How to run a company into the ground 101

The CEB has been and will be one of the big five cash drainers in the SOE portfolio. After posting record-breaking profits from 2013 through to 2015, the Board has harboured “1.5 billion in profits up to August 2016 excluding debt servicing costs,” according to Deputy Energy Minister Ajith Perera, who refused to accept the dreaded reality of losing 167 million a day since then. 

Siding with his previous ministry, Champika Ranawaka attributed these losses to the prevailing drought and the subsequent dependence on thermal power generation, though it was and is the opinion of the Government to indeed increase the proportion of thermal facets in the long run. 

Ranawaka, in response to Ravi Karunanayake, further added that thermal power generation added nearly 80-85% of the grid during this period, while down here on planet earth only 9% of the hydro scheme which was affected by the drought was taken up by fuel burning power plants (and not coal such as Norochcholai). Ironically, Ranjith Siyambalapitiya gobbled up to reporters a while ago that Norochcholai could make up 80% of the national grid, when independent statisticians claim the number to be in between 12% and 15%. 

Confusing as this may seem, I believe that these three men are either being fed ‘alternative facts’ to lie their cheekbones out in public or have no freaking clue as to what’s going on within the ministry of power and energy.

It is irrefutable that the CEB has been suffering operational losses due to its concessionary pricing policies since its inception. But with its service tariffs and prolonged usage charges, the board has surfaced itself for over 50 years. Though the board has faced similar difficulties servicing demand in the past due to extreme weather conditions (1973 and ’83) with the same counter measures of filling in using thermal generators, annual profit statements rarely went under. With a growing population, doctrinal shift towards thermal power generation and government plans to achieve 100% penetration, the CEB’s dependency in heat increased gradually from 1995. 

Noble as it may seem, one needs to identify the real motivations behind this shift and the repercussions of said shift. Long term borrowing nearly doubled in the CEB books in 2010 from 93 to 174 billion, simply due to the Norochcholai-EXIM commitment by the ousted president. The department’s inability to finish the project in time and the unforeseen periods of drought, caused increased reliance on petroleum powered turbines to mitigate hydro deficits. Since Rahu and Kethu were placed in the unluckiest spot in history, the board had to procure said fuels at higher prices due to Iranian sanctions, a depreciating LKR and rising oil prices; increasing short term borrowings plus generation costs from 15.07 to 17.53 rupees per kWh.

Moreover, when questioned by reporters in separate occasions, Ajith denied to answer queries into the real interest rates of the EXIM loan, when Ranjith boasted it to be at 2% for the full 1.3 billion dollars. I simply do not understand why the minister didn’t get the hint from his deputy to abstain, as only the first 450 million is serviced at 2% and the rest at 6%. Adding to this, the CEB is currently committed or about to commit funds in excess of $ 6.5 billion and Rs. 159.6 billion on infrastructural spending. Unable to finance these loans (as the board already owes nearly Rs. 39 billion to SL banks), the entity aspires to engage in further leveraging their business through corporate bonds and debentures, which is a funny way of guaranteeing payments for the latter in case of bankruptcy.

On an operational sense, the board has been able to collect nearly 95%+ of its cost of sales in revenue (mainly due to the subsidised nature of power billing in the country). Norochcholai and other similar coal plants have been able to slash generation costs, even though their relative debt servicing cost outweighs this benefit. Petroleum powered turbines still contribute to the national grid in a substantial amount, costing both the CEB in higher production costs and CEYPETCO in lost revenue. 

Siyambalapitiya’s claims that power lost on transmission in Sri Lanka is relatively high compared to other Asian countries is absurd, as out networks leak somewhere between 13-17% while our neighbour up north graces more than 22%. Hydro’s contribution stales at 14% and will probably stay the same way in the long run, due to unfavourable climate trends. Bio-gas will probably consume the petroleum turbines and cut some of the slack from the hydro drop-outs in the future, adding to cost savings on generation similar to coal. The CEB has actively promoted alternative energy propellants such as solar and wind to be adopted by the public awarding Rs. 22 for each unit generated for the grid. 

For the above to materialise in the long run, the following ought to take place. Sri Lanka should maintain steady diplomatic ties with Indonesia for coal, Russia for tankers, India for back-up coal and Iran for petroleum, if all else fails. The CEB should restructure its existing borrowings to lower its debt servicing costs. Propose a cost reflective pricing policy to negate consecutive operational losses. Allow the CEB to run its own affairs as an independent entity, without the Treasury’s current assurance of a State bailout (it is believed that the EXIM loan is serviced by the Treasury). Aim to utilise the full capacity of all power plants investing in storage facilities for unforeseen disruptions.

Had the CEB been a publicly listed company, it should have declared bankruptcy a long time ago. In the past, it has been accused of waste, fraud and corruption, yet its service to the nation is vital. Introducing competition to this industry as we did in telecommunication is impractical due to the nature of the business and the infrastructural investment needed for it. What has been done is done and the only consolation of this whole debacle is that the CEB has a clear vision for the future. And the one and only concern is the rising cost of finance which could bankrupt the whole Government let alone the CEB.

 (The writer is a FX trader and a poker enthusiast.)