YAHAPALANA GOVERNMENT IN ACTION   Part 2
Posted on August 16th, 2018

KAMALIKA  PIERIS

The Yahapalana government has meddled in the  energy sector and  has created problems for the future provision of electricity to the country. Firstly, Yahapalana cancelled the proposed Sampur Coal Power Plant, planned to start operations in 2018. It took ten years to clear the hurdles of land ownership, relocate residents, obtain approval and so on for Sampur, complained the  experts. It was scrapped as soon as Yahapalana came to power. Cancellation of Sampur at the last moment, will cost Sri Lanka Rs. 200 billion in the next five years,   CEB said in May 2018.

Our main problem today is the lack of power plants said CEB. After Norochcholai, no low cost power plants have been added to the system, although each year the demand went up by 200 MWS. A major low cost (coal-fired) power plant is an urgent necessity, said CEB. The CEB is now running at a loss. And this will go on till we commission another low cost power plant. Further, after Sampur was cancelled, all our plants are running full time, and we cannot do repairs’.

In 2017, there arose a tussle between the CEB and Public Utilities Commission of Sri Lanka (PUCSL) over inclusion of coal in the ‘Least Cost Long-Term Generation Expansion Plan-2018-2037’ (LCLTGEP) prepared by the CEB in 2017. The base case plan recommended by the CEB contained a mixture of coal, Liquefied Natural Gas (LNG) and renewable energy plants.  It included multiple coal power plants generating 500 MW of coal power.

The PUCSL had scrapped the proposed coal-fired power plants  and replaced them with LNG. The plan approved by PUCSL contained no coal power plants. PUCSL  said they were simply following the decision  given to it by the Cabinet Committee on Economic Management (CCEM)  headed by Prime Minister Ranil Wickremesinghe, that ‘there will be no more coal power plants in the country. We submitted the plan in 2017. How could we have submitted a plan in 2017 based on policies that were declared in 2018, asked CEB. CEB opposed the PUCSL and sought Cabinet approval to go ahead with its original plan.

CEB said it was firmly for coal. Modern coals plants have indoor storage and closed emission of coal dust. Even Norochcholai is now functioning well, the breakdowns are over. Coal is the single largest source of electricity generation in the world, providing 40% of power even in 2016.  Environmentalists wish to see an end to coal plants, agreed CEB,  but producing energy from wind and solar is far more expensive at present than coal. Wind and solar energy will get cheaper as the technology develops but not now, said CEB. CEB said that what is urgently needed now is an  affordable uninterrupted power supply.

There developed an ongoing tussle between the two authorities. The CEB said that the PUCSL could not tamper with its plan, and the PUCSL said, yes it could. PUCSL is the authority tasked with ensuring uninterrupted electricity supply to the country said PUCSL. PUCSL has the mandate to review, amend and approve the plan.” We can use powers vested with us by the Act at anytime.  Analysts in the meantime, observed that CEB’s long term planning report, is a comprehensive one, issued regularly from 1990. It is unique and unparallel among all utilities in south Asia and perhaps the entire developing world. (CCI Bulletin 15( 39) of 28.6.18 issued with Daily News )

The matter went back and forth, with the CEB calling on President, Cabinet, Ministry of Power, and Renewable Energy to support their cause. The delay in implementing the long term power generation plan had caused Rs 50.8 billion loss as at November 2017 and since then has been incurring Rs.3.43 billion in losses per month, said PUCSL.

Finally, Cabinet approved coal plants using clean coal technologies using super critical or ultra-super critical coal. Coal remains the best least cost electricity generation option, according to energy sector experts (Cabinet paper no 21/2018/PE). This was based on a Joint Cabinet Memorandum submitted by the Power and Renewable Energy Ministry and the Special Assignments Ministry. PUCSL was asked to include multiple coal power plants. The President’s Office  also  asked PUCSL to approve the CEB plan. It has been over two weeks since PUCSL had received the letter,” said CEB in May 2018. But  they are delaying even after a directive was given by the President himself.” The problem between the Engineers Union and the PUCSL has been dragging on for about a year and there has been no solution beside the intervention of the President and the Prime Minister,”  observed critics.

