Financial Stability Of CEB In Jeopardy
by Ifham Nizam
- Sources of CEB say that the implementation of interest payment will destabilize the financial situation of CEB
- CEB seems to have neglected technical observations when purchasing power plant
Total deposits have passed Rs. 11 Billion, informed sources said.
Energy sector regulator, the Public Utilities Commission of Sri Lanka (PUCSL) recently issued guidelines to the Ceylon Electricity Board (CEB) and the Lanka Electricity Company Ltd. (LECO) to pay interest on the security deposit of electricity consumers held by the companies.
The service providers are now required to pay 8.93 per cent interest on the security deposit made by each customer when providing an electricity connection.
However, sources of CEB say that the implementation of interest payment of security deposits of consumers will destabilize the financial situation of CEB.
Why CEB cannot pay
Sources of CEB say that the interest payment of security deposits will lead the institution into bankruptcy where the tariff merely bares the cost of the CEB operations. CEB sources say in a cost reflective tariff methodology, licensees should be allowed to recover its costs by reviewing end user tariff from time to time or through a subsidy by the government. But the regulator did not allow a tariff increase in year 2015 citing the government policy. This is a clear neglect ion of the financial stability of the CEB.
The situation was aggregated more with the NBT of the government imposed on CEB, which were not permitted to recover from customers. CEB sources say that the institution had to bear the additional cost of additions/extensions of barge mounted power plant and 100 MW furnace oil fired power plant 1 and 70 MW furnace oil fired power plant 2, which CEB was not allowed to recover the costs associated with barge mounted power plant and ACE Embilipitiya power plant by the PUCSL as per Transmission and Bulk Supply Tariff decision. This also has added fuel to the financial crisis of CEB. Therefore, paying an interest on the consumer security deposits will make CEB to face difficulties in managing its finances and therefore it is the regulators’ responsibility to hold the interest payment for customer deposits until the financial situation of CEB is improved, CEB sources said.
But is it the real reason?
The State owned utility is run by poor peoples’ tax money and all the private power deals also ends up in the pocket of the poor people.
So for a layman the question arises, why CEB had not maintained a separate account for deposits of the consumers and how it will add or not add to the financial situation of CEB, because CEB is bound to revert the deposit back to its owner when a connection is disconnected. Electricity Sector in Sri Lanka has a long history and deposits were taken by CEB when giving a connection. Source of CEB said, some of the old documents linked to electricity deposits cannot be tracked, as a major part of it is destroyed due to various reasons. The Sunday Leader learns that some of the electricity deposits are taken by the corrupted CEB officials as it has not been monitored by the regulator or by the top management of CEB up to 2016. The financial situation of CEB is shown completely differently in the Central Bank Annual Report 2015.
Electricity sales increased by 6.5 per cent to 11,786 GWh in 2015, in comparison to the growth of 4.2 per cent in 2014 which contributed mainly by domestic, the Central Bank data shows. The total electricity generation in 2015 increased by 5.9 per cent to 13,090 GWh. The share of power generated by the CEB within a total power generation increased to 79 percent in 2015, compared to 69 percent in 2014, while the remainder was purchased from independent power producers. Despite the tariff reductions effected in late 2014, the financial position of the CEB improved significantly and recorded profits during 2015.
According to provincial financial data, the CEB recorded an operating profit of 20.1 billion rupees in 2015, in comparison to an operating loss of 14.6 billion rupees in 2014.
The interest payment
Electricity consumers are entitled to receive a payment for the security deposits under Section 28 of the Electricity Act No. 20 of 2009, where it describes the Distribution Licensee (CEB or LECO) to pay interest on such a sum of money at the rate approved by the PUCSL for the period in which the security deposit remains in the hands of the licensee.
As at 2014, the CEB held Rs. 10 billion in deposits in CEB’s books. Cumulative Total of security deposits is added by approximately 600 million annually. So the total sum should have now been increased up to more than 11 billion rupees. PUCSL has said in an official announcement recently that the interest received on the security deposit of the retail consumers held by the CEB and LECO will be credited by the January electricity bill of the following year. Interest payment for the bulk supply consumer (A Tariff Customer in any tariffs category whose maximum contract demand is more than 42 kilo-volt-ampere), will be calculated monthly and will be credited to the electricity bill on a monthly basis.
In a termination of an electricity connection, PUCSL asked CEB and LECO to pay the interest up to the date of termination, together with the security deposit within a month from the date of termination, after deducting all dues to the licensee with respect to the billing account. Accordingly, PUCSL has approved an annual interest rate of 8.93% for the security deposits (a monthly interest rate of 0.715%) for 2017, effective from 1 January based on the average weighted fixed deposit rates (AWFDR) published by the Central Bank of Sri Lanka.
Purchase of power plants
CEB cited the purchase of power plants also responsible for not paying the interest the consumers. CEB purchased 60 MW barge mounted power plant in 2015 to match the increasing electricity demand. However the plant was selected not through a bidding process and was not referred to the electricity sector regulator for the relevant approval.
The plant was 15 years old at the time of buying and the feasibility study by engineers of CEB has recommended that an independent consultant’s report on the hull condition and estimate for repair and paintings for hull needs to be obtained before taking a decision on the acquiring of the plant by CEB. The independent consultant’s report was never taken place, informed sources of CEB say. The Plant was acquired at a price of 838.1 million rupees from Colombo Power Private Limited (CPPL) which had a power purchase agreement with CEB since 01/07/2007 till the time of the purchase. The CEB feasibility study has noted that all mechanical and electrical equipment has been operating for 15 years. The report says that the study team did not observe all equipment intact, oil leaks, loose or hanging parts, removed equipment, or temporary repairs.
Also the preliminary study team has stated that several technical concerns were raised and reported same to the CEB before purchasing the plant. The following are among such technical concerns over the plan;
• Running hours have exceeded 110,000 rears. Since 2000 to 2015
• The plate thickness of the hull has been reduced approximately by 50% from 10 mm to 0’5 mm during the 15 years
• Guarantee provided for painting of hull outside is expired. The cost of painting has been estimated to be 594,912 US$.
• Bottom of the hull is sitting on the sand. No observation details could be obtained.
• Extensions to the chimneys, additional transformer coolers and a few containers loaded on the deck need to be moved out, in order to float the barge for transporting
• Condition of the hull inside should have been corroded due to sand bags. Therefore should be inspected
It seems like that the CEB has neglected these observations when the plant was purchased. Inside sources of CEB are concerned that this is mafia to buy private power plants which will benefit a few parties of CEB.
Continuing the same process, the CEB extended the power purchase agreement of ACE Embilitiya, a 100 MW plant in the year 2016, which expired in mid-2015.
Also, considering the energy crisis situation, another power purchase agreement was made with a private plant of 60 MW in the year 2017.