Resolving energy crisis: Bouquets and brickbats

At a time when we are so much engrossed only in accusations and criticisms, deliberating on something with praise in place of criticism, complimentary instead of an-uncomplimentary feedback, may sound extraordinary and surprising. Nevertheless, a deserving commend should not go down unsung, particularly when the centred issue is of national importance.

A directive issued by President Gotabaya Rajapaksa at a meeting recently held under his chairmanship to review the progress of the energy sector is the subject for this discourse. The President’s attention was drawn to the problems faced by the MHP developers to achieve the expected target of 70% of renewable energy production in the country. Following a discussion on the representations made, the President instructed to stop the charging of 6% from the generation revenue from MHPs, by the Mahaweli Authority, and also to do away with the charging of a lease rental of Rs. 5,000 per perch of land to be allocated for these projects by the Forest Department. The instructions regarding this directive on 16 November 2021 have been communicated already for implementation to the Secretary of the Ministry of Energy (Electrical), by the Secretary to the President.

This no doubt is a big relief to the MHP developers and also a deserving belated resolution, which dragged on for a long period without a proper decision. The importance of this directive is not only the financial benefit that accrues to the investors, but certain other aspects which require urgent attention in order to boost the industry. Both these reliefs provide a scientific, prudent and a rational resolution which would eventually contribute to the development of the sector. I wish to elaborate them for the information of those involved as relevant decision makers. I am of the opinion that it will be important to highlight this in the context of certain redundant and obsolete procedures the MHP developers are made to observe.

i. In addition to the fee of 6% of the generation revenue that was charged, it had to be supported by a bank guarantee to be provided by the developers well in advance to the Mahaweli Authority starting from the time of obtaining preliminary approvals for the project. Developers have to block an equal amount in the form of a cash deposit with the commercial bank to obtain such bank guarantees. Banks charge a commission (ranging from 1 to 2% of the value of the guarantee) as a fee for issuing such guarantees. In addition to this the developers waste a lot of time to furnish various other details sought by the authorities and to get involved in protracted discussions and negotiations preceding the Mahaweli Board approval.

i. a) This 6% fee/charge continues throughout the period of validity of the project (entire generation income period) while the rate paid by the CEB for the power generated fluctuates on a reducing basis (as shown below) according to the price formula applied under the Power Purchase agreement. The authorities who arbitrarily decide on such conditions only discourage genuine investors.

i. b) There were instances where the rates charged as fees by the Mahaweli Authority ranged between 16% and 22%. Some developers have succumbed to the pressure of other demands coming from high sources to satiate their appetites of gratifying considerations. There have been instances where such demands were even imposed as preconditions of granting the approval.

This is why we believe that this decision is great and should not go unsung.

ii. The amount to be paid to the Forest Department too was a bone of contention of the MHP developers due to the harassment they were subjected to by the officials from top to bottom. It continued as a huge menace with increasing demands for gratifications without which the MHP developers sometimes had to waste a few years before they could obtain the required approval. 

All MHP developers should highly appreciate and be grateful to the President for this great relief to them going very much beyond the financials to put an end to an extremely hazardous deal. It is indeed a relief offered to the MHP developers often held to ransom by unscrupulous authorities. We are all experiencing hardships caused due to a mountain of issues amassed over a period of time running through several regimes of governance. Whose sins are we expiating today? 

Therefore, when there is a new beginning, a visible interest to address the long stagnating issues, moving forward, developers engaged in this highly priority sector have to act responsibly and cooperate with the decision makers to resolve all areas prevailing as hurdles for the early completion of the projects.

In this regard I thought of highlighting a few other worrying factors causing hardships and more than anything else undue delays in finalising the projects.

a) The aberrations in the application of fees and rates to the MHPs

The charges levied as lease rentals for lands allocated to power projects requires a careful review. Any reasonable levy should have some bearing on the expected revenue from the project. MHPs are paid by the CEB for the power they supply to the Grid according to the terms of the Power Purchase Agreement (PPA) they enter into with the CEB. This rate is fixed according to a formula. The current rate applicable is under a 3 Tier Tariff Formula, with the following rate structure;

1st 8 years (of the project) @ Rs. 17.39 – Rs. 19.00 per unit

2nd 7 years @ Rs. 10.00 per unit on an annually reducing basis of about 50 cents per unit 

3rd 15 years @ Rs. 9.00 per unit annually reduced by about 50 cents per unit

Viewed conversely this amounts to an indirect gradual increase in the royalty charged by the CEB (State) from the power producers escalating with the passage of time. Because they keep paying less for the same power to the power producers according to this formula. But the other fixed costs such as the lease rentals for the lands either remain fixed or vary upwards with the rentals revised periodically. So, in effect, on the one hand the State charges a periodically increasing royalty on the power generated while the producer’s revenue is throttled by other State bodies due to the fixed rate OR a rate that periodically increases for the lands.

