Sampur: The Battle For Energy
The Sunday Leader reliably learns through senior CEB sources that the Sampur coal power plant that was to be constructed through a joint venture between India and Sri Lanka has hit several snags, casting doubts on whether the Indians are in fact having other interests in this location.
When open proposals were called for the setting up of a private coal power plant in Puttalam, where the Ceylon Electricity Board (CEB) could purchase power, the most profitable proposal that was selected was tendered by India’s National Thermal Power Corporation (NTPC) company.
However it seems that a conspiracy had been launched in order to hand it over to China’s CMEC Company that had also submitted proposals but had not been selected for the contract.
As a first step in this sinister plan a protest was launched against the setting up of a private coal power station in Puttalam through the CEB Electrical Engineers union. Thereafter on the pretext of responding to the protests, the CEB decided not to hand the contract to the selected Indian company, NTPC. As a third step, in spite of the conditions being disadvantages to Sri Lanka, and without calling for bids, it was decided to hand the contract to China’s CMEC to construct the coal power station in Puttalam in accordance with Chinese standards and to be handed over to the CEB.
However this decision to hand over the Puttalam coal power plant construction to China had a negative impact on Indo-Sri Lankan ties.
Meanwhile in a bid to mend the tarnished relations with India, it was decided to hand over the construction of the Sampur coal power plant in Trincomalee to India on equal investment basis between India’s NTPC and the CEB.
There are allegations that this contract was a bribe to India by Sri Lanka, as terrorism was a threat to the country’s sovereignty at the time.
Irrespective of the political situation that prevailed at the time, the most dangerous issue was that the officials who were in charge of this project were only focused on making a profit out of this project, and were therefore jeopardizing the country’s best interests for their own greed. Hence these officials on every occasion made sure the Indians were profiting greatly, thereby resulting in the country and the CEB suffering great losses.
According to the agreement between India’s NTPC and the CEB, a 500 MW (250×2) capacity coal power plant was to be set up in Sampur.
The Sampur project
This project was supervised from the start by the Project Director Bandula Tillakasena under the instructions of the Secretary to the Ministry of Power and Energy. However, the then Minister of Power and Energy John Seneviratne had not been kept informed, and neither had any approval been obtained from the CEB Director Board. Instead all important financial and technical matters were decided upon by NTPC and CEB, and shrouded in secrecy on the whims of the government and enormous pressure from India.
Eventually the joint venture agreement that was signed between the CEB and NTPC was revealed. Since the feasibility study was not completed the power purchasing agreement (PPA) could not be signed. However the amazing fact was that although the PPA could not be signed due to the above mentioned reasons, the PPA that was to be signed later on was also magically included with the joint venture agreement.
Subsequently, Secretary to the Ministry of Power and Energy M.M.C. Ferdinando and the Project Director Bandula Tillakasena went to India in October 2011 to sign all the documents. However the CEB maintains that no approvals had been sought from the Minister or the CEB Board for the signing of these agreements.
Due to the independent decisions taken by the Project Director and the Ministry Secretary obviously with the approval of unforeseen elements, the country is bound to suffer the consequences.
Although the feasibility study determined the efficiency of the power station at 44%, it was later adjusted to 33%, which resulted in an estimated annual loss of between Rs 2.6 to 4.9 billion, according to the current pricing structure.
Due to the annual maintenance expenditure being altered from $20.5 million to $32.5 million, according to the current exchange rates the CEB is set to suffer losses of at least Rs 1.56 billion annually.
In the PPA the total capital of the Sampur power plant was not indicated and remains blank. This no doubt is a trick to leave room for NTPC together with some CEB officials to add on capital expenditure figures according to their whim and fancy, which will automatically increase the rate of each unit the CEB has to pay for.
According to the agreement signed by Bandula Tillakasena under the instructions of the Secretary Ferdinando, taking into consideration the current rates, the anticipated annual losses are at least around Rs 7.63 billion. However this entire burden will at some point be palmed of onto the consumer, on the pretext of preventing the CEB from suffering debilitating losses. According to estimated calculations, each consumer will be burdened with an additional sum of around Rs. 1,525 annually.
Moreover the agreements had been drafted with the intention of enabling NTPC’s continuous operational control, and not designed to, at some point, hand over total control to the CEB. However if for some reason NTPC has to hand over control of the plant mid way to the CEB, the contracts are designed in a way that the CEB will have to purchase the shares at a colossal amount from them.
The fact is that as the Project Director Tillakasena had no authority to represent the CEB at the discussions let alone sign the agreement on behalf of the CEB. The responsibility remains with the head of the CEB transmission licensee division, in compliance with the Public Utilities Commission approval.
Sampur Agreement not favourable to Sri Lanka
Therefore the question that arises is why have these officials not been charged, and why are the consumers forced to pay for the sins of these unscrupulous characters?
