Is the CEB an awful loss-making outfit? Successive governments have messed up electricity policy and pricing

by Kumar David-July 11, 2020, 9:55 am

If with good agricultural productivity and efficiency in milling and transport, it costs Rs 95 to get a kilo of rice to market, and if government decrees that rice be sold at Rs 85 per kg and if annual consumption is ten million tonnes (10 billion kg), somebody somewhere has to bear a loss of Rs 100 billion. Not all the Task Forces in Gota’s world can change that and soon enough the President and his band of merry men will back down. They did. If the cost of electricity at the point of delivery employing the country’s plant efficiently is Rs 15 per unit (kWh) but government stipulates tariffs such that the average revenue at the point of delivery is Rs 5 per unit, and if annual consumption is 10 terawatt-hours (10 billion units) then somebody, somewhere, in this best of all possible worlds, has to bear a loss of Rs 100 billion per annum. Once you get that you have grasped the key to why the CEB is making a loss.

I will flesh this out in three parts. What is the average efficient cost of generation and supply; what is the average tariff; why is the nation’s generation mix so screwed up? On the last matter let me, let you in straightaway on a non-secret. It is successive governments including corrupt and/or stupid national leaders (Presidents, PMs, Ministers and Ministry Secretaries, between the mid-1990s and 2019) who are to blame.

The production cost of non-renewable-source electricity (about 75% in our case) changes with world coal and oil prices and therefore from year to year. But presumably what readers want is a guideline. The cost of coal power (900MW Puttalam power plant) varies between Rs 6.00 and Rs 7.50 and the average I use is Rs 7 per unit. Similarly, the range for oil power is Rs 16 to 20 and I usually use an average Rs 17.70 per kWh. These production prices are internationally normal. The CEB has still not built LNG generation but we can think of production cost of LNG generated electricity as 10% to 20% higher than coal, but you will hear no end of disputations from those with commercial axes to grind. It is not disputed that LNG power is cleaner. Hydro is nearly zero operating cost.

The CEB has a complicated tariff structure varying between domestic, industrial, general purpose (commercial, educational etc.) and religious tariffs. It also employs a maze of crazy slabs for the domestic sector and time-of-day charges, fixed charges and maximum demand charges for industries. So as not to drive readers nuts, I confine myself to samples as follows. A humble home using 60 kWh per month will pay Rs 5.85 per kWh while an upper-class household consuming 150 units a month will encounter an average tariff of Rs 35.20 per kWh. A huge cross subsidy is evident and no meaningful average can be concocted. A large 50 kVA industry supplied at high voltage will pay a fixed-cum-maximum demand charge of Rs 58,000 per month and per kWh tariffs of Rs 5.90, 10.25 or 23.50 depending on the time-of-day. Now take that ice-pack off your brow, the hard part is over.

OK let me make it easier; the total CEB costs divided by the total amount of electricity sold will give us an idea of overall average cost per kWh. This works out at between Rs 17.2 and 18.2 per kWh (mean 17.7) in most years. Next, what is the revenue derived from the maze of tariffs? It’s about Rs 220 billion (The CEB website is woefully out of date and 2017, 2018 and 2019 Annual Reports won’t download so I am extrapolating from 2016). The energy sold is about 14.5 terawatt hours (14.5 billion units) so one can say that the typical price at which energy is sold is Rs15.2 per kWh (220/14.50). There lies the secret to the CEB’s losses – it sells at prices considerably below its perfectly reasonable costs of production. If you sell 14.5 terawatt hours at Rs 2.50 per kWh below cost of production you cannot but incur a loss of Rs 36 billion per annum (2.5x14.5 rounded off). When coal and oil prices rise (global fuel prices move in tandem) losses are higher.

These numbers relating to the operating account are approximate and change from year to year. Hence the CEB’s purported annual loss varies between Rs 10 and Rs 50 billion depending on fuel prices, rainfall fluctuation, and other factors such as movements on the capital account, and recently a 30% fall in industrial electricity demand during the worst of the COVID-19 disruption.

