NewsPower costs see decline

February 11, 2011

Production costs of electricity will decline from 2011 to 2015 and the electricity sector profitability is not too far away, an energy sector expert said.

“By 2015 ,all licencees should report real profits and customers should be paying lower prices than today in real terms. This is as a result of reduction on the use of oil burning power plants and network losses,” Energy Consultant Dr Tilak Siyambalapitiya said.
Delivering the Prof R H Paul Memorial Lecture on “The new electricity pricing policy in Sri Lanka” at the Institute of Engineers he said oil burning power plants will be replaced by coal-fired generation and retirement of several independent power plants will save on capacity charges.

Meanwhile overall improvement in network utilization and efficiency will also have an impact on reducing the production cost.

Dr Siyambalapitiya said the country has embarked on a process to reform in the electricity industry to gradually bring it back to profitability or at least to breakeven so that it would not be a burden on the public. However, the most important factor is the transparency of the process. It is for the first time in the history of the electricity industry in Sri Lanka, electricity customers know how much it costs to serve them with electricity ,how much they pay, and who is subsidied and who has to pay a surcharge.

He said that keeping the new tariff reforms on track and taking it towards full implementation is a challenging task as there are many sceptics, both in the Government hierarchy and in the utility industry.

“However, it is necessary to begin with a positive mind. The reform process has begun and the licencees have become revenue neutral entities from January 1, 2011. If they run the business according to the rules ,by the end of 2011 all licencees should be reporting marginal revenue surpluses, which does not mean the sector has become profitable, because the sector enjoys a debt moratorium until end 2013,” he said.

The licencees accounts are most likely to report losses for 2011 too. But the important issue is whether the sector is on the path of recovery.

“There will be many shortcomings and interferences in achieving the desired goal but can be overcome if the Public Utilities Commission remains string and professional, and the licencees cooperate and stand strong against outside interferences. The customers also must stand strong and demand for their rights and the cost reflective price,” he said.

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