Meanwhile commenting on the issues facing the Sampur coal power plant the Advisor to the National Electricity Consumer Service Bandula Chandrasekera told The Sunday Leader that he sees this project as a result of Indo-Lanka geo politics.
“If Sri Lanka was genuinely interested in setting up a coal power plant to meet the energy requirements of this country, then what they should have done was to look for the lowest possible cost factor in an open bidding process. With India having its own power shortages, I don’t see this joint project having any special benefit to India. I even have doubts whether India will in fact complete this project. How I see it is that on the pretext of setting up this plant, they are using this area in Trincomalee as a step towards their geo political agenda. Although India has commenced many projects in Sri Lanka only a few or none have been completed successfully. They usually drag on these projects that eventually end up as political issues.
In my opinion by dragging on this project Sri Lanka is losing out on opportunities of setting up low cost power generating facilities that will eventually be beneficial to the people. This whole Sampur agreement has been drawn up in a manner that is not beneficial to our country, and it raises suspicion regarding the integrity of the officials involved in the process. Moreover if this is an Independent Power Producer (IPP) then they should have got the Public Utilities Commission of Sri Lanka (PUCSL) involved in the process,” he added.
The former Deputy Chairman of the CEB Anura Wijepala, who had raised questions regarding the Sampur agreement at the time, explained to The Sunday Leader the incident that had occurred. Wijepala had assumed duties as the Deputy Chairman of CEB in June 2011, and the finalized joint agreement regarding the construction of the Sampur coal power plant was signed in October that same year.
“Former Chairman Professor Abeywickrema and I put our signatures on it, although it had already been drafted and agreed upon. The agreement was for setting up of a fifty-fifty joint venture in Sampur Trincomalee to set up a 500 MW coal power plant. The CEB and the NTPC were to invest equally and brokered by the Indian and Sri Lankan governments. In fact the former Indian High Commissioner Ashok Kantha played a major role in bringing these two parties together and working out a solution,” he said.
Immediately after signing the joint venture agreement, Wijepala said a steering committee had been appointed for this project, and was co-chaired by the Secretary to the Ministry of Power and Energy Ferdinando and the Secretary to the Indian Ministry of Power.
“That same afternoon there was a joint steering committee meeting in Colombo and I was also a participant as the Dy. Chairman. During the meeting various points were discussed about the PPA which was the most important document in this regard. However there was a hurried gesture from the Indian parties to immediately (within a week or two) sign and conclude the PPA. As newcomers to the Board we raised the question that we have to see this document and we also raised a few concerns that we saw on the surface.
Based upon that some disagreements arose at the meeting and the setting up of a date for the hurried signing of the PPA was not possible. We said that any agreement that is of relevance to the CEB has to be signed by the CEB Board and no other employee even the GM does not have the authority to sign any agreement without the approval of the Board. On that basis we asked them to forward the document to the Board,” he added.
Subsequent to the document being submitted to the CEB Board, it was thoroughly scrutinized in consultation with the engineers including Tillakasena.
Wijepala said that the Indian parties claimed that this draft agreement had been initialled by top CEB officials and witnessed by the Secretary to the Power and Energy Ministry Ferdinando. But the Board maintained that they had not delegated authority to any person and the initialing on that document had no value and it could not influence any decision taken by the Board after going through the document.
“When we inquired from Tillakasena what he had really done, he admitted to the Board that he knew he had no authority to sign the agreement or draft, but that the two parties who were present had agreed upon the contents of the documents. So he was not representing the CEB but had initialed it as a member of the party in good faith indicating that they had discussed those particular issued and agreed upon whatever the decisions they themselves had taken,” Wijepala said.
CEB Board objects
Subsequent to discussing the contents of the document however, Wijepala said that there were three concerns that were raised which the Board was unable to agree upon.
First was the efficiency of the power plant that the two parties were to purchase. The Indian party wanted low efficiency while the CEB wanted to have a high efficiency plant. If the plant is less efficient, as it is a joint venture, all the electricity purchased from this plant has to be purchased by the CEB. Therefore the generation cost of every unit has to be paid for by the CEB. Hence if the plant is less efficient the cost of production per unit is high.
The CEB then decided that they did not want to purchase power at a higher price from the plant, and wanted a high efficiency plant so that the unit cost would be lesser. But the Indian party insisted that they wanted to opt for the low efficiency plant, as the capital investment would be lesser, but the CEB did not agree to this.
Secondly the issue that arose was the operational and maintenance cost, which had to be borne by the Indian party as they had adequate experience with this type of power plant. However there again the unit maintenance cost was too high and the CEB said that it was not in agreement.
Next was the return on investment. The Indians and the CEB were to invest $150 million each and they wanted 18% return. But the CEB argued that for US dollars the interbank interest rate was only 1% to 2%, whereas they were asking for 18% guaranteed return for 25 years, which is very high.
Considering these three points the CEB calculated that the extra cost the CEB has to annually bear is in present day terms around Rs 4 billion per year for 25 years.
