Can the new President resolve country’s issues?

President Ranil Wickremesinghe 

Prime Minister Ranil Wickremesinghe became acting President when Aragalaya forced Gotabaya Rajapaksa to run away from the country and resign from Presidency. A new President had to be selected by the Members of Parliament in a secret vote. Of the four initial contestants Sajith Premadasa resigned, hoping to become Prime Minister under Dullas Alahapperuma. With most party leaders supporting Dullas in public, he was expected to win, but party members refused to follow and Ranil became President with a clear majority.

Seeking IMF help

In early April, prior to Ranil becoming PM, Dr. Nandalal Weerasinghe was appointed Governor of Central Bank, when the crashing economy forced Ajith Nivard Cabraal to leave. Also Mahinda Siriwardana was appointed as Finance Ministry Secretary, in addition to Ali Sabri being appointed new Finance Minister.

The country’s delegation met the International Monetary Fund (IMF) in Washington to discuss receiving assistance to overcome the financial crisis. The delegation was received cordially by IMF members who promised support to overcome the country’s tragic financial situation.

Even after the Washington meeting, the two parties continued discussions online and PM Ranil agreed with IMF to increase the country’s income over expenditure to 1% by 2025.

Current situation

The country’s citizens are facing an extremely stressful situation with many hours of power cuts, days in queues to get petrol and diesel, shortages of cooking gas, also medicine shortages in pharmacies. Fuel shortage limited government offices for few days, but without salary reductions. 

IMF demands basic corrective measures to economic conditions prior to assistance, requiring reducing government expenditure, reducing the gap between local income and expenses. The government employees, which number 1.8 million with 1.5 million in State service and balance in corporations, needs reduction. Trade unions are aware of the fact and waiting to extend peaceful Aragalaya when Government takes corrective action.

Need to address oil issues

The revolt against Gotabaya started with electricity power cuts in February followed by petrol shortages affecting all, especially three-wheel drivers and motorcyclists. Power cuts reached 12 hours, and were later brought down. But petrol queues got longer, some waiting for days and over 20 persons died in queues. With no toilets nearby, drivers are forced to reduce water intake resulting in dehydration, leading to complications resulting in deaths, especially among the elderly. Petrol and diesel shortages are results of foreign exchange to import oil. In addition cooking gas disappeared from the market.

Meanwhile, Indian Oil Corporation (IOC) came to the rescue and delivered petrol and diesel through their outlets. But queues moved over from CPC to IOC. The new Government’s main issue is addressing the oil shortage.

The fuel shortage is due to diversion of most imported oil to CEB for power generation, where nearly 60% of electricity is generated through coal and oil based plants. Meanwhile establishment of solar, wind power, bio-energy and small hydro power plants was obstructed by CEB since 2018 January, claiming tenders need to be called, but respective governments failed to take action. 

Achievements of Ranil during 2 months

Within two months of Ranil accepting premiership, we received help from the West and the country’s conditions are improving. Cooking gas was imported with World Bank funds and queues are easing. Imported urea fertiliser was issued to farmers for Yala cultivation, although late. The Government also claims orders were placed for Maha season paddy and other cultivations. With fertiliser availability, rice imports would end by February 2023 making the country self-sufficient in rice, also prices of eggs, chicken and vegetables would come down.

Getting IMF assistance Ranil needs to show a stable government and a plan to solve the local and FE issues. Ranil dissolved the government and resumed on 3 August, also a new short-term budget afterwards. The budget is expected to show his directions to address issues.

Major problems facing the country

The country’s major problem is the shortage of local and foreign funds. Since independence the country’s local income exceeded expenditure only for two years. All other balance funds were obtained from loans, also by printing money. These monies were spent on politicians, multiple functions, also appointing supporters to State organisations. When Arts graduates produced by universities unacceptable to employers were absorbed into State service. Even Gotabaya after accepting Presidency recruited 60,000 jobless graduates.

Foreign exchange earnings are mostly with exports from the garment sector, tea, rubber and tourism, also remittances from those employed abroad. This year garment exports showed a marked increase, but remittances from foreign workers during the first four months fell by over 50% compared to last year.

Basic reasons for FE shortage

Imports were curtailed due to foreign exchange shortage, due to excessive cost of oil imports mostly for power generation. World’s oil and shipping costs escalated with companies attempting to recover losses incurred during the COVID period. Now escalated due to the Russia-Ukraine war, with Russia restricting oil and gas exports.

