Eran attacks electricity hike

• Slams lack of energy policy; says increase will negatively impact people, exports and economy

The electricity tariff hike will not have the desired effect and will further burden the people and hamper the economy, notes United National Party (UNP) Parliamentarian Eran Wickramaratne, charging that the unacceptable economic policies of the present Government breed inefficiency and corruption.

Finding scapegoats is totally unacceptable, he stresses, adding that this Government has failed to realise that it has been in power for more than 18 years. “Why are they pointing fingers at the UNP when they should have had some kind of energy policy? How can a Government which has been in power for 19 years try to blame a government before that? The Rajapaksa administration should take the responsibility for the ongoing power crisis and try to resolve it.”

Following are excerpts from the interview:

Q: What is UNP’s view on the recent electricity price hike?

A: This pricing policy is unfair and unjust. It is not going to have the desired effect. When we look at the increases in the first 30, 60 and 90 units, there is actually an increase in the marginal cost. The problem is when there is an increase in the marginal cost, you will consume less. So this price hike encourages the poor group to consume less electricity. Meanwhile, the marginal cost of those who consume above 90 units has come down, which means it encourages these users to consume more because their marginal cost is going to be lower.

There is another reason. The country still uses only about 40% hydro and the balance is coming through thermal. The cost of hydro is very low. Coal is not significant but the cost is more. Oil electricity is over Rs. 20 a unit. The last unit of electricity is costing more to give the average of 20. Marginal units that are costing more are being consumed by those who are anyway consuming extra. Therefore we feel that the proposed tariff policy from an equity point of view is unjust. This has not been carefully looked at. Earlier there was a subsidy given to this consumer group and they are trying to fully recover this subsidy. This is unfair.

If we talk about power generation, this Government somehow got into coal power. But after getting into it, they basically got into a mess. Either they got outdated equipment or they got the wrong technology. For whatever reason the plant is not functioning at the efficiency level it is intended to function. We haven’t had the benefits that were expected from this. There is controversy whether we can afford to have this or whether we have to sell it to the Chinese.

Clearly on the generation with 40% hydro presently, 59% thermal and 1% renewable energy, I think the country really needs to take a deep look at how we are going to source our energy. In a future UNP administration one thing we will focus on is that 1% renewable energy – we need to have a 10% goal on it. It is not an easy target but that is possible. Since we have already been saddled with the coal matter and since there is a sunken cost, may be for the foreseeable future we might go down the road increasing the coal. Looking into the future we need to create a public debate in the country about other sources of energy, including atomic energy. It is clean energy and it is cost effective.

Eliminating waste is another matter. Even this time when the CEB put forward its cost to the Public Utilities Commission (PUC), it put it at Rs. 268 billion. Then the PUC looked at it and reduced it by Rs. 40 billion and said they could produce the output of 10.95 kWh at 40 billion. So the unit cost went down immediately from Rs. 24.47 to Rs. 20.83. The unit cost is important because the formula is based on the cost. If they could give you 40 out of 268 you are basically getting a significant percentage saving.

We have been talking about this. We wanted this issue debated as an Emergency debate but the Government has been refusing it. On the first day Parliament was suspended and then on the following day there was a huge uproar. But we will continue our struggle.

Q: Do you think country is in need of such a steep increase?

A: When we say our cost of electricity is amongst the highest in the world, it is clear there is inefficiency in production. It also says there is virtual monopoly. Imagine if we are to get power from overseas; it will increase competition. But actually our IPP rates are much higher than the CEB rates. The fundamental issue is that. This Government has a bigger question. Their economic policy is based on a State dominant economy. The problem with State dominance is that it breeds inefficiency and it breeds lots of corruption. The cure for this is reform of public enterprises. This Government has shown no inclination for the reform of public enterprises. And remember, CEB is not the only problem we have.

Q: Some allege that the global oil price fluctuations and Government’s decision to devalue the rupee lead to the electricity tariff increase. Do you agree?

A: This Government is continuously trying to hide behind the oil price, which is not accurate at all. The crisis that we are now facing is not just to do with oil prices. This is an issue of mismanagement.