So, someone else not the CEB is to blame for financial losses. Is the CEB a top-heavy corrupt entity that swallows resources at the apex? Not as far as I am aware and I know many senior chaps; some sat in my classes decades ago though I cannot guarantee for how long they kept awake. But seriously, though I have known a rotten egg or two in my 50-year association with the outfit, on the whole it is an elite engineering organisation which an earned reputation for competence. The CEB’s "Administration Costs", in the parlance of the Annual Report, is Rs 4.5 billion per annum; reasonable for an organisation employing about 150 (?) professionals and thousands of technicians. Nevertheless, there are some harsh things I have to say about the CEB which I am reserving for the end. (See table 1)

Another way of judging productivity is cross-country comparison of production costs but I have access only to tariffs, not to internal data. As per what I find on the web (2011 was best as it shows 17 countries) average selling prices vary from LKR 15 per kWh in India and China to a high of LKR 65 in Germany and 76 in Denmark. Comparison is difficult; Northern Europe imposes huge surcharges so as the subsidise renewable wind-powered electricity. The point is that CEB average selling price of Rs 15.20 is acceptable and the corporation is a professional, reliable and to be best of my knowledge not an overly corrupt outfit. But still there are problems; where do they come from? (See table II)

I will not hesitate to say, and I speak from a certain amount of personal engagement, that the big bad wolf that has landed Lanka’s electricity sector in an outlandish mess is government. The fashion in left circles where I belong is the blame JR’s neoliberal 1977 Administration for everything. Sure, I love to do it as well, but a lingering spark of honesty forestalls me. Accelerated Mahaweli was a good project all round - in the power sector as well. Rot started with Chandrika’s mid-1990 Administration. Kick-backs were paid galore at high political levels, even a CEB GM took away a suitcase full according to a now deceased acquaintance of mine who handled the loot, and commercial agents were running amok like 40-thieves! It is the frank view of this commentator that bribery, mainly of state high ups, was commonplace in private gas-turbine, oil-fired, barge and diesel-engine projects.

This was topped by monumental ignorance. I was on a Committee to report on the feasibility of the Sampur coal-fired project which was scuttled even before our report was written because crackpot Sirisena and a band of evangelical environmental dunces surrounding him decreed it be so. At the first meeting the Ministry Secretary informed the Committee that a decision had already been made and invited us "to report our findings". What a crank! He climbed down when another member and I threatened to walk out because "then what’s the use of a committee?" One of our findings was that cancelling Sampur would land the country with a future additional burden of Rs 220 billion since expensive oil-powered generation would have to be used for over 5 years. And this has come to pass.

The "massive losses" of the CEB in the form of multi-billion-rupee debts to the Petroleum Corporation and banks – it would have been worse but for Covid-19 clipping demand – were foreseen and predicted by CEB engineers, consultants and this humble commentator. President, PM, Cabinet, Power Ministry and Public Utilities Commission (PUCSL) played with the nation’s Long-Term Generation Plan like monkeys; they cranked the Plan around like a veralu amme churning achcharu. In the last 12 to 18 months Cabinet decided, undecided, redecided umpteen times to okay LNG plants in collaboration with Japan and India. And now, hey presto a fourth 300MW coal-fired unit is to be added instead at Norochcholi! I had better stop, I am getting angry.

But all is not blessed within the CEB and I wish to make three critical comments; the quality of the Norachcholi generators, the fly-ash disaster in the vicinity of that power station and the CEB-PUCSL relationship. A layman would be forgiven if he thought that one of the Norochcholai generators was picked up from a scrap heap and another was unimpressive as well; the third seems ok. Breakdowns at this plant are as common as a Covid-19 epidemic; 20 to 30 a year sometimes. Why did project engineers contract for them? Were those who visited China and those who finalised the contracts sleepwalking? Maybe they got them for free or at give way prices but never in my professional life have I heard of units that had to be shut down so frequently.

Fly-ash is not the stuff that spews from the stack (chimney) but the millions of tons of ash from incinerated coal that collects at the bottom of the boilers. Every coal-fired station produces millions of tons but the ash is disposed of without becoming a public nuisance or health hazard; and Norochcholai is only modest sized in international comparison. The surrounding countryside to a radius of about 5 km is blanketed in ash, houses are covered like Christmas fluff, children breathe it all the time. The CEB Board and Management has been reprimanded and promises often extracted that measures to contain ash will be taken. Zilch has been done. Incompetence!

Finally, I must add that the relationship between CEB and PUCSL is cat and dog. The statutory power to approve the Long-Term Generation Plan resides with PUCSL which does not have the planning tools or the computing power to make meaningful alterations. However, that does not stop it from amending the plan like one of those aforesaid monkeys. There has to be cross representation and more technically competent membership on PUCSL. This is a complaint as old as the PUCSL itself, but not to worry, nothing will change.