Moving away from oil based power

First solar power plants commenced during 2010 and producers were paid Rs. 22.50 per unit. Wind power started in 2012. With improving technology solar payments were reduced to Rs. 17.50. But after the initial wind-power projects CEB refused to allow any more. Meanwhile CEB boasted their 103 MW wind-power plant in Mannar electricity costs only Rs. 6 a unit.

Meanwhile, the Auditor General’s report to Parliament in February disclosed that by 2019 there were 1,374 prospective investors having paid a fee, capable of producing 4,015 MW of electricity, awaiting CEB acceptance. But the Parliament failed even to discuss the report.

If the investors were allowed to proceed, the country would have escaped the current power shortage and foreign exchange crisis, without importing excessive quantities of oil.

Costs of power generation

Our electricity generation with hydro-power is nearly 40%, balance from coal and oil based power plants.

The costs of production of electricity stand around

Major hydro-power Rs. 6 a unit

Wind power Rs. 16 a unit

Solar power Rs. 24 a unit

Coal based power Rs. 40 a unit

Oil based power Rs. 60 to 120 a unit

Cheaper electricity generation is with solar and wind power. Meanwhile, nearly 60% is generated through imported oil and coal. Also during low-rainfall months as August/September and mid-January till April-end hydro generation reduces and oil dependence increases.

Thus solving the FE crisis depends on urgency of moving over to solar and wind power for the production of electricity.

Reduced remittances from abroad

The remittances from overseas workers first four months of this year amount less than 50% of last year, as senders receive more from illegal middlemen. A possible solution would be awarding a petrol allowance of one litre for every $ 10 sent legally. When the bank receives funds, it could issue a card noting equivalent dollars received. Based on same, the Pradeshiya Sabha would issue another card with allowable petrol litres. The card owner would be given maximum 50 litres (for $ 500) per month, balance be carried forward. The arrangement would encourage funds from abroad to be sent legally. 

Meeting foreign currency requirement

When the COVID pandemic locked down the country, garments and other exports came down, but government staff were paid their full salaries. Although their travelling, meals and tea during office hours lowered their expenses. In addition the Government increased Samurdhi payments. But during this period most countries reduced their employee salaries. The Government actions made the fragile economy to crash leading to the current mess.

With the worsening situation at the IMF discussions the country declared their inability to service the current foreign loans, accepting bankruptcy. The discussions with IMF are continuing online, but progress is slow without proper government and a plan for moving forward.

Over a year the country received loans from India of over $ 5 billion to import essentials and oil, well above loans expected from IMF. Earlier, oil suppliers delivered with six months credit. But with failure in honouring, credit facilities were withdrawn. Now arrived oil ships wait outside port for days until payments are made, adding delay charges.

Now, with large sums owed to neighbour India, they have requested investment opportunities in the country, making future Indian credit depending on our willingness. We handed over oil tanks in Trincomalee, but no further progress. The country awarded development of West Container of Colombo Port to Adani, again no further progress. Most likely our administrators must be sitting on the files preventing progress. Our politicians seem blind to the fact.

Addressing basic issues

To receive IMF aid, initial processes reducing the gap between local expenditure and income need narrowing to reach positive by 2025. The major issue remains the massive cost of paying government staff. In 2003 Ranil declared 650,000 in State service is sufficient, but current numbers near 1.8 million. With 1.5 million in State service and 300,000 in State corporations. Most doing nothing. But how could these numbers be reduced?

Possible ways would be 1. To discontinue all non-permanent staff. 2. Staff over 55 years be made to retire, but without 10-year lump sum advance. 3. All corporations need be requested to retain staff paying with own earnings. But thus will make the Government unpopular.

Reduce multiple allowances paid to MPs, replace multiple secretaries attached to MPs and Ministers (mostly their relatives) with Government staff, without additional allowances. Also an MP or a Minister be allowed only one vehicle under 2000 CC with a driver and an armed security officer and no support vehicles.

Highly paid State staff

Former Chairman of Litro gas received a monthly salary of Rs. 3 million; when exposed in newspapers the Chairman resigned. With the next Chairman it was shown that top 27 staff were paid a total salary exceeding Rs. 23 million a month. In reply the Chairman stated their total staff is only 200 and total salaries does not exceed 2% of turnover.

CEB is running at a massive loss with engineer numbers exceeding 1,000. Newspapers displayed salaries paid to levels of engineers between Rs. 150,000 to 650,000 a month. Some organisations in addition to salary, allowances exceed 15 numbers.