The major imported content is really the oil price. If the rupee depreciates by 10%, then we will have an oil price portion of that cost by 10. But if we take the increase in the marginal cost, what they are advocating for the first 30 units was 66%, next 30-60 units 28% and the next units up to 90 was 13%; even if we granted in principal any oil price impact has to the depreciation impact is there, it still does not explain these huge increases.

Q: How would you respond to the accusation made by the Minister of Power and Energy that the UNP is responsible for the present power crisis?

A: With all due respect, the Minister is talking absolute nonsense. They have been making these allegations for a long period and I think the longer they make them, they more nonsensical it gets.

If we take the period 1977-1994 when the UNP was in power; during this period the economy was open. With the new industrialisation policy and the free trade zone, the demand for electricity went up. With President Premadasa’s housing program, domestic demand also went up. When we compare that against the opening of the reservoirs, building of the dams and the power stations, there was unprecedented growth in the power generation in those 17 years.

This Government fails to realise that they have been in power for more than 18 years. Why are they pointing fingers at UNP when they should have had some kind of energy policy? Our hydro capacity has not increased that much for the last 18 years. There have been some mini hydros which they encouraged during this period and we praise the Government for doing that. Renewable energy is still only 1% and there is nothing to talk about that.

They increased the thermal power and said they will have Norochcholai to bring that down. How can a Government which has been in power for 19 years try to blame a government before that? I think finding scapegoats is totally unacceptable. I think they should take the responsibility for the ongoing power crisis and try to resolve it. She only not tries to put the blame on the UNP but she tried to blame the previous Power and Energy Minister.

Q: How will the new electricity tariffs impact the overall economy?

A: This is definitely going to have a negative impact on the consumer. This is something the consumer cannot bear. But if we look at the President’s political management, he will try to manage the discontent arising from it by probably giving a small reduction in the proposed tariff. That’s one way of distancing himself from the Government.

We must say up front people are sick and tired of that kind of manipulative management. If they are going to reduce it, they must reduce either the marginal cost on poorer segments by 50%, 20% and 10% of those 30, 60 and 90 units.

It is the poor that will have the bigger impact. If we take the low end user who has his three lights and TV on, this is his basic need and he absolutely has to have it. Due to his limited income, he probably has to substitute out of food and education expenses to keep his light going. The other major issue is that this is going to impact the cost of living. So the poor will get a double whack – they get the direct tariff as well as the cost of living.

On the industrial front, Sri Lanka is already struggling in our export market with competitiveness. How much will this actually add to cost? That will really be the test; do they have the margins to absorb this? Domestically this could be passed to the domestic market. But when it comes to export market, it is going to be further under pressure. There is a possibility that it can get worse.

Q: Will this price increase help CEB to make profits or make it break even?

A: I don’t think that will happen. I think what they are trying to do is to reduce the losses in the CEB. To turn the CEB into profitability, it will take a lot more than that. However, they are going about it the wrong way. They are distributing the loss to the consumer as a charge. Other companies can’t do this because the consumer will not take it. Here the consumer is compelled because there is a monopoly. What really needs to be done is to look at ways and means in reducing consumption and reducing cost.

Q: The President has assured that the electricity tariff will be reduced in 2014 with the commissioning of the second phase of Norochcholai power plant. Your comments?

A: I am extremely sceptical of that. Certainly coal-generated power is cheaper. Where I am extremely sceptical is that given our experience with the Norochcholai power plant if we are going to add another 300 MW, then someone has to fund this. Given Sri Lanka’s present credit standing, if at all it is the Chinese who will fund it. So without really curing one problem, we are going to double the capacity. I have my doubts on that. So I feel the President’s statement is more a statement of hope rather than a statement of fact.

Q: Do you think the Government will be able to achieve the projected 7.5% GDP growth for this year and the 8% for the next year?

A: When it comes to statistics, the Central Bank has created Asia’s wonder. According to the Central Bank, the per capita is US$ 4,000, but where the people are concerned, they can’t pay for their 30 units of electricity. So these numbers are just a game. I don’t put too much faith and trust in these numbers. But some of the other agencies that have come forward have made some forecasts on Sri Lanka which are much less than that.