The Sunday Leader

CEB Losses – Rs. 56 bn. And Counting

  • Colossal losses of foreign exchange when importing fossil fuels
  • A metric ton of coal is forecasted to cost between US$ 170 and 250 in 2025
  • Are there secret deals between CEB and thermal IPPs to purchase costly power from them?

By Camelia Nathaniel

By 2020, about 20 per cent of electricity supply is expected to be generated by renewable energy. For this purpose, sufficient investment will be made on development of renewable energy sector with wind, dendro, solar and mini hydro power plants.

The CEB is incurring a loss of around Rs. 72 million daily due to the closure of the Norochcholai Coal power station, which was originally scheduled to be closed for routine maintenance for just 21 days, but was later extended to 40 days on the advice of the Chinese engineers. The 300 MW first phase of the Norochcholai Power plant which commenced operations in 2011 was shut down on the 25th of August.

However it has now been over 55 days since the plant was closed and the CEB still has no clue as to when the facility will be fully ready for power generation. The irony of the whole situation remains in the fact that so far no one, including the Minister of Power and Energy, has made any effort to expedite the recommencement of the plant to full capacity or commence the second stage, in spite of the colossal losses being incurred due to the non availability of the coal power plant, which compels the CEB to purchase power from thermal power stations.

The original award for the Norochcholai project was itself controversial, where though the best offer for the tender was received from an Indian company, it was instead awarded to China Machinery Engineering Corporation (CMEC). However while the power plant is yet not fully operational, it has failed four times since it was commissioned. This failure was one of the reasons cited by the government for the increase in electricity tariffs earlier this year.

Norochcholai fast becoming
a white elephant

In fact Norochcholai has become an analogy for inefficiency in Sri Lanka, while there are allegations that the Chinese have used inferior quality machinery. However the Chinese on the other hand have very openly indicated that the plant has had problems repeatedly due to overuse, while implying that the Sri Lankan engineers are incapable of operating the plant. Norochcholai is designed for 900 MW by July 2014 in three phases of 300 MW each. The first phase was commissioned more than a year ago on March 2011.

However, according to sources at the Norochcholai power plant the current power generation at the facility is only around 90 MW out of the 300 MW capacity and they claim that it is losing heavily because the additional power requirement is obtained through thermal power which is almost double the cost of coal power generation.

The Sunday Leader reliably learns that the annual maintenance of the plant was scheduled for December last year, but due to a system requirement and the changing of the DGM of the Norochcholai plant, the closure for the repair was postponed. Since it was not right for the plant to be shut as soon as the new DGM commenced duties, the plant was made to run for about a month even with an issue in the shaft and bearing. This problem with the machine had been there since July last year where there was an issue with the lubrication oil as well.

Once the plant is shut for repairs it takes around 12 days for it to cool down in order to commence the repair. Since it is still within the guarantee period the repair was handled by the Chinese engineers. The reason for the delay however is said to be that the line that brings in sea water for the cooling process was clogged with sea shells, etc. Hence divers had to be deployed to clear the line. However now the issue is that when the pump is started up all the broken shells keep getting stuck near the pump and then it has to be stopped again so that the divers are able to remove the shells. This problem has been experienced for over the past week.

The other reason is that unlike in the past the rift between the electrical and mechanical engineers is further aggravating the situation as these two parties do not see eye to eye . There is no cooperation between them, and this has had a negative effect on the operations of the power plant. The Chinese on the other hand are capitalising on this situation, where they too are marking time just to prove that the local engineers are incapable of operating this plant and would eventually be given control of the Norochcholai coal power plant.

Although costs are rising with each day the plant remains non operational, the start up process cannot be rushed. Once the boilers are started there could be steam leakages and then it will have to be shut down and cooled again to seal those leakages. These leakages are a possibility due to the closure of the plant for over a month now.

When Norochcholai is closed power is purchased from Lanka Transformers Kerawalapitiya thermal power station, which is also a 300 MW capacity power plant. According to sources within the Kerawalapitiya plant, it is currently producing around 5000 MW hours of power per day, at the rate of around Rs. 23 per unit.