To overcome the issue the salaries in State organisations should not exceed Rs. 500,000 a month with allowances. The current salaries need be scaled down, will address massive losses in State entities.

Renewable energy

RE consist of hydro-power, solar and wind power, bio-energy and small hydro-power plants. Large hydro-power plants are already fully utilised. From January 2018 CEB stopped accepting all RE projects, but the politicians failed to take action. However, recently Government passed legislation allowing awards without calling tenders.

Formerly 1,300 prospective investors were capable of producing 4,000 MW of power. The current Minister of Power and Energy appointed a Committee a month ago to propose new rates payable to RE producers in each area under current conditions. The report is yet to be presented, meanwhile the Minister is more concerned with petrol and diesel issues.

The 103 MW CEB wind power plant in Mannar was constructed with ADB assistance, costing $ 141 million. Thus producing 4,000 MW would require $ 5,500 million. With smaller plants costs would be much higher. With interest rates by banks reaching near 25% from former around 10% and escalated solar panel and wind turbine costs, only few investors would be interested.

In addition importing solar panels and wind turbines will require FE. The country needs additional funding from IMF, considering the country could only pay the loans by avoiding massive import costs of oil, by moving over to renewable energy. The country cannot carry out the projects alone.

Availability of resources

The country is blessed with plenty of sunshine, lying on the wind corridor between ours and southern mountains of India, capable of producing over 100 times the country’s electricity requirement. The Government signed two MOU agreements with Indian Adani and another group to construct solar project in Mullativu and wind power project in Mannar 500 MW each. Thus being self-sufficient in electrical power is not an issue.

Even after awarding two 500 MW plants to India, local investors could be allowed to construct any RE plants they wish and continue along with the increase in power requirements with proposed new investments as in Hambantota Port, Port 

City, etc.

Another proposal from India

India has made another proposal to make use of high volume of solar and wind energy in shallow seas off Mannar and western Kilinochchi district and export produced electricity to India via an undersea cable connecting the two countries.

The proposal made by Adani for electricity generation was criticised as high cost payable in dollars. If both projects are negotiated together, the country would benefit with both projects to receive low cost electricity to the country.

Funds from IMF

Funds from IMF are delayed due to delay of China agreeing to reschedule their loans. But China is willing to award another $ 5 billion loan, allowing one billion to settle problematic loan. Funds from IMF will replace Indian funding for import of oil for electricity generation until 2 x 500 MW power plants come on line. Thus commencing of two Indian projects are urgent as each day’s delay will require expensive imported oil.

Transport system

The country has far more vehicles than required, imported as duty-free cars, motor cycles, and three-wheelers, encouraged by politicians. Meanwhile the level of public transport went down. Low fares made busses to overload.

Worst is the railway system, where collections from tickets sold were barely sufficient to meet the fuel costs. The staff salaries being paid by the treasury. With the devaluation, collections were insufficient for fuel purchases, forcing the Government to increase fares to 50% of bus fare. However the price structure for season tickets especially to government staff were not disclosed.

Train fares are so low encouraging staff from far away travelling to work by train. These travellers joke upon themselves saying, when they leave home by bicycle at 4 a.m. the children are asleep. They keep the bicycle near the station and return the same way around 10 p.m. They claim the children hardly see their father. The train fare needs revision to reach 80% of bus fare and season tickets reduced by only 25% to all travellers.

With train fare increase staff from long distances will be in difficulty. They could be allowed a transfer to a nearby office. Anyway they never did productive work earlier.

To discourage private vehicles petrol prices need to be kept high, encouraging bus travel, also increasing government revenue. To cater to vehicle owners, air-conditioned luxury busses and semi-luxury buses need introduction.

The public complains of imported luxury trains being unused as they are suitable only for flat terrain. Why not use them for low level tourists for travel to Anuradhapura, Trincomalee, Batticaloa (Pasikuddah) and Puttalam (kite-surfing in Kalpitiya)? The hoteliers will meet tourists at the station and lead them to respective hotels.

Address basic issues

IMF may help SL address economic issues, but to improve, the country needs to address basic issues. Our girls in the Middle East are employed as housemaids and males as construction workers. But most nurses in ME are from the Philippines and shop assistants are Indian, due to their English knowledge. Meanwhile, 2,200 nurses are held up from getting appointments in US as they failed the English examination. Also the IT sector is short of employees proficient in English. Thus the country needs to reverse S.W.R.D. Bandaranaike’s decision in 1956 for Swabasha based education, an issue avoided by politicians.