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Serving Sri Lanka

This web log is a news and views blog. The primary aim is to provide an avenue for the expression and collection of ideas on sustainable, fair, and just, grassroot level development. Some of the topics that the blog will specifically address are: poverty reduction, rural development, educational issues, social empowerment, post-Tsunami relief and reconstruction, livelihood development, environmental conservation and bio-diversity. 

Thursday, September 21, 2006

N’cholai, Upper Kotmale and new electricity bill

The Island: 21/09/2006" by Dr. Tilak Siyambalapitiya

Now is the time to pay for the drama you Sri Lankans watched and enjoyed for the past 10 years. Should we build Norochcolai and Upper Kotmale ? From 1996 to date, the Bishop of Chilaw and NGOs blocked the Norochcholai coal-fired power plant, which was to produce by now, 900 Megawatt (i. e. 50% of your electricity) at half the price of oil. For ten long years, the Bishop and NGOs did not allow Ceylon Electricity Board (CEB) to build the power plant.

You electricity customers, never ever supported the electricity planners. Your chambers of commerce and industry were largely silent when power plants to produce cheaper electricity were being repeatedly sabotaged by religious leaders, environment NGOs and politicians. Perhaps you thought that somebody should teach CEB a lesson, or you thought electricity officials are all corrupt to recommend coal power and hydropower to earn commissions. Some journalist even wrote that all these power plants are unnecessary projects proposed by officials.

So, now is the time to payback.

Of course, with each election, politicians both blue and green, promised they would not build the Norochcholai power plant. Leaving the specialists aside, Presidents, Prime Ministers, Leaders of Opposition and the Bishop made statements on environment, economics, logistics and engineering. The first national politician to publicly announce in 1997 that the project would not be built if he was elected to office, and repeated it at each election prompting other politicians to promise they too would not build the power plant, is still in the opposition.

The case of Upper Kotmale is not different. First it was the Environmental Foundation Limited (EFL) that put the project through a series of legal cases, which caused the project to be delayed by four years. Then the Consultant to the project, the Government’s very own Central Engineering Consultancy Bureau (CECB) worked against the project for years. Then emerged the political opposition, which took a further four years to resolve. Today, Upper Kotmale would have produced 1.5 million units of clean energy per day at Rs 3.50 per unit, and that was not to be. Today CEB produces the lost energy from Upper Kotmale by burning fuel oil at three times the cost, emitting not less than 6 tons of sulphur to the atmosphere each day. And the environment NGOs want you electricity customers to believe that they have done a great favour to the country and its environment.

The country went through two serious periods of blackouts (1996 and 2001/2), caused the economy to dive to negative growth, which too were not adequate to convince the Presidents, leaders of opposition, the Bishop, the political parties and NGOs to let the two projects proceed.

Finally it was the Government of 2004 that decided to implement the two projects, come what may, which resulted in the agreements being signed in 2005, and inauguration of the site work in March and May this year.

The New Electricity Prices

The individuals and NGOs listed above are now silent when your electricity bills increase. The projects they opposed for a decade are now being built precisely in the same manner they were originally planned, but at a significantly higher cost. World prices of steel and cement, the two main ingredients required to build any power plant, doubled in price while Sri Lankans were happily debating about the two power plants for ten long years. When the Bishop began his opposition to Norochcholai in 1996, the difference in production cost between Norochcholai and a diesel power plant, was a mere one rupee for a unit of electricity. Today the gap is more than four rupees, and you electricity customers are now paying for it. The gap between Upper Kotmale and a diesel power plant is more than five rupees for a unit of electricity.

Electricity prices have been increased from 1st September for all customers, except those consuming less than 30 units per month. About 30% of the households are in this low consumption bracket, but everybody else has to pay. If your consumption is in the range of 100 units per month, your bill will increase by about 17%. If you consume 200 units, the bills will be up by 25%, and the increase will be 30% for customers using around 300 units.

The biggest blow will be to commercial and industrial customers. A medium-scale commercial customer (these include offices, schools and hospitals, both state and private), would see the bills rising by 31%, while demand charges have been slightly increased, and fixed charges will remain steady. The biggest blow is to medium and large industries, who will see their electricity bills rising by levels up to 37%.

Of course, a part of these bills will be termed as "fuel adjustment charges", on which there is no hope of reduction until year 2015, when the full benefit of coal-fired power plants and other hydroelectric power plants would be available. Although Norochcholai is scheduled to produce electricity from 2011, CEB would need at least 50% of its electricity to be produced by coal, before electricity prices are stabilised at regionally competitive levels. And that will be in 2015 ! So, ten years of mistakes since 1995, corrections applied in 2005, and if the on-going corrections are applied vigorously, the results can be seen by 2015.

Electricity has been sold below cost from about 1995, but there was some recovery after oil prices dropped in 1998. Ever since 1999, CEB has been reporting losses. The accumulated debts are said to be approaching the 100 billion rupee mark.

Generation, Highest Share of Cost

At the fuel prices prevailing in the last week of August, the typical cost structure of electricity supply in Rs per unit, would be as follows:

Average generation cost: 8.28, provision for network losses: 1.62, network maintenance, routine upgrades and overheads: 2.50, TOTAL=12.40. Any person looking at the above costs, would agree that it is the generation costs that have to be reduced, to manage the electricity prices. That is precisely what electricity planners have been recommending, asking and pleading for over the past two decades. Build coal-fired power plants, build the remaining hydroelectric power plants. However, professionals were pushed aside while politicians and Bishops were making decisions. Or were rather not making decisions.

If Norochcholai and Upper Kotmale were allowed to proceed on schedule, the average electricity supply cost would have been as follows: generation cost: 5.00, provision for network losses: 95 cts, overheads: 2.50, TOTAL= 8.45 Rs per unit. This is exactly the price of electricity that prevailed in August 2006.

CEB would have been making profits, not asking for favours from the Government, customers would be happy. Politicians would not have had to call the electricity sector, a monster. But this was not to be.

There certainly is hope, hope of relief in electricity prices. Norochcholai and Upper Kotmale projects are proceeding. Housing for relocated families are being built at both projects. Major civil works would begin in both projects towards the end of this year. In addition, the Trincomalee coal-fired power plant project is nearing agreement stage, but there is a long way to go. If all go well, the price increase in electricity that you will pay from this month can be withdrawn gradually from year 2011, and fully withdrawn from year 2015. Yes, Sri Lanka has been making mistakes with the electricity sector for 10 years, and it takes nearly 10 years more to see the benefits of the corrections now being implemented.

Forces against projects

Over 300 families are about to receive new housing in Upper Kotmale, and 70 families are about to receive new houses plus one-and-a half acres of land at Norochcholai. Forces against the projects are still active. Processions are being organised by NGOs and interested parties, generally from outside the project areas. Various legal moves are being contemplated and pursued against the two projects, which are moving ahead in full compliance with all environmental laws of the country.

The cheapest oil-burning power plant with CEB costs 8 rupees a unit of electricity for fuel alone. If Norochcholai was operational, it would have a fuel cost of 3.82 rupees per unit. Thus the saving is at least Rs 4.18 per unit of electricity. Norochcholai was to produce 20 million units today, if it was allowed to be built on time. Therefore, to compensate for each day of delay, you electricity customers are paying at least Rs 84 million per day.

Norochcholai delay costs 84 million rupees per day

If Nororchcholai is delayed by one extra day, the electricity customers will be called upon to pay an extra 84 million rupees per day. The treasury will convert that money into hard currency, and pay to buy more and more oil. Protesters and NGOs, and perhaps some prospective power plant suppliers too, are doing their best to force further delays on these vital power plants.


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