A unit of power is purchased from the Norochcholai power plant for only Rs. 12.50.  These days all the Independent Power Producers (IPP) and the Non-utility Generator (NUG) plants are in operation, adding to the costs of the CEB. However the confusing factor is that with such a colossal expenses to the CEB, why are the officials silent? Is it because there are secret deals with these thermal IPPs to purchase power from them? Even during the recent past when the reservoirs were at full capacity, the CEB decided to close these facilities claiming it was for maintenance and continued to purchase power from these IPPs.

Although according to initial plans the second stage of Norochcholai was to be fully operational, it has been put on hold indefinitely.  The allegations are that due to the substandard quality of the equipment used for this coal power plant built with Chinese technology and aid, there have been constant snags depriving the country of the anticipated advantages.

According to the CEB base case by 2017 the Sampur coal power station in Trincomalee is expected to contribute 500 MW to the National grid. However though it has been five years since the plan was in place; it was only recently that the Indian company NTPC and CEB finally signed the agreements. The coal power project will be added at a cost of around Rs 7.5 billion annually. Although a transmission network has to be constructed from Trincomalee to Veyangoda for the transmission of power, so far even the feasibility report has not been completed.

Comparing costs of power sources

Meanwhile according to a report by Anil Cabraal, the Co-founder and Director of KMRI Lanka, a renewable energy power development company, and an independent consultant in renewable and rural energy:
In 2012, electricity generated was 11,543 GWh from several sources:

(a) 42 percent from private oil thermal,
(b) 23 percent from CEB hydro,
(c) 17 percent from CEB oil thermal,
(d) 12 percent from Norochcholai
coal, and
(e) 6 percent from NCRE (Figure 1).

The figure also shows the share of costs to CEB of electricity from various sources. Most importantly, the share of costs from hydro, coal and NCRE is less than their generation share. Whereas the cost shares from CEB and privately-owned oil thermal plants are greater than their share of electricity supplied. Thus the primary cause of high electricity tariffs is the continued reliance on high cost electricity from oil fired power plants.

According to Cabraal’s report on a purely financial basis for the CEB, generating power from coal at Norochcholai is less costly today than buying electricity from NCRE.

The Public Utilities Commission of Sri Lanka (PUCSL) report on 2012 Generation Costs, noted the electricity cost to CEB from Norochcholai was Rs 7.43 per KWh for coal and operating expenses, and excluding capacity charges (PUCSL estimates that in 2013 it would increase by Rs. 1.29/KWh). NCRE electricity cost to the CEB in 2012 was Rs 13.51 per KWh (including debt service, equity returns and all operating costs).

However, is this right comparison? It is not – when electricity from several sources is generated or purchased, it is logical to get electricity from a less expensive source first before buying electricity from a more expensive source, assuming there are no technical constraints.
Compare the cost of electricity from these different plants.

Figure 2 shows the electricity cost to CEB for all the plants that supplied electricity in 2012. It shows that the cheapest was electricity from most of the CEB hydro plants and Norochcholai. The second cheapest at an average cost of Rs 13.51 per KWh was NCRE. Beyond that the oil thermal plants supply electricity at higher costs ranging from Rs 17.9 to Rs 52.6 per KWh.

Nearly 60 percent of the electricity generated or purchased by CEB in 2012 which was principally oil thermal electricity, was more expensive than electricity from NCRE (Table 1).

It is therefore logical that when electricity is available from NCRE the more expensive oil electricity should be displaced. This is good business practice, as it is good utility practice. Rather than increasing the overall cost of electricity to consumers, NCRE reduces electricity supply cost as it offsets more expensive oil electricity.

Both CEB in its merit order dispatch scheduling, and energy experts, acknowledge that when cheaper power is generated, the more expensive generation is curtailed. Referring to the Norochcholai first stage then under construction in 2009, Dr. Tilak Siyambalapitiya wrote in the Daily News of July 1 that year, “The (Norochcholai) power plant would help Sri Lanka reduce the use of the most expensive power plants on its system: CEB system has four power plants burning auto diesel, adding up to 600 MW.

