CEB crisis: Either way the consumer is plugged
By Tyron Devotta
The Ceylon Electricity Board (CEB) has a plan to add upto 11 billion rupees to its coffers this year. To achieve this the CEB has proposed to the government on February 3, tarriff increases. If the new rates are implemented, the electricity bills of lower income groups will increase by more than one hundred percent.

A household now paying Rs. 45 a month will pay Rs. 115 that would be a155 percent increase in its electricity bill. Those paying Rs. 120 at present will see their bills going up to Rs. 190 that will be a 58 per cent increase.

Those paying between Rs. 45 and Rs. 120 are the consumers that use up to thirty units a month and they form close to 900,000 of CEB's consumers. The cash-strapped CEB needs this money to run its operations. The government on the other hand cannot allow this increase. Any increase of this magnitude will have a tremendous impact on the cost of living. The government is at present considering the options.

If the new scheme suggested by the CEB is implemented, close on another 900,000 consumers in the next category will also face massive increases in their bills. Those paying Rs. 121 as a monthly bill will see their bills rise to Rs. 194 -- i.e. a 57 per cent increase and those households paying Rs. 231 will see their bills go to Rs. 301.

Sources in the government energy sector told The Sunday Times that within these two groups there were about ten thousand places of religious worship.

The CEB for years has been inefficient in its operations. And the result of its inefficiency has been passed down to the customers. Sri Lanka's electricity rates, one of the highest in the world, have been an impediment to its economic progress and successive governments in the past have tried in vain to arrest this problem. On September 6, 2002 the then Finance Minister, K.N. Choksy, wrote to Asia Development Bank President Tadao Chino saying, "the power sector had deteriorated in the past several years to such an extent that its critical physical and financial situation is becoming a severe constraint to economic growth and has affected the welfare of the people in general".

The then Minister of Finance was writing to the ADB President asking for finances to support the implementation of the Sri Lanka Power Sector Development Programme. He said the Government of Sri Lanka had resolved to introduce power sector reforms.

Two and a half years later and another government in place the resolve still remains except for one problem -- the CEB unions. They say the present government has let them down. They say that for a party that was against privatization before the elections cannot go ahead with restructuring proposed by the ADB. As this restructuring is akin to privatization.

The ADB expected the overall implementation of the restructuring to take about two years. The restructuring was expected to start on January 1, 2003 and to be completed by January 1, 2005.

Nothing has happened so far as the unions threaten islandwide blackouts and a total crippling of the power supply to the country if the CEB is restructured. The engineers union of the CEB does not believe that the restructuring could have any positive effect on the CEB.

The union says the popular belief among the top decision makers in the present government is that the CEB is at present making huge losses and once it is restructured under the reforms act all the problems in the power sector will be solved. As a matter of fact CEB loses about Rs. 3 per kWh from each unit it sells to the customer.

They say that except for a few trivial problems in the power sector, most of the problems will not be solved by restructuring as envisaged in the reforms act.

Some problems may be further aggravated and sector operational costs will be increased further and will aggravate the financial crisis in the sector. The biggest problem, they say is the inability to generate energy from low cost energy sources such as coal. They say with the world oil prices escalating day by day, if the CEB continues to generate thermal power from fossil oil, the CEB will never be able to come out of this crisis. The restructuring of the power sector into nine companies will not give any solution to the generation crisis.

One of the key solutions to the present crisis is to accelerate the construction of coal power plants using soft commercial loans, the CEB engineers say. They also say the claim that the off loading of debt in the CEB will make the power sector financially viable is not true. The engineers union says that even if the short-term loans of the CEB (amounting to Rs. 27 billion) are off loaded it will not have a high impact on the tariffs. They say the effect on the tariff will be a reduction of fifty cents. The CEB at present has a financial burden of Rs. 80 billion of which 27 billion rupees are in very expensive short-term loans.

The Ceylon Electricity Board Engineers Union (CEBEU) says that if the restructuring is carried out the new companies will have to increase tariffs by at least sixty per cent. The engineers union says that unless this is done these companies will not be financially viable and start accumulating debt.

CEBEU spokesman Noel Priyantha said those in favour of the reforms, take the management of LECO (a state owned power distribution company) as an example of the unbundled company. They even point out the profits LECO is making. Mr. Priyantha said that LECO buys power from the CEB at Rs. 6 per unit -- far below the production cost.

