CEB’s Kerawalapitiya headache

By Mandana Ismail Abeywickrema

Lanka Transformers Limited (LTL), a state owned entity, is at the center of controversy with allegations of corruption and irregularities being levelled against it by other state institutions as well as the Committee on Public Enterprises (COPE).

Many controversies surrounding LTL, of which the Ceylon Electricity Board (CEB) holds a 63% stake, have come to light with a conflict between CEB and LTL over an alleged attempt by LTL to earn an additional Rs.1 billion from the CEB as capacity charges for the Kerawalapitiya power plant.

The capacity charge for the plant amounts to about Rs. 500 million per month, CEB engineers said, adding that LTL’s move to claim money for an additional period would cost the CEB approximately Rs. 1.6 billion.

The CEB that incurs close to Rs. 1 billion in losses each month has been further burdened with additional expenses due to an attempt by LTL to continue to draw millions of rupees on a monthly basis for the Kerawalapitiya power plant even during the period it is to be shut down for the installation of the combined cycle plant.

An inquiry needed

CEB engineers say that LTL’s business transactions as well as the formation of subsidiary companies have now increased the need for an inquiry to be conducted into the matter.

According to the engineers LTL’s actions have adversely impacted the CEB’s finances as well as the consumers who are waiting to enjoy low cost power with the completion of the Kerawalapitiya combined cycle power plant.

The Kerawalapitiya power plant also known as the West Coast Power Station was constructed, managed, operated and maintained by LTL subsidiary Lakdhanavi.

The open cycle operations of the plant was to end on September 15, 2009 when the installation of the combined cycle plant was to commence in order to complete the project by mid 2010.

The CEB, which has been making capacity charges amounting to millions of rupees on a monthly basis, was to stop its payments to West Coast Power from September 15, 2009 till the combined cycle operation was commissioned.

LTL demand

However, LTL authorities who also own West Coast Power has demanded that the CEB continue the monthly payments amounting to millions of rupees claiming the plant would be available as there is no end date for the open cycle operations.

At first, LTL Chief and CEO, West Coast Power, U.D. Jayawardena had informed CEB’s Deputy General Manager, Energy Purchase Branch, Transmission Division on August 13, 2009 that the combined cycle operation date will be as per the PPA (Power Purchase Agreement) and activities related to combined cycle will be notified accordingly in advance.

Jayawardena has also in letter dated August 14, 2009 to Acting Deputy General Manager (Planning and Development), Ceylon Petroleum Corporation in reference to the fuel oil supply to the plant, has said the Kerawalapitiya power plant would be intermittently shut down for combined cycle erection and that the plant would be shut down from September 15, 2009 till October 15, 2009.

However, the change of dates in the plant shut down came about when CEB Deputy General Manager (Energy Purchase) informed West Coast Power CEO Jayawardena on August 20, 2009 that once the open cycle period of the plant ended on September 15, 2009, the Board would accept energy once again during the combined cycle commissioning period.

CEB’s response

In response to this letter, Jayawardena on August 21, 2009 informed the CEB Deputy General Manager (Energy Purchase) “the commissioning of the plant for combined cycle operation will not commence on 15th of September 2009.”

He says, “According to the PPA, CEB is required to receive and pay for all energy generated during the commissioning period for combined cycle operation of the plant and that will arise only when we commence the commissioning after giving due notice to CEB under Section 5.8.1 of the PPA and obtaining CEB’s approval. Until we commence the commissioning of the combined cycle as stated above, the plant will be within the open cycle operational period.”

Jayawardena had also copied the letter to Power and Energy Ministry Secretary M.M.C. Ferdinando. Additional Secretary to the Ministry, J.M.K. Jayasekera had in a letter to CEB General Manager on August 25, 2009 stated that the early commissioning of the combined cycle plant is for the CEB’s benefit and requested that steps be taken to achieve the target  date. The letter had said “Otherwise Ceylon Electricity Board will be liable for the losses that may cause due to delaying the commissioning of combined cycle plant beyond 16.11.2009.”

Meanwhile, on August 13, 2009, CEB Deputy General Manager (Energy Purchase) informed West Coast Power CEO Jayawardena that the capacity charge payable for the open cycle operational period is Euro 22,870,358 (Rs. 216,598,713) since the open cycle end date is September 15, 2009 and the capacity charge for July 2009 is Rs. 10,669,317.

Capacity charges

According to CEB calculations the total capacity charges paid to West Coast Power since November 2008 till June 2009 is Rs. 205,929,396.

Jayawardena did not agree with the above mentioned CEB letter and in a written response to the CEB General Manager on August 20, 2009 stated that the scheduled combined cycle operation date fell on 10.5.2010 since the open cycle operation date of the plant was 11.11.2008.

“Therefore, the open cycle operation period will be from 11.11.2008 to 10.5.2010 if combined cycle operation is not achieved before the aforesaid scheduled combined cycle operations date,” Jayawardena’s letter stated.

Jayawardena had added in the letter that there was no date defined as the open cycle end date and September 15, 2009 will definitely not be the end date of the open cycle operation period, and “hence there is no question of calculating the ‘Maximum Capacity Charge Payable for the open cycle operation period’ at this stage.”

However, CEB Deputy General Manager, System Control in a letter dated August 27, 2009 to AGM (Transmission) has said the West Coast Power’s claim that the open cycle operations would end on 10.5.2010 is incorrect.

The letter explains that given commencement of commissioning work and the detailed schedule submitted to the CEB the claim made by West Coast Power is incorrect.

“…This clearly indicates the WCPPL has deliberately changed the date of plant shutdown. Hence WCPPL should submit a revised schedule on August 20, 2009 highlighting project progress as at August 1, 2009 (with retrospective effect) is to be considered totally incorrect,” the letter further stated.

CEB not in agreement

CEB General Manager B. Jayaweera also disagreed with the claim made by West Coast Power and on August 31, 2009 responded in writing to West Coast Power saying, “At the outset we wish to inform you that we are not in agreement with your letter of August 20, 2009 with regard to the shifting of scheduled outages from September 15, 2009 and also shifting combined cycle operation date in an arbitrary manner.”

Jayaweera called on West Coast Power to commence the commercial operation as originally envisaged to the CEB.

Project Director, West Coast Power (Pvt) Limited, M.J.M.N. Marikkar, who is also a director of LTL said the CEB would only have to pay the company what has been agreed in the PPA.

When asked about the payments made by the CEB to West Coast Power, Marikkar said the dues from the CEB to West Coast Power amounted close upon Rs. 4-5 billion.

Be that as it may, the cost of setting up a plant to generate cheap power for the country now seems to have become a huge financial burden to the CEB.