Windfall for some, massive burden for others

The 300-MW combined-cycle gas turbine (CCGT) power plant by the Ceylon Electricity Board (CEB) subsidiaries, Lanka Transformer and its subsidiary Lakdhavani, is reported to be racing ahead to completion.

The CCGT power plant is publicized by Lanka Transformer and Lakdhavani as the first to use low-priced residual fuel oil in contrast to high-priced automotive diesel fuel which all other combined-cycle power plants use in Sri Lanka.

Cabinet approval was obtained by representing that the CCGTs will operate on low-priced HFO and will consequently result in lowering the cost of power generation.

The Ministry of Power or the CEB has so for failed to respond to any of the concerns raised in my paper, published in the Daily Mirror FT recently titled “Kerawalapitiya – CEB Takes Ministers for a Ride: More Burdens on the Consumers”. Is this attitude due to sheer ignorance or arrogance? Today I am challenging the Ministry of Power and the CEB with specific questions.

CCGTs in Sri Lanka have not used HFO for the simple reason that the fuel has contaminants that give rise to rapid corrosion and destruction of the gas turbine and secondary recovery facilities in less than a year when the normal life of the plant if operated with fuels that meet manufacturers’ specifications could last at least 15 years. No gas turbine manufacturer specifications could last at least 15 years. No gas turbine manufacturer has approved the use of HFO. On the contrary every manufacturer, including the three leading manufacturers, General Electric, Mitsubishi and Siemens have cautioned against the use of HFO. Further, the supplier of gas turbines, General Electric, for the Lakdhavani project and the Mitsubishi Corporation a contender for a second CCGT project, have clearly and unambiguously, ruled against the use of HFO on base-load or regular peak-load operations, for which the power plant is required. General Electric will not provide performance and mechanical guarantees based on the use of HFO. Using HFO on a CCGT is similar to using furnace oil in an automobile that is designed to run on gasoline.

That CCGT power plants cannot use HFO though low-priced are facts well known to every CCGT operator in Sri Lanka and the rest of the world. Only Lakdhavani claims that HFO can be used. However Lakdhavani is not a manufacturer, designer or operator of CCGTs. It has never operated a CCGT power plant. The cost to the CEB of the project is Rs 31.3 billion. The likely losses could be another Rs 50 million a day. The capital and recurring annual costs to the economy are so great to warrant the utmost vigilance to be exercised.

Use of ADF (Automotive diesel fuel) is not a choice but the only option for CCGTs when natural gas is not available, as is the situation in Sri Lanka. Lakdhavani presumably knows that a Cabinet Appointed Negotiating Committee turned down this same power plant proposal in 2002, as the price of power was too high since ADF had to be used. In fact it was only recently on August 10, 2007, that the Investment Committee presided over by the President rejected the CEB request to allow the operation of a 300-MW CCGT power plant by the Mitsubishi Corporation, using ADF because HFO cannot be used, for the same reason.

The apprehension that the purported use of HFO could be a subterfuge to obtain approvals and thereafter switch to expensive ADF cannot be ignored. If this were to happen consumers would have to pay for the resulting loss to the CEB that will exceed $150 million or Rs 50 million a day.

The Mitsubishi Corporation stated unambiguously and truthfully that residual fuel oil cannot be used and that high priced automotive diesel fuel would have to be used. Because of the resulting high price electricity production of the proposed project was rejected.

A loss making state agency should take every precaution to prevent additional losses. This does not seem to be happening. The questions listed below have been raised in many quarters earlier but received no response from the CEB. In the public interest, given the enormity of looming additional losses to the CEB, the following questions need to be answered publicly and promptly by the Ministry, the CEB, Lanka Transformer and Lakdhavni:

(1) Other than Lakdhavani’s claim of the feasibility of using HFO, have the suppliers of the gas-turbines and secondary recovery power generators, General Electric approved the use of HFO that contain high levels of salts and metals, as found in HFO that will be supplied by the Ceylon Petroleum Corporation (CPC)?
(2) If so, please send copies so that this respected journal/newspaper could dispel any concerns.
(3) What are the gas turbine manufacturers’ specifications of fuels for the proposed gas turbines? Will you provide the maximum permissible levels of Vanadium, Sodium, Calcium, Potassium and Sulfur specified by the manufacturers?
(4) What are the concentrations of these contaminants in CPC HFO?
(5) What are the consequences of exceeding these limits?
(6) How many gas turbines are on base load or regular peak load operation, for which this power plant is required, that use HFO in Sir Lanka or anywhere in the world?
(7) Has General Electric provided performance guarantees based on HFO?
(8) If so what is the guaranteed life?
(9) Has General Electric provided mechanical guarantees (i.e. against failure due to corrosion or mechanical failure) based on HFO?
(10) If so what is the guaranteed life?
(11) If HFO is ultimately proven to be unusable after the plant is constructed, is it not correct that Lakdhavani would have to use automotive diesel fuel that will cause the CEB losses of over Rs 50 million a day?
(12) Would not the Lakdhavani project be in the same class as the rejected Mitsubishi Corporation proposal?

The CEB losses that run currently at over Rs 45 million a day are the prime cause of the CPC’s losses and debts to banks. Many domestic banks that have lent funds to the CPC and the CEB are in eminent danger of collapse unless funds owing to them are repaid by the CPC and the CEB. To add to these woes, saddling the Treasury with a further Rs 50 million a day is tantamount to criminal deception.

The minister has presented several cabinet memoranda drafted by his Secretariat. Among the responsibilities of a ministry secretariat is to conduct due diligence on cabinet memoranda before submitting for the minister’s signature. This was the sacred responsibility of the Secretaries of the Civil Service of a bygone era. Expected of these custodians of the public interest were diligence, integrity, independence and adherence to laid down procedures for the conduct of public business.

Times have changed. While the public cannot expect the same sterling administrative qualities and independence, the public still has a right of compliance to minimum standards of integrity and diligence of its paid servants.

Perhaps given the apparent indifference of those entrusted with the task of minding the public’s interest, civil society institutions such as the Organization of Professional Associations, the Chamber of Commerce and the Sri Lanka Engineers' Institution should take upon themselves to review the concerns expressed herein. If the concerns expressed are valid, then in the public interest the concerns should be brought to the attention of the President. The cost of electricity affects every strata of society, cost of industrial production and the country’s economic progress. Energy planning should be in the hands of truly professional women and men of integrity. If the authorities persist in proceeding with the Kerawalapitiya (CCGT) Power Plant, it will face the same fate that befell the ‘Urea Plant at Sapugaskanda, which was sold virtually as scrap. Whether it is scrapped or operated, the burden will fall squarely on the consumers.