It is recognised that any business continues taking into account factors like ROA while they are also expected to maintain labour standards, in keeping with the State determined wage policies which invariably increase with the passage of time.

b) Payments to the local authorities for water rights, rates and taxes, etc.

Pradeshiya Sabhas and Divisional Secretaries are entering into agreements with the MHP developers in their areas applying conditions to revise the rates upwards, periodically.

Divisional Secretaries are charging lease rentals in respect of the lands allocated to the projects under two categories;

2% for Reservation lands and 6% for State lands.

They also include a clause in those lease agreements to double the rentals every five years. This in effect is making the lease rentals go up to 4% and 12% after five years. But the rates of payment made to the MHPs according to the PPA of the CEB, keep on diminishing periodically as shown above. The Divisional Secretaries are either ignorant of these financials or are dumb to disregard the economic realities. As the DSs are now coming under the Defence Ministry this anomaly could be easily resolved by making them apply a reasonable rate fixed more realistically.

During the colonial times, when foreign surveyors prepared plans for our lands, in their Final Village Plan they left a margin of 2 Chains from the waterways (rivers, canals, etc.) as a special reservation area. The DSs are trying to generate an income for these which will otherwise remain as unutilised and unproductive lands forever.

The major issue MHP developers have with the DSs is the difficulty in crossing the red tape boundaries in obtaining required lands for their projects from the District Secretariats. The DSs are hardly concerned, also unmindful about the national priority of the renewable energy sector and the dire need to launch these projects with the least delay. Every single day’s delay in commencing the power generation activity is a cost to the nation and a cause of worry for the public due to the power shortages the country is facing.

The DS service now brought under the Defence Ministry may be inducted into a culture of working within a targeted timeframe (within the civilian administrative space) in contrast to the traditional laissez-faire Govt. Servant attitudes. If they could conclude the land allocations within a given time period it will solve many other problems the developers are subjected to under randomly applied restrictive measures. 

As a gentle reminder to the DSs and all Public Servants it has to be stated that the President has announced in no-uncertain terms that letters should be replied within 14 days and if a reply is not received during that period to a request made, it could be treated as the request granted!

Now the Grand Finale of this brouhaha

We note with appreciation and gratitude the actions initiated by the State Ministry for Mini Hydro Power and Solar Energy to give effect to the decisions taken by the Cabinet to expedite the slow process of the development of Renewable Energy in this country. The same gratitude should also be extended to Senior Cabinet Minister Dinesh Gunawardena who raised this issue at the cabinet following a meeting with the MHP developers and the serious follow up action endorsed by Prime Minister, Mahinda Rajapaksa.

It is highly regrettable to state that the issue is again devolved into a stagnation at the CEB due to the delays in signing the PPAs for the projects that have completed the approval process. This is a callous disregard of the directive given by the State Minister in charge of the subject to take all possible steps and finalise matters before the end of February 2022 to add 550 MW of renewable energy power to the National Grid. A few projects ready to enter the construction stage are put on hold due to this roadblock. And many others are handicapped in obtaining their final approvals from various agencies who demand a valid LOI for them to attend to the requests. This LOI issue is a matter to be attended to by the CEB.

This is in complete contrast to the friendly and positive attitude displayed by the last GM of the CEB who held the view that “instead of worrying over to produce, power can easily be purchased from persons who are ready to produce.” We are at a loss to understand whether there are bigger and more powerful decision-making bodies in this country over and above the Cabinet. The CEB engineers who raise objections under an ambiguous provision in the Public Utility Act, should realise that in the worst scenario, a government which could amend the constitution of the country could easily amend the PUC Act.

New avenues to compliment the Vistas of Prosperity program

There were several micro-hydro power generating plants operating in the distant rural areas of the country a few years ago. With the active rural electrification program of the Government, these operations were abandoned and remain so, for some time now. What is important to note is that the potential these micro-hydro projects possessed, should not be forgotten. They can be revived and made to generate a significant production capacity under a suitable national program. Once developed and the capacities enhanced, they could be connected to the National Grid via a system modification involving “bundle conductors” for transmitting the power. This aspect too should be considered by the Sustainable Energy Authority seriously to support the President’s plans to develop the renewable energy power generation to be enhanced by 70 % in two years. Renewable energy is the cheapest, most environmentally-friendly, world-recognised electricity generation system, that should be promoted with the highest patronage of the Government. 

It has to be emphasised that resolving the energy issue is as important as the food production issue to the country. All State Agencies should cooperate and extend their fullest support to achieve the national targets set by the President in this regard.