The CEB issued a  list of demands and threatened to strike. They wanted approval be granted to the CEB’s LCLTGEP 2018-2038 plan, immediate action be taken to allocate lands to build low-cost power plants,  and a proper mechanism to provide a government subsidy to the CEB for incurring losses as a result of no new power plants being built. They  also called for the amendment of the Sri Lanka Electricity Act No 20 of 2009 to remove impediments for the proper functioning of the CEB.

The CEB also demanded the removal of the PUCSL Director General saying he was  acting on behalf of powerful groups who stood to benefit from LNG and renewable energy. The DG was transferred to the Ministry of Economic Affairs.  CEB also wanted ‘professionals with high integrity and an unblemished record  appointed to key posts in the PUCSL. Some of the officials at the PUCSL are unprofessional and are attempting to thwart what the CEB is trying to do. When there are power cuts you will see the results of their action,  said CEBEU. The tenure of the PUCSL is to end shortly. We hope they appoint independent and professional individuals the next time.

CEB Engineers’ Union said the country was in dire straits due to the failure to set up new power plants. After 2015 when the Norochcholai plant was opened, not a single power plant was started. The demand for electricity grows by 200 MW a year and at present we have a shortage of around 500 MW, they said in  March 2018.  The new projects  included liquid natural gas (LNG) and thermal power plants. These were expected to generate about 1000 MW and were to begin n 2018 or 2019, but may now be delayed till 2020.

In February 2017 CEB called tenders to procure brand new gensets ( machines used to generate electricity) of a total 50 MW capacity to create its own fleet, ready to be dispatched to counter any shortages in any emergency situation. The 50 MW tender was won by an Indian company, Sterling & Wilson (Pvt) Ltd.  The contract has not been awarded up to now, reported the CEB in December 2017.  If the  gensets   had been bought, country would now have a national asset of 50 MW emergency power, ready to be dispatched. In April 2018 CEB announced  instead  , ‘we are looking at the possibility of using generators owned by the government and government owned entities in emergencies. There are more than 150 MWs of government owned generators in various government institutions’.

The tender for the proposed 300 mw LNG Kerawalapitiya power plant was delayed in 2016  for over for 18 months, due to haggling among politically backed interest groups.  In the first round, the Technical Evaluation Committee (TEC) had recommended 6 bidders for financial evaluation.  But only Samsung C&T, Korea Midland Power Co (KOMIPO) and GS Energy consortium qualified. The other bidders could not come up to the minimum functional specifications, which said that the plant must be geared to operate on both liquid fuel and regasified LNG.

But Samsung got knocked off. At the opening of the financial bids in August 2017, the Tender Board was unable to access the pendrive that had been submitted by the consortium. And officials refused to peruse the contents of the pen drive using the laptop computer of the consortium’s  representative. Our price bid was not opened as they brought a dud computer,” this agent alleged. They have to open our bid to arrive at the price. Knowing all this, they sabotaged our bid.. Samsung   was the only technically qualified offer, said analysts.

With Samsung out, the contest then narrowed down to two parties, CEB’s LTL Holdings (Pvt) Ltd  (Lakdhanavi) and China’s Golden Concord Holdings (GCL) with its local partners WindForce & RenewGen. Before a decision could be taken, the SCAPC dealing with the tender (Standing Cabinet Appointed Procurement Committee)  was disbanded on the instructions of the CCEM(Cabinet Committee on Economic Management) which is headed by Prime Minister Ranil Wickremesinghe. The Prime Minister claimed that the SCAPC had not acted according to the recommendations of the  TEC.

A new SCAPC was appointed with instructions  to open the financial bids of  all those shortlisted by the TEC. This was, therefore, the second SCAPC and the second tender opening, observed analysts.  Changing a Tender Board during the course of an ongoing tender is political interference, charged  critics.

In April 2018, the TEC recommended the award of the tender to Lakdhanavi. SCAPC backed this decision.  The CEB trade unions  added, As a union, we supported the idea of doing this power plant through the CEB but the Government said it did not have sufficient funds,” Even when we had issues with regard to the PUCSL (Public Utilities Commission of Sri Lanka) and we were boycotting tender boards and TECs, we supported this project to avoid a power shortage in 2018-19.”

Protests were made to the  Procurement Appeals Board (PAB) by GCL and Samsung. Samsung complained to the PAB that it was the only bidder who qualified after the second stage of technical evaluation. Secretary, Ministry of Power and energy, Dr Batagoda,  wrote to the Procurement Appeals Board (PAB) supporting GCL’s tender.  The private power supplier, ACF complained to the Bribery Commission that Dr Batagoda had from the start conspired to have the tender awarded to the Chinese GCL Company.