They will be the first to be curtailed. Then the next group of power plants using fuel oil will be curtailed”. Shouldn’t the same rules apply for NCRE electricity? So, why compare NCRE electricity cost with coal power?

Some may argue that when the second and third stage of Norochcholai start functioning later this year or next year, CEB can dispense with oil thermal power and therefore the comparison of NCRE must be with coal. But this argument is false. When 900 MW of Norochcholai coal power plants are operating, it could deliver 5,760 GWh per year. Let us also assume that hydropower output, thanks to the bountiful rains, is double the 2012 output. Therefore, total coal and hydro may be as high as 10,700 GWh (compared to about 4,000 GWh in 2012). This is still below electricity demand expected in 2013 and beyond, and so oil thermal plants will be needed, in addition to NCRE. Thus the justification of comparing NCRE electricity cost against oil thermal electricity cost is still valid.

The comparison is also very lopsided in that the NCRE costs are fixed for a full 20 years – i.e. the NCRE that costs Rs 13.38 per unit today will still cost only Rs 13.58 is 2033, while coal which if costing Rs 12.00 today will end up costing Rs 26.30 in 2033, even if coal is taken as being fixed on US$ terms, and taking a very conservative rupee depreciation of 4% per annum.

 

Plans for alternative energy sources binned

While the CEB is only focussing its attention these days on coal power generation other methods of power generation such as renewable energy sources have been cast to the bin, charges Bandula Chandrasekera. He said that the plan to add on a 350 MW capacity liquefied natural gas (LNG) power generation unit to the Kelanitissa power station by 2015 has been scrapped. While the 49 MW Uma Oya project and the 49 MW Gin Ganga projects were expected to be completed by 2015, there is no progress in these ventures so far.

Chandrasekera charges that certain politicians and businessmen are devising plans to to set up high cost thermal and diesel power stations in order to capitalise on the growing power need and rake in huge profits. Even now the CEB has sidelined the reasonable Renewable Energy purchase procedure and by that dealt a terrible blow to the profitable and efficient renewable energy power generation sector. He warned that if the CEB continues it its current path and allows thermal power generation to dominate the power sector, it will certainly spell the end of the CEB in no time.

The repercussions of the greed of some will definitely deprive the consumer the opportunity of ever obtaining low cost electricity and will definitely lead the country towards a bleak future in terms of power generation which could result in the inability to even provide uninterrupted electricity as we are enjoying today, threatening to push the country towards facing power cuts once again.

Therefore Chandrasekera appeals to the public representatives in Parliament to initiate a proper and comprehensive investigation into the already failed Norochcholai coal power station and also the Sampur coal power plant which is expected to cause colossal losses to the country. He also urges the Parliamentary Select Committee made up of all party representatives to take note of these discrepancies and corruption taking place in the power sector and bring to justice those responsible irrespective of their status.

CPC profiteering from CEB’s problem

According to Bandula Chandrasekera the Ceylon Petroleum Corporation (CPC) in spite of claiming to be at a loss through the supply of oil to the CEB is in fact profiting between Rs 10 – 15 per litre of oil sold to the CEB additionally through false figures. Accordingly the CPC has earned between Rs 10 – 14 billion this year alone. Therefore it is evident that the CPC is taxing the already overburdened public in order to cover up its own sins due to the rampant corruption taking place within.

The CEB too has been furnishing false figures in order to mask the actual profits made and indicate losses to hoodwink the people. Although the estimated hydro power generation for the first six months of this year was 1880GW hours the actual figure was in fact much higher at 2728 GWH, whereas the CEB has in fact raked in a profit of over Rs 20 billion during the first half of this year by fraudulent estimations.
However last year the overall losses incurred by the CEB were an estimated Rs 56 billion.
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Two 125MV coal power plants in Trinco

According to plans another two 125 MW coal power plants, also in Trincomalee, have to be constructed by 2018 and 2019, since the CEB’s power generation plan indicates that additional 1800 MW coal power plants need to be constructed.

