics and information, it is clear that the power sector is in a perilous crisis and the only solution is to build least-cost “firm” power plants.

As claimed by the Ministry, when the Ministry came up with LNG or coal power plant proposals, it had to go through several obstacles that ultimately delayed the process of commissioning those power plants.

However, there is also a faction of people who believe that the country should move forward only with renewable power, but as some experts believe, there should be a mix and “firm” power plants should be built because renewable energy is dependent on the climate.

Nevertheless, as claimed by industry experts, it is high time the authorities get together and solve the current crisis in the power sector by supporting each other rather than playing the usual blame game.