Band-aid solutions for power

Monday, 4 March 2013 00:00 - - {{hitsCtrl.values.hits}}

As a merciless sun beats down, there are real concerns as to how much time will lapse before another crisis in the power sector floats to the surface. Given the latest policy of the new Petroleum Minister to not extend credit to key organisations beyond their quotas, a rationalisation of the system is clearly needed for Sri Lanka to stay in the light – financially or otherwise.

Soaring fuel costs have prompted the Government to impose tough conditions on supplies to State institutions, with Petroleum Industries Minister Anura Priyadarshana Yapa deciding over the weekend that if bigger consumers in the State sector exceed the annual fuel quota issued to them, the Ceylon Petroleum Corporation (CPC) would withdraw credit. In such a situation, he said, they would have to open their Letters of Credit on their own for imports.

The report goes on to observe that both the Ceylon Electricity Board (CEB) and SