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Power crisis: Govt. yet to quantify losses to GDP

13 Nov 2022

By Vinu Opanayake  While economists and analysts believe that the economic impact created by the prolonged power outage is enormous, there has been no study conducted by the Government to quantify it or to assess how it impacts the Gross Domestic Product (GDP).  When The Sunday Morning contacted the Department of Census and Statistics and the Ceylon Electricity Board (CEB), both institutions acknowledged that a study on the matter had not been carried out yet.  Sri Lanka has been experiencing power cuts since early this year due to various issues including the occasional breakdown of power plants. However, the main reason for the prolonged power crisis is the lack of foreign exchange reserves to import fossil fuel as Sri Lanka is yet to make a notable shift towards renewable energy-based power generation.  Even though power cuts are a daily/regular occurrence and people have somewhat adapted to the lifestyle of power cuts, it has had a significant negative impact on the overall economy.     Per unit cost too high   Speaking to The Sunday Morning, international energy expert Dr. Tilak Siyambalapitiya explained that the industrial and commercial sectors of the country used the largest amount of electricity, which was about 60%, while the rest was consumed by households.  However, he stated that Sri Lanka’s household electricity consumption was higher than most other developing countries, because in those countries the commercial and industrial usage of electricity was about 80% of the total production while the remaining 20% was for household consumption.  “However, commercial and industrial electricity consumption has been hindered in the past few months. When there are power cuts, factories find it difficult to manufacture goods. To bridge the gap, factories tend to use generators. As one might know, the per unit cost of electricity generated through generators is way higher than the per unit cost that the CEB provides.”  Siyambalapitiya stated that when factories used generators to continue their manufacturing activities, the per unit cost of their products increased. Further, he noted that this process contributed to the Government’s lack of foreign exchange reserves since generators consumed oil and Sri Lanka was an oil import dependent country.   He noted that there was only so much the factories could also do from power generators as they could not undertake large-scale production or manufacture by relying on generators, given the cost factor.  “This is how companies are getting affected. Even though the Government has taken steps to provide electricity for export-based industries in the free trade zones, not every company is inside a free trade zone,” he said.   According to him, there has been no research done quantifying the potential losses to the GDP from continued power failures.     All economic sectors affected   In March this year, the Economist Intelligence Unit noted that the current fuel shortages, if prolonged, threatened to stall overall economic growth. It added that the economy had just begun to recover from the impact of the pandemic – a successful vaccination programme resulted in the lifting of Covid‑19-induced restrictions.   “Tourists had started returning to Sri Lanka in late 2021, in time for the peak season – the holiday season of December‑March. The power cuts and fuel shortages have weakened economic activity, with most small businesses being forced to shut down or operate under limited hours. Even businesses that have generators on site have encountered difficulties in obtaining fuel to power them. Not surprisingly, purchasing managers reported a deterioration in market conditions.” Not only businesses, but other sectors of the economy have also been facing the impacts of continuing power cuts, with students being unable to attend online classes or lectures conducted by universities, impeded operations at hospitals, and tremendous delays in daily activities.  Sharing similar views with The Sunday Morning, University of Peradeniya Professor in Economics Ariyarathna Herath stated that the economic impact of power cuts could be felt at various stages of the economic cycle including production, consumption, and day-to-day transactions of individuals.   “The power cuts can create losses to the economy in various ways. The day-to-day activities and services in all sectors including education, health, banking, and finance are being disrupted. However, the issue is that we still have not calculated the monetary value of the losses caused by power cuts and there has been no data pertaining to this issue.”   Prof. Herath noted that the losses to the GDP could be calculated and quantified but added that this could not be done by individuals as it was a macro-level research and should ideally be conducted by either the Central Bank of Sri Lanka or the Department of Census and Statistics.  According to Prof. Herath, however, such surveys require much time and extra labour. “This is seriously affecting GDP growth, particularly under the production segment. There is certainly a reduction in production,” he stated.   When The Sunday Morning contacted Ministry of Power and Energy Secretary M.P.D.U.K. Mapa Pathirana on this matter, he argued that it was not the Secretary’s responsibility to provide the media with information as the media had to do its own research, noting that there was much research that had been conducted on the issue. However, there are no such studies available in the public domain, as claimed by Mapa Pathirana.   Meanwhile, former Power and Energy Minister and Opposition MP Patali Champika Ranawaka recently highlighted that the daily average of dispatched power, and hence the demand, which stood at around 44.4 GWh in mid-February, had reduced to around 39.7 GWh by mid-July 2022, while the average duration of daily power cuts had reduced from around 5.7 hours a day in February 2022 to around 2.3 hours a day by July 2022.    


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