By Asiri Fernando The economic and political crisis that Sri Lanka has faced over the last year may have a silver lining, with an unprecedented opportunity at hand to carry out a long-overdue restructure of the national power supply system, which has been plagued by poor policies and management for decades. The loss-making State-owned utility supplier, the Ceylon Electricity Board (CEB), frequently resorts to load shedding (planned power cuts) and is in need of restructuring. However, the political will to carry out reforms has been lacking for a long time. Failure to swiftly integrate renewable energy sources, weak policy formulation and enforcement, an outdated transmission network, competing interests, strong trade union movements, corruption, politicisation of generation and cost, and over-reliance on expensive coal and fuel-powered power plants over the years have made Sri Lanka vulnerable and wreaked havoc on industrial performance.  The high dependency on coal and fuel to meet generation requirements has compounded Sri Lanka’s economic recovery efforts, with the island nation requiring stocks close to $ 600 million per month in fuel alone for transport and power generation. Sri Lanka also needs around $ 600 million to import coal for the annual coal-powered generation requirement. Political will to restructure  Today, with the economy in shambles, reserves depleted, and facing a forex shortage, policymakers have been encouraged by strong public opinion to initiate a process aimed at restructuring the utility provider. According to former Engineer and CEB Energy Advisor Dr. Tilak Siyambalapitiya, while there is some political willingness to address the issues surrounding the CEB and restructure it, there is inadequate will to identify the core problems. “Now, with the CEB sunk to the bottom along with the country, there seems to be some political will to restructure. However, there is inadequate desire or ability to assess what the problem is, quantify it, and then introduce a solution. Being a natural monopoly, it is wrong to assume that electricity supply can be unbundled or privatised similar to telecom services,” Dr. Siyambalapitiya told The Sunday Morning. Sri Lanka Freedom Party (SLFP) General Secretary MP Dayasiri Jayasekara acknowledged that there was a need for restructuring the CEB and other loss-making State-Owned Enterprises (SOEs). “Yes, there is a need for it. The SLFP believes that the Government should move to reform the CEB so that it is at a level where it no longer makes losses. The need for unbundling the CEB is clear. Perhaps it can be done to the extent that was done when LECO was created. I think there will be broad support for this. However, we need to analyse the proposals and consult the community and the trade unions before we know how much support we can give,” Jayasekara told The Sunday Morning.  The MP noted that the SLFP was not in favour of an outright privatisation of the CEB. “I don’t think we need to go that far. They can unbundle and make the units competitive like with LECO,” he said. Jayasekara’s views were echoed by Opposition Samagi Jana Balawegaya (SJB) General Secretary Ranjith Madduma Bandara. According to Madduma Bandara, mismanagement and corruption are core reasons for SOEs like the CEB to become ineffective and incur losses. Speaking to The Sunday Morning, former State Minister of Finance and SJB Parliamentarian Eran Wickramaratne said that this was an opportune time for reforms and restructure. “The people are no longer going to tolerate power cuts; they are looking for a system change, so the timing is right. There is a lot of support for reforms. The SJB is very clear that we support reforms as a policy. Sri Lanka needs to incorporate more renewable energy and bring down the cost of power. Therefore, the political will is there for a restructure. We will need to analyse the recommendations made by the committee,” Wickramaratne said. Wickramaratne added that monopolies were not favourable to the public nor the consumer and that a restructuring process would need to be planned carefully so that it could be implemented smoothly without many disruptions to the power supply. Meanwhile, responding to a question, Janatha Vimukthi Peramuna (JVP) Leader Anura Kumara Dissanayake told The Sunday Morning that there should be a review of all loss-making SOEs. He too supported the need for power sector reforms. However, Dissanayake said the Government should maintain a controlling share of the power sector as it was a strategic asset that was directly related to the maintenance of the State and national security. Dissanayake downplayed concerns about over-staffed SOEs, blaming politicisation for the issue. He asserted that a review of State institutions would reveal that there were key vacancies in critical public sector areas that still remained unfilled. Last month, Minister of Power and Energy Kanchana Wijesekera highlighted the need to restructure the CEB. His views were supported by President Ranil Wickremesinghe, who advocated for a revision of the electricity tariff which has remained unchanged since 2014.  