“In simple terms it is around Rs 100 billion but when you really calculate the net present value it works out to Rs 40 billion. Hence the Board thought that this loss was far more than we could bear as we were already making a loss. Therefore what we did was based on these three points; we wrote a three page letter to the Secretary of the Power and Energy Ministry, Ferdinando explaining that based on the above three points, the estimated loss is Rs 4 billion annually, and asked for his intervention in settling this matter,” added Wijepala.
However, to their surprise the reply the CEB received from the Ministry was that this issue was a matter between the CEB and NTPC and therefore the Ministry has little to do with this project, and asked the CEB to settle it and that the Ministry did not want to intervene.
Indians not agreeable to their own Feasibility Report
Referring to the feasibility study carried out on this project by an Indian company and paid for by the CEB and NTPC, Wijepala said, “We found that the rates in the report were acceptable to us and we accepted the report. So we used the efficiency values and operations and maintenance rates as indicated in the first draft of the feasibility report in the PPA. However the Indians could not honour their own report and refused to go by that report. They instead insisted that the draft initialled by Tillakasena must be inserted in the PPA instead of the figures that were indicated in their own feasibility report. This was very surprising to us as we were asking for the values that were in their own first draft of the feasibility report to be used”.
Eventually at the end of 2012, the CEB had invited a representative from NTPC to come and present a direct report as to why they were not agreeable. The expert arrived with two other officers and made a presentation to the CEB Board, and they were later cross examined by the CEB Board Members. The CEB Board had queried from them why they were unwilling to go by their own report and agree upon these high efficiency values.
“Then the expert openly said that had they inserted the high efficiency values, one of their companies in India cannot supply equipment for this project, and that was why they could not agree to the high efficiency values. But as for the joint venture agreement all the purchases for this power plant should be through international bidding. They were therefore trying to manipulate the agreement to include one or two of their own suppliers, which was not agreeable to us. This statement by him was also minuted at that day’s meeting. In our opinion this adamant approach by the Indian party prevented this project going ahead as they could not honour the contents of their own draft feasibility report content”.
According to Wijepala that was the reason this project could not be completed,” he pointed out. India’s half hearted approach in the Sampur issue is a clear indication that they are not really serious in constructing this power station at all, but have other interests, especially taking into consideration the strategic location of this power station.
Comment by the Power and Energy Ministry Secretary
Responding to the CEB allegations levelled against him, Secretary to the Ministry of Power and Energy M.M.C. Ferdinando told The Sunday Leader that he had not initialled a single document, as this is a document prepared by the CEB and not by the Ministry.
“The Ministry has nothing to do with this Power Purchase Agreement (PPA)or any other agreement. I signed the agreement on behalf of the government on December 29, 2006, that is the basic principle guideline to have the power project in Trincomalee in a joint venture between the NTPC and the CEB. The government had a role to play in providing the facilities, and I signed as one of the party on behalf of the government,” he said.
He said that the agreement provided for the NTPC and CEB to appoint representatives as a joint team and to carry out the feasibility study, site study, environment study, draft the PPA, the implementation agreement and the joint agreement, etc. All these are matters pertaining to the CEB and not the Ministry, he stated.
Ferdinando reiterated that Tillakasena had only initialed the document and not signed on behalf of the CEB, and it was only an initial draft and not a final document.
He said that this is an engineering document, adding that he is not an engineer.
“The CEB and NTPC engineers jointly drafted the power purchase agreement (PPA), the implementation agreement, and all these agreements were finalized by those agencies (CEB and NTPC) having gone through a three to four year process. At the conclusion of the drafting both parties certified that this was a final draft. That is what Tillakasena initialled; for future parties to execute the agreement. This document then had to be signed by the Chairman or Dy. Chairman of the CEB Board, the NTPC and the Board members. It was on this basis that Tillakasena went ahead and initialled the document as the final draft, on 11 February 2011,” Ferdinando said.
However Ferdinando said that before initialling, this draft was submitted to the former Minister John Seneviratne, Wijepala and all engineers of the CEB, and none of the ministry officials got involved.
“We have the documentation to say that it had been approved by these parties.
Finally this matter was put before the Attorney General, for legal advice. We then drafted a letter asking him to give legal clearance on this matter. We did not want to go through the contents of the document as it was based on engineering issues. Even the Attorney General did not go through the engineering details as they were highly technical.”
However, he said that fortunately due to lapses on the part of the Indian government the agreement fell apart.
“It was a blessing in disguise as, if it had gone ahead, we would have been in a big mess. On February 16, 2012, the CEB received the feasibility study. Even our people at the CEB could not understand what was in the PPA. It took them until September 5, 2012 to detect this excessiveness. After seven months of receiving the feasibility report only was this matter raised. It was then that I suggested that since the PPA has not yet been signed, to immediately go and correct this matter. It was I who intervened and got all the discrepancies corrected,” he said.