But restructuring is the plan of the government at present under ADB advice. There will be one generation company, one transmission company consisting of two subsidiaries i.e. the systems operators and the transmission functions, one bulk power dealing company that will procure power to meet the forecast demands and sell in bulk to distributors and five distribution companies.

The production cost of a unit of electricity is around Rs. 10 and the selling cost is at an average of Rs.7.70 Electricity selling cost to the consumer is highly subsidized. Hence the massive losses to the CEB. The CEB loses between 35 and 40 million rupees a day.

If reforms happen will there be a reduction in tariffs to the consumer? Will the newly formed nine companies handling generation, transmission and distribution reduce the burden on the consumer.

Nihal Wickramasuriya, Manager Power Sector Reform of the Ministry of Power and Energy, says the new companies will recover costs. "Any industry has to first recover their costs, if you produce something and don't recover your cost of production you are sunk. So naturally any cost will have to be recovered from the customer," he says.

But power prices should go up only to the true cost - not with any unwanted costs, he adds. He explains that the true costs are the generation cost, transmission cost and the distribution cost any thing beyond that he says should be identified and isolated.

At a meeting with the media last week CEB General Manager Ranjith Fonseka identified some of these costs. He said that the CEB was losing large amounts of money due to unauthorized street lamps. He also said that there was energy waste in large government offices, hospitals and Kachcheries. He said "that energy was wasted due to the lack of interest of the employees to switch off lights and other equipment when going out of the office."

Mr. Fonseka said they were also facing huge loses due to illegal tapping in the North and the East of the country. He said that the country's average was around 4.7 per cent for illegal tapping but in the East itself the percentage of loss due to illegal tapping was around 21 per cent.

The reforms manager of the Power and Energy Ministry Nihal Wickramasuriya said the new companies to be set up under the restructured mechanism, will have to have tariffs at least at a break even point. This would mean that there would be an increase in tariff. Consumers from the lower-end right up to the high-end user will face tariff increases unless the government subsidises at this point.

The CEBEU argues that tariff increases are inevitable as almost eighty per cent of the consumers in Sri Lanka enjoy tariff rates below Rs. 4.10. This rate they say is highly subsidized. The CEB's average selling price for this category that consumes below 90 units averages around Rs.4.05 the CEBEU said.

The average cost of producing this electricity is Rs.10. The CEB had its last price increase of 38 per cent in 2002. It needs about 50 per cent increase in tariff to break even. If they go for reforms and restructure the CEB, it will get help from the ADB and JIBC in the form of soft loans. If it doesn't the government may give the green light for tariff increases.

CPC chief calls for use of small vehicles
Ceylon Petroleum Corporation Chairman Jaliya Medagama said Sri Lankans must get away from the mentality that smaller vehicles will not be keeping with their status and indicated that Sri Lankans should take India's example where they had smaller vehicles.

The CPC Chairman said this at a meeting last week, held at the Ministry of Power and Energy where key decision makers in the energy sector and top officials from the CPC, CEB and the media were present. Power and Energy Minister Susil Premajayantha chaired the meeting.

Mr. Medagama was stressing the need for fuel efficiency and said the government was loosing billions of rupees each year due to fuel subsidies. He said that up to March this year they had lost around five billion rupees and the government should seriously take into consideration whether they could afford so much of foreign exchange outflow or whether the government should take sterner steps.

He said the government should look into the matter of the importation of vehicles and serious consideration must be given as to what type of vehicles were imported into the country and whether some categories must be reduced.

He told the gathering that a litre of petrol must be sold at Rs. 83 if the CPC was to break-even but now it is being sold at a subsidised price of Rs. 68 in the outstations and Rs. 70 in Colombo. And diesel he said should be sold at Rs. 81 but was being sold at Rs. 62.

He said the government should pay attention to the policy for fuel subsidy. There is a question he said whether people who should really be getting the subsidy are getting it.

Transport Ministry Secretary D.S. Jayaweera who also made a presentation at the meeting said that 67 per cent of the gasoline subsidy given by the government went to the private motorists. And 49 per cent of the diesel subsidy is used by private motorists especially vans.

He said the government gave both these groups the advantage of low import duty and tax to import low fuel-efficient vehicles. He also said most motorists did not maintain them properly contributing to air pollution.

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