Batagoda said  During this tender evaluation, M/s Lakdhanavi Ltd has sent various letters to Prime Minister , CCEM ,  SCAPC and the Ministry making many representations. Lakdhanavi also sent legal opinions from their lawyers during the tender evaluation. This indicated that  Lakdhanavi is getting inside information during the tender evaluation from members of the TEC, SCAPC or others. SCAPC entertained some of these letters.  Batagoda also thought the financing of the Lakdhanavi proposal is highly risky”.

This project shows how tender processes in Sri Lanka, even when they are open competitive bids, are blatantly manipulated, said  critics. Both GCL and LTL have used their political and institutional muscle so  much that this can never be seen as a clean process. Haggling by powerful parties backed by political interests has held up an urgent electricity project that should have been up and running by January 2019.

Kerawalapitiya tender was  deliberately delayed because Yahapalana  government  wants to  encourage private investors to establish high-cost power plants charged CEB . In December 2017  CEB called for tenders to establish expensive 100 MW emergency power plants in the country. ‘Those proposed plants will be set up in the Hambantota, Habarana, Galle, Matugama and Pallekele areas and these 100 MW tenders are intended and designed for Aggreko, said  a  CEB  trade union. Aggreko,  is the world’s largest temporary power generation company,

Aggreko was awarded similar 100 MW tenders for power installations at Hambantota, Habarana, Galle, Naula and Kurunegala in early  2017 for a unit price of Rs. 28 per KWH, which ultimately incurred a Rs. 12 billion loss for just 6 months for the CEB, the union complained. The equipment of Aggreko are still in Sri Lanka in those sites, despite repeated notices given by CEB to demobilize and evacuate from the country within 30 days of its contract expiring in August 2017, If Aggreko is retained in the country, CEB will incur a further loss of Rs. 2.2 billion just to pay a fixed charge for an asset not owned by them.Aggreko  stayed. Aggreko International Projects Limited and a unit of Sri Lanka’s Hayleys group won a tender to supply 100 MW of emergency thermal power to the national grid in March 2018. .Aggreko will supply 56 MW at the rate of Rs.28.063 per kilowatt hour,

The prolonged delays in introducing new low-cost, long-term power plants has led to dependence on independent power producers (IPPs) Electricity from IPPs is very  expensive and IPPs are not  a preferred alternative. Electricity from IPPs is typically expensive. While it should be relied upon only in emergencies, prolonged delays in introducing new low-cost, long-term power plants has led to dependence on IPPs to bridge the gap, said critics.

In March 2018 Ministry of Renewable Energy  submitted a Cabinet paper requesting Rs. 2.5 billion to purchase 100 mw supplementary electricity from private power generating sources for six months with the option to continue for a year. The ministry admitted  that  this was due to the delay in constructing new power plants. CEBEU said that such a private purchase would cost a staggering Rs 9 billion for six months. Also that buying 100MW would not be sufficient if there was a breakdown at Norochcholai or any other power plant,  If this situation continues for two more years and we have to buy power in this manner, it will be the consumer who will have to bear the costs,” they  warned.

In July 2018 the Cabinet  approved the extension of CEB’s ‘expensive” power purchase agreements ‘  with three retired” IPPs whose contracts had  ended .They are Ace Power (Pvt) Embilipitiya (100 mw), Heladanavi Ltd (100 mw), and Ace Power Generation Matara (Pvt) Ltd (20 mw).

These are the same plants that the Cabinet in 2016 granted approval for the CEB to buy outright. But the purchases have not materialized even more than two years after the decision,  said CEB, thereby necessitating several extensions of costly PPAs to meet energy shortfalls.These agreements have caused serious losses  to CEB. CEB has to purchase power at a higher price. All  because CEB  has not taken steps to build new power plants since 2014.

Secretary, Ministry of Power and Energy, Batagoda  explained in detail. CEB had  allowed the contracts with Heladanavi , (Puttalam), ACE Power, (Embilipitiya) and ACE Power Generations Company, (Matara) to expire, between 2014 and 2015 as the Rajapaksa administration wanted to produce electricity only through CEB.

However, with the change of government  , the policy changed. The Yahapalana government has decided to procure power from the private sector and the CEB will not invest in power generation projects,” he  said. Sri Lanka will be dependent on these plants till 2020, when new power plants, LNG and solar, are expected to be built declared critics.