Wijesekera has advocated for several divisions of the CEB to be ‘unbundled,’ among other reforms. Allegations of sabotage at the CEB Former Minister of Power Gamini Lokuge shared with The Sunday Morning that he suspected some in the CEB were working against the national interest and may be involved in sabotaging critical power distribution systems and power plants to further their own interests. Such allegations were also made by the former Chairman of the CEB M.C.C. Ferdinando, who termed the sudden power outages and the islandwide blackout of 2021 September as a manmade crisis. Earlier this year, Public Utilities Commission of Sri Lanka (PUCSL) Chairman Janaka Ratnayake launched a public inquiry into the two islandwide power outages. Earlier this month, the Ministry of Power and Energy appointed an eight-member committee to draft proposals for the restructuring of the CEB. The committee comprises former Secretary of the Finance Ministry Dr. R.H.S. Samaratunge, former Secretary of the Power and Energy Ministry M.M.C. Ferdinando, former AGM of the CEB Dr. Susantha Perera, former Chairman of the Board of Investment Thilan Wijesinghe, Petroleum Development Authority Chairman and Port City Economic Commission Director General Saliya Wickramasuriya, former Legal Consultant to the Public Enterprise Reforms Commission President’s Counsel Nihal Jayawardene, Former Senior State Counsel at the AG’s Department Attorney-at-Law Harsha Fernando, and Power and Energy Ministry Director Chandana Wijayasinghe. Unbundling the CEB According to Dr. Siyambalapitiya, had the CEB reforms programme of 2009 been successfully implemented, the status of the utility provider would have been different. When asked what ‘unbundling’ entailed, Dr. Siyambalapitiya explained: “‘Vertical’ unbundling means dividing the ‘business’ of electricity production, transmission, bulk supply, distribution, and supply into different entities. ‘Horizontal’ unbundling means allowing several entities to do the same business. For example, generation is already horizontally unbundled – there are about 20 CEB power plants, about 10 oil-burning private power plants, over 200 private renewable energy power plants, and about 38,000 private rooftop solar units, all producing electricity.  “However, horizontal unbundling of CEB’s generation and distribution has not been done. In the true sense, if CEB is to be unbundled, each entity will have separate accounts and their costs and prices will be regulated. Unbundled entities may remain in State ownership, jointly-owned or privatised. CEB is already ‘functionally’ (but not legally) unbundled into six ‘entities’; one for generation, one for transmission and bulk supply, and four for distribution and supply.” According to Dr. Siyambalapitiya, unbundling will not deliver the desired results if the supplier is not allowed to reflect the cost in the electricity tariff. He blamed the regulator – PUCSL – for not amending the electricity tariff for a long time. “There are two schools of thought, and one is of complete financial separation, with each entity converted into a corporate entity (a company) to manage its own affairs, similar to LECO. However, we have to remember that losses incurred owing to the sale of electricity to LECO customers below cost are also transferred to CEB accounts.   “Unbundling may help to carve out a few entities (or companies) like LECO, but unless the price equals costs, this problem will remain. If they are privatised and if the price is not equal to costs, then there will be no electricity supply. Making prices equal costs following a transparent review process is the regulator’s job. That has not happened for 12 years.” Concerns about impactful reforms However, former Minister of Power MP Champika Ranawaka expressed doubts about how effective an unbundling of the CEB would be at present if the Government and stakeholders were not ready to enact meaningful change.  “We tried to carry out an unbundling before; there was an expert committee review done in 2002, which recommended that the CEB be unbundled into six units, like what had been done with LECO. However, the trade unions and engineers objected and politics was brought into the matter, so a meaningful change did not take place. While the divisions were made separate, they remained under the CEB financially, so how can there be competition amongst them? It only created a top-heavy CEB with a number of new AGM positions,” Ranawaka told The Sunday Morning.  He argued that the unbundling process – which had been only partially carried out – led to CEB staff numbers swelling to 26,000. He also blamed the CEB (and the trade unions which have a stranglehold on it) for not sharing key performance data with the regulator and the Ministry so that the efficiency of each unit could be regularly appraised and corrective action taken when they underperformed.    “The trade unions, the engineers, and other staff have links to political parties and do not want to share performance details. The regulator [PUCSL] had to take them to court – this is ongoing. If the regulator cannot get the details, they can’t assess efficiency and therefore can’t take action to punish malpractice or underperformance. That would not be the case if each unbundled unit was made responsible for their funds and accounting.”  Ranwaka also stressed that if the unbundling process was to be introduced, it should be a system where each unit was responsible for its own finances and should have strong transparency regulations and penalty conditions put in place. “We need to include Key Performance Indicators (KPIs) and link them to an incentive and penalty system to ensure there is best service and utilisation of funds and resources in the public interest,” he said. Colombo-based ICT policy and regulation think tank LIRNEasia founding Chair Professor Rohan Samarajiva also echoed MP Ranawaka’s concerns. Prof. Samarajiva also advocated for benchmarking to be included in the restructuring process. “I feel simply unbundling the CEB may not be enough. Unbundling, had it been done right in 2002, may have worked, but it is not adequate for 2022. We need more transparency in the form of access to data and an independent way to analyse and act on the data from the units,” he said.  Prof. Samarajiva also pointed out that the two-month timeframe afforded to the committee appointed by the Ministry to study the issue and make proposals for restructuring the CEB was insufficient. He opined that more time would be needed to develop a well-thought-out and practical restructuring proposal.