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SEA, CEB in heated exchange over wind park project
Officials from the Sustainable Energy Authority (SEA) and the Ceylon Electricity Board (CEB) this week traded words over a Cabinet memorandum submitted in March regarding the setting up of a wind park in Mannar.
Energy experts, including CEB engineers, want tenders to be called to select the best investors for the park with optimum pricing. But SEA officials say it is their prerogative to decide on renewable energy projects as denoted by law. The project is divided into three 
segments: 100MW will be allocated to the CEB; 150MW to private investors through competitive bidding; and 125MW to private investors on a first-come first-served basis, without competitive bidding. Both categories of private investors are permitted foreign partnership of up to 49 per cent of equity.
The CEB, under the Ministry of Power and Energy, buys electricity from wind power producers but the SEA, under the Ministry of Environment and Renewable Energy, issues the licences.
Crucially, the new wind park with an estimated outlay of more than US$ 400 million will be listed under the Strategic Development Projects Act of 2008. This entitles investors to a wide range of tax and other concessions, much of which is valid for at least ten years. A level playing field and transparency are all the more important for these reasons, energy sector analysts insisted.
Prasad Galhena, SEA Chairman, said it was premature to discuss the proposal because it had not been approved by Cabinet. But experts wanted facts revealed to ensure transparency.
“I’m of the view that there is no need for a Cabinet Paper of this nature because this entire subject falls under the purview of the Ministry of Environment and Renewable Energy,” Mr. Galhena told the Sunday Times. “A separate Ministry and an Authority were created to look at these things.”
“Secondly, the Asian Development Bank study in terms of connecting wind power to the central grid is not over yet. As we have indicated, and we have informed them (power and energy authorities) as well, we need to wait till the study is over.”Mr. Galhena insisted that the SEA “believes in one hundred per cent transparency.”
“All the projects since 2008 have been approved on a transparent basis,” he claimed. He said there was no mechanism to 
accommodate open competitive bidding where minor sustainable energy projects were concerned.
The SEA’s contention is that, with small scale renewable energy projects, it is not possible to call for tenders because individual investors often found the resources themselves. For instance, if a developer located a small waterfall, he would submit a proposal to the SEA to set up a mini hydropower project there. There was then no question of inviting bids from others.
“As a policy we are for open bidding, wherever it is possible,” Mr. Galhena said. “But I think it is premature to discuss this because Cabinet has not accepted the memorandum.” A Cabinet sub-committee has been appointed headed by Economic Development Minister Basil Rajapaksa to study the proposal.
“I am one thousand per cent sure that we were not consulted in making this paper and were not part of the paper at all,” the Chairman reiterated.
A senior official of the Power and Energy Ministry countered that the Environment and Renewable Energy Ministry as well as the SEA were consulted. He also said Mr. Galhena’s argument about small scale projects did not apply to the massive Mannar Wind Power Development Zone.
“The Cabinet memorandum was to be a joint paper with Renewable Energy Minister Susil Premajayantha, Investment Promotion Minister Lakshman Yapa Abeywardena and us,” he said, asking not to be named. “But they kept it there for more than three to four months.”
“Mr. Galhena kept promising and promising to get the Minister’s approval but it did not come,” he claimed. “What we heard was that the SEA wanted to give out the entire 375MW on a first-come first-served basis.”
The Attorney General has consistently held that, according to law, there must be tenders called in view of new energy projects. However, the Ministry of Renewable Energy requested Cabinet to bring necessary amendments to the Sri Lanka Electricity Act to exclude small power producers from open competitive bidding. A decision on this is pending.
Energy experts said there were other concerns about the Mannar wind park proposal. The Asian Development Bank, which is funding significant components of the project, has floated a business model that recommends 25MW blocks but makes no mention of 10MW blocks.
“Reducing the capacity to 10MW is likely to cause diseconomies of scale,” warned Dr. Lalithasiri Gunaruwan, an Energy and Infrastructure Economist and Senior Lecturer at the University of Colombo. Moreover, if the objective of the third category was to promote local investors, there is no rationale for allowing foreign equity of up to 49 per cent.
There is also no logic in favouring some investors over others. “Why should one group of producers go for competitive bidding and another be allowed to breeze through on a first-come first-served basis and, most probably, pricing that will work heavily in the latter’s favour?” asked an industry player, requesting anonymity.
Authoritative sources said the ADB had suggested the “negative bidding” methodology, starting from an estimated maximum acceptable bid—or, as the sector analyst earlier quoted earlier called it, a price cap. But the Cabinet memorandum makes no mention of this.
It was originally planned to limit the number of bids an investor wins to a maximum of two, to prevent the creation of monopolies. The memorandum does not allude to this either.
“There is definitely a window being created here for some hanky-panky,” opined an authoritative source. “That is why you get a separate slot for a high price without competitive bidding. Once those contracts are given out, the others will be told to go to hell.”