Only Ace Embilipitiya  a 100 megawatt thermal power station running on heavy fuel oil, has so far signed  on. In April , 2018 CEB extended its short term power purchase agreement with ACE Power Embilipitiya, for another three years,  despite the objections of Deputy General Manager, Energy Purchases, Abeywickrama and without approval from the PUCSL.. In July  2018, the CEB paid ACE Power Embilipitiya ,Rs. 840 million,  calculated as Rs 700 million for energy and Rs 140 million for capital cost,  for generating a months’ worth of emergency power.

But the CEB’s Deputy General Manager (DGM) Energy Purchases refused to pass the payment. While Cabinet may have approved the contract,   Electricity Act states that power procurement should be carried out through competitive bidding , he said. The law requires, too, that the selection of a power producer is on the basis of technically acceptable tenders”. PUCSL permission has not been granted and no tenders were called.  Abeywickrama was interdicted for alleged insubordination and Secretary, Power and Energy Ministry authorized the settlement.

These payments have been roundly criticized. The Ceylon Electricity Board (CEB) is set to pay the owner of ACE Power, Embilipitiya over Rs. 2.73 billion in the next three years as capital costs alone, said critics, bringing the total amount that will be paid to ACE Power by the CEB, between 2016 to 2020, to Rs 4.56 billion, which is almost twice the value of the power plant. This is without calculating what CEB will pay as energy costs, fixed and variable costs and operation and maintenance costs. . The government assessor has valued the power plant at only Rs. 2.3 billion,

When the Cabinet agreed to purchase power from ACE Power in 2016, the CEB signed an agreement, according to which it still continued to pay a monthly payment of Rs.76 million to the IPP as capital costs The CEB has already  paid over Rs 1.8 billion for 2016 and 2017 as capital costs for ACE Power,” said COPE . And this amount covers the entire investment costs of the IPP, observed critics.In the ten years that it was in operation, did ACE Embilipitiya not recover its start-up capital with a margin? Why, then, is the company continuing to bill the utility for this component? .

Are the Ceylon Electricity Board’s (CEB) agreements with private power companies structured to earn independent power producers (IPPs) towering profits? And are we, the electricity consumers, footing the bill, asked Sunday Times. Worse, there is a complete avoidance now of the competitive bidding process charged critics.

CEB  also alleges that an LNG mafia” is controlling  the PUCSL. Focus now is LPG  certain interested parties are behind the pro LNG anti coal lobby. Unless we are very careful now, unknowingly, we may be creating an LNG demon, which would have enough money at hand even to decide who our future political leaders are ,  experts warned

CEB says it is not totally against LNG. We have proposed to convert diesel power plants in Colombo to LNG,  said CEB, but LNG needs  oil and oil prices are high.  CEB was conducting a study to determine the Liquid Natural Gas (LNG) requirement of Sri Lanka, the government must wait until the study was over before entering into agreements to procure LNG, said CEB in April 2018.

However, in April 2018 The Cabinet of Ministers   authorized Sri Lanka Gas Terminal Ltd to enter into agreements with the Indian and Japanese partners to establish a pubic private partnership for Sri Lanka’s first LNG terminal. CEB Engineers Union (CEBEU) said that Minister of Development Strategies and International Trade, Malik Samarawickrama   was pushing this.

Sri Lanka Gas Terminal Ltd will hold a 15 per cent stake in this joint venture while 47.5 per cent of the stake will be with the India’s Petronet LNG Ltd 37.5 per cent  jointly in Japan’s Sojitz Corporation and Mitsubishi. LNG terminal is to be located within the Colombo Port and pipelines from the port will transport the gas to two dual-fuel power plants in Kerawalapitiya expected to be completed around 2021.

The  capacity of the floating LNG receipt facility is 2.6-2.7 million tonnes per year. We only need between 0.3 and 0.8 million tons of liquid gas per year. So why agree to purchase 2.7 million tons of LNG per year? What are we going to do with thisasked  CEBEU

In June 2018 CEB announced, that all long term projects have been cancelled.  The  country is drifting towards the use of more diesel not renewable energy, said experts. We have already spent USD       160 million for diesel and various forms of oil. In the first four months of 2018, 42% of electricity has come from oil. ( continued)

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