The reason that the CEB has focussed on coal power plants primarily is due to the fact that it is the least costly option. However this presumption too has come under criticism due to the fact that currently a metric ton of coal is around US$ 110, but by 2025 it is forecasted to rise to between US$ 170 and 250 per metric ton.

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Dr Amal Cabraal Co-founder and Director of KMRI Lanka

Nearly 60 percent of the electricity generated or purchased by CEB in 2012 which was principally oil thermal electricity, was more expensive than electricity from Non Conventional Renewable Energy (NCRE).

It is therefore logical that when electricity is available from NCRE that more expensive oil electricity should be displaced. This is good business practice, as it is good utility practice. Therefore, rather than increasing the overall cost of electricity to consumers, NCRE reduces electricity supply cost as it offsets the more expensive oil electricity.

When all three stages of Norochcholai are operational, it could deliver 5,760 GWh per year. Assuming that hydropower output, thanks to the bountiful rains, is double the 2012 output. Therefore, total coal and hydro may be as high as 10,700 GWh (compared to about 4,000 GWh in 2012). This is still below electricity demand expected in 2013 and beyond, and so oil thermal plants will be needed, in addition to NCRE. Thus the justification of comparing NCRE electricity cost against oil thermal electricity cost is still valid.

Yet the comparison is also very lopsided in that the NCRE costs are fixed for a full 20 years – i.e. the NCRE that costs Rs. 13.38 per unit today will still cost only Rs. 13.58 is 2033, while coal which if costing Rs. 12 today will end up costing Rs. 26.30 in 2033, even if coal is taken as being fixed on US$ terms, and taking a very conservative Rupees depreciation of 4% per annum.

Then again all, even the Central Bank, seem to have forgotten the colossal loss of foreign exchange in importing fossil fuels including coal, which in NCRE is completely curtailed resulting in huge foreign exchange savings to the country.

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Future looks very bleak

Advisor to the National Electricity Consumers’ movement Bandula Chandrasekera observed that with the current issues facing the power sector the future looks very bleak. Currently the power requirement is around 11,402 GWh, while its annual growth rate is around 6.6%.  Chandrasekera told The Sunday Leader that at present this demand is met by a 2688 MW power generation network.

However according to the power generation plan up to 2025 of the CEB formulated in 2010,  the power demand is expected to rise to around 15,530 GWh by the year 2018, and the country will require a power generation capacity system of around 3604 MW to meet this demand.

Accordingly, the average requirement increase rate is around 6.4%, and according to long term government projections the second stage of the Norochcholai Coal power station capacity of 600 MW should be added on to the national grid by the beginning of 2014.

 

4 Comments for “CEB Losses – Rs. 56 bn. And Counting”

  1. gamini samarasinghe

    Thank you for your comprehensive article.

    Please wait awhile when the world will be shown NEW renewable energy developments, which will revolutionize the electricity generation of the world, plus having a 100 times more energy than the world requires, and mind you this is NOT from coal, gas oil or wind!
    Its coming soon and will help mankind, although this is the first time in the world a patented form of electricity generation will be used!

  2. M.V.R.Perera

    The forecast for price of coal is it lt will not vary very much as such why not get rid of all the oil units and other units costlier than coal and replace with coal units this will save a colossal 147 billion ruppees per year this should be done with competitive bidding for BOT coal power projects with a fair pricing formula a annual saving of Rs 147 Billion ruppee this will make the rupee to appreciate below Rs 50 a dollar and as such so will the price of electricity and with this low price of electricity if all transport is electricity fueled it will save a further 294 Billion rupees anually it will make the rupee to appreciate to one dollar this will further reduce the price of electricity to below a rupee

  3. Cren

    Mamma tried pappa tried champa tried with mega projects and mega talk even to provide India with energy across the palk. CBE is a always breakdown and with all the burdens on the janathawa, they are at loss. Funny but can it be true. There a whole in the PM’s bucket dear liza dear.. liza…

  4. kumar Soysa

    I recall the period between 1977 and 1988 when Prof. K.W.W Perera was the Chairman of the CEB and Daham Wimalasena was the Chairman of the CPC. neither of these State Corporations made losses, but functioned efficiently. How is it that now we have these problems?

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