Resource Management Associates (Pvt) Limited | Energy sector in the Budget: A Missed opportunity - Resource Management Associates (Pvt) Limited
14126
single,single-post,postid-14126,single-format-standard,ajax_fade,page_not_loaded,,wpb-js-composer js-comp-ver-3.7.4,vc_responsive

Energy sector in the Budget: A Missed opportunity

News_Energy sector in the Budget A Missed opportunity

Energy sector in the Budget: A Missed opportunity

07:18 11 December in news

The budget proposes to establish a Special Purpose Vehicle (SPV), implying a fully-owned subsidiary of CEB to own and operate the Norochcholai power plant, and goes on to say that it will improve CEB’s financial position (para 393). What kind of logic is that? An SPV certainly will separate the accounts of this power plant, will allow anyone to know how much it actually costs to produce a unit of electricity from that power plant, but is that all that is required to ensure business-like operation of the industry? The economic regulatory clauses of the Electricity Act of 2009 are yet to be fully implemented.

Even the terminology is incorrect: the first occurrence of the term “energy” in para 112 uses incorrect phrases, even by the standards of the common man. Look at this: “It isessential that we increase utilising latest technology in solar and biomass based energy generation in place of fossil based power usage in electricity, transportand related sectors.”

“Fossil-based power usage in electricity sector”: What kind of English is that? What does that mean? Who can “generate energy”? Haven’t the writers of the budget speech been to any Science class even in Grade 6 in school? Isn’t a pass in Science required to be even a clerk in the Ministry of Finance?

The country runs without a written energy policy (2008 version needs revision) and has some look alike policy documents which look more like political documents, with no time targets and institutional responsibilities attached to achieve goals.

Renewable Energy and Energy Saving

Then in para 231, it says: “In order to encourage energy saving, I urge owners of residential premises to convert to solar energy, and the cost would be considered as a qualifying deduction for tax purposes”. How is energy saved when using solar energy? The budget speech writers do not even understand that what solar energy can do is to substitute another form of energy, but not save energy. The budget is totally silent on regulatory actions and incentives required to progress with energy saving, at least to match what other countries have achieved.

In para 500 it says, “I encourage the CEB to partner with the private sector to harness such (renewable energy) sources not only to meet the domestic requirements but also to export the excess. It is expected that such endeavors will enable the country to be less dependent on oil as well as providing cheaper electricity to the consumer”. How can the excess be exported? To which country? Why then is the budget silent on the proposed India-Sri Lanka Grid Interconnection? What calculation has the Finance Ministry got to explain that electricity from renewable energy sources can be cheaper? The paragraph seems nothing more than a statement by a schoolboy participating in a school debating team, where such statements are often heard.

Then it goes on even further into the mess, in para 501: “I also propose that Letters of Intent issued by the CEB for Non-Conventional Renewable Energy projects (NCRE) that has already been issued but unutilized for more than 1 year asat 31. December, 2015 will cease to be operational”. Grammar and the structure of the sentence are odd, but obviously, this is a result of some individual lobbying at the Finance Ministry, rather than the result of a proper study of the approval process and the status of the renewable energy industry. The conditions for expiry of a Letter of Intent are written in that document itself. Furthermore, use of terms such as “unutilized” indicate that the budget speech writers have absolutely no knowledge of the process of approving and executing renewable energy projects under Sri Lanka’s small power development program. The process is governed by the Sri Lanka Sustainable Energy Authority Act.

Sri Lanka’s renewable energy industry is effectively at a standstill, except for the handful of old approvals issued several years ago being implemented, some changing hands and never getting built, and the households continuing to spend on roof-top solar electricity systems. The budget has absolutely no policy contribution to further the cause of renewable energy or to rejuvenate the system we had in operation for decades to encourage renewable energy-based power generation.

Power Industry Structure

The budget proposes to establish a Special Purpose Vehicle (SPV), implying a fully-owned subsidiary of CEB to own and operate the Norochcholai power plant, and goes on to say that it will improve CEB’s financial position (para 393). What kind of logic is that? An SPV certainly will separate the accounts of this power plant, will allow anyone to know how much it actually costs to produce a unit of electricity from that power plant, but is that all that is required to ensure business-like operation of the industry? The economic regulatory clauses of the Electricity Act of 2009 are yet to be fully implemented. Accelerated implementation the second coal-fired power plant, implementing all renewable energy technologies and quantities that is cheaper than oil to produce electricity, clear financial separation of the CEB business units, progressive reduction of transmission and distribution unit costs, and the Minister of Finance keeping his promises (hitherto always broken) of making good the Govt-dictated subsidies to low-user households and religious customers, are key to addressing the liquidity issues at CEB. Half-baked statements in the budget alone will not make CEB profitable.

Electricity and Petroleum Pricing

The much-talked about and promised many times by the energy sector powers that be, the “price formula” or the “mila sutraya” came a cropper when kerosene and LPG prices were arbitrarily reduced in the budget. Surely the Rs 10 and Rs 150 had no calculation to back the numbers, and were arbitrary, and hence can be similarly increased arbitrarily. The joy of gas users and kerosene users will be short-lived. The government of 2001-2004 did have a transparent pricing formula for petroleum products, and customers were gradually developing some confidence in the formula. It actually proved that “what goes up can actually come down”, when the Government of the day with reasonable honesty, implemented the petroleum pricing formula. Import prices, taxes and delivery charges were all in the open. But this budget remained silent on the formula. Similarly for electricity, the budget is silent about making prices reflect costs (and reasonable costs at that, benchmarked to international costs), which is the one and only thing that is required to make CEB viable. The reference to strengthening regulatory legislation (para 390) with no target date, is old news. Empty statements will not take the sector anywhere.

In summary, what the budget displays with regard to the energy sector is the absence of consultation of the Ministry of Power and Renewable Energy, Ministry of Petroleum, key Government agencies CEB, CPC and Sri Lanka Sustainable Energy Authority, and the sector regulator, the Public Utilities Commission.

Rather than filling the budget with incorrect, incomplete statements and arbitrary numbers, which in turn are misunderstood to be Government policy by both national and international agencies, it would have been much better if the budget left the energy sector to look after itself, but only address (i) the issue of financing the electricity and petroleum subsidies to low income, low user households (and send a subsidy cheque to CEB, LECO and CPC every month, and then demand financial performance of those state-owned enterprises), (ii) full implementation of the Electricity Act, (iii) speedy completion of the new Petroleum Act.

All along, the Ministry of Finance has displayed that it believes that it knows all about all the sectors, but the present budget displays that it knows only very little about the energy sector, and cannot even get the terminology correct. Never mind; it has been like this all along, and this budget is no exception.

By Dr. Tilak Siyambalapitiya

Source : The Island | Sunday, November 29, 2015