Replacing a state monopoly with a private sector oligopoly

Proposed Sri Lanka Electricity Bill

By Rathindra Kuruwita

If the Sri Lanka Electricity Bill, currently under consideration in Parliament, is enacted, it could empower a handful of private companies, owning transmission lines, to exert undue control over the nation, potentially holding it hostage, the Education Secretary of the Frontline Socialist Party (FSP), Pubudu Jayagoda said.

The Bill, if passed, will replace Ceylon Electricity Board Act (No. 17 of 1969) and Sri Lanka Electricity Act (No. 20 of 2009).

One of the stated objectives of the Act is to attract new investment into the Electricity Industry, supported by segregation and separation of the activities of the Electricity Industry, currently vested in a single Government owned entity, by the incorporation of independent corporate entities in whom shall be vested all activities connected with the generation, transmission, distribution, trade, supply and procurement of electricity and who shall be responsible for the efficient management of these activities and for the creation of market competition, he said.

The other objectives are to facilitate private sector investment in every activity of the Electricity Industry using stock market listing and public private partnership modalities and transition and reorganisation of the Electricity Industry and the implementation of identified reforms based on timely and essential legal, structural, oversight and market-based changes.

Jayagoda remarked that essentially, the government has shifted its stance from viewing electricity as a public good, which it has a duty to furnish, to subjecting the sector to market forces. He noted that with the enactment of the Act, the government relinquishes its responsibility to provide electricity to households for improving their quality of life or to enterprises to stimulate economic endeavours.

“In the recent past, the electricity tariff increased dramatically. Electricity was disconnected in almost a million households and in 11,000 industries,” he said.

Jayagoda pointed out that the tariff adjustments were implemented with the aim of enabling the CEB to achieve a profit of approximately 62 billion rupees. However, according to some experts, the CEB actually recorded a profit of about 90 billion rupees.

“We cautioned that these adjustments were not solely aimed at covering CEB expenses, as claimed by the government, but rather to generate substantial profits. Now, it’s evident to everyone that our concerns were valid,” he remarked.

Jayagoda said according to laws that govern the electricity sector states that the baseload, apart from peak hours, must be generated using the least cost sources.

“Hydro power is the source that we can use to generate electricity at the lowest cost. One can generate a unit of electricity, using hydro-power, under five rupees at most. But the cost spikes to about 40-50 rupees when a unit is generated by coal. A unit of electricity, generated by diesel, costs about 90 rupees, and the CEB buys at around 120 rupees when they purchase from private power plants,” he said.

Thus, it is obvious that the raison d’etre of this Bill is to legalize increased electricity tariffs, he said. The existing laws that govern the sector frowns upon high-cost private thermal power plants, Jayagoda added.

Jayagoda stated that this Bill eliminates these barriers and grants the Cabinet of Ministers the authority to decide on the type of power plants to be constructed. Currently, it is the responsibility of the CEB to determine the selection of power plants.

“The government wants to allow private companies to produce, distribute, and transmit electricity. Giving transmission lines to the private companies poses serious problems. Already, India’s Adani is building a 400 kv transmission line from Kilinochchi to Habarana. Adani got this without a tender. When we ask the Ministry of Power and Energy, they claim this is a government to government project and this there was no need to call for tenders. However, it is a private Indian company that is building the transmission line and thus tenders should have been called,” he said.

Jayagoda questioned the potential scenario where the government seeks to transmit electricity generated by another company through this line. He inquired about the financial implications for the other company, asking how much they would need to pay Adani for the usage of the transmission line.

“What will be the fee for access? And what if Adani refuses to permit electricity generated by other companies to pass through their transmission lines?” Jayagoda questioned. “While the government claims the Bill aims to enhance competition in the sector, in reality, it could result in the formation of an oligopoly controlled by a handful of companies that own transmission infrastructure.”

Jayagoda highlighted that the new Bill has diminished the authority of the Public Utilities Commission (PUC). In Sri Lanka, long-term generation plans are periodically devised, and tariff revisions are conducted. Currently, the PUC is responsible for overseeing the implementation of these long-term plans and determining the extent of tariff revisions.

“The new Bill effectively strips the PUC of its authority in these areas. Additionally, it grants the line minister the discretion to determine tariffs and oversee the implementation of long-term generation plans. Furthermore, the Bill restricts the PUC’s regulatory scope to large-scale power plants, excluding its jurisdiction over small power plants (11 and 33 kV plants). Ensuring that these power plants adhere to specific quality standards is crucial for safeguarding life and property. What are the potential consequences when private entities establish small power plants and generate electricity without any regulatory oversight?” Jayagoda questioned.

Jayagoda pointed out that the new Bill introduces a provision allowing Sri Lanka’s national grid to be connected to the grid of a foreign power, a clause absent in previous legislation. He emphasized that due to its geographical location, Sri Lanka can only feasibly be linked to the Indian national grid.

“Even more concerning is the provision in the Bill stating that it’s the Cabinet of Ministers who will determine the terms of any agreement if our grid is linked to another country’s national grid. This decision-making process has been heavily politicised,” Jayagoda said.

“What if India imposes similar conditions on us as they did on Nepal and Bhutan? In agreements with those countries, India mandated that they purchase a specified volume of electricity from India. As a result, Nepal is now compelled to buy Indian electricity at a higher cost, despite having the capacity to generate inexpensive hydro power. This fate could very well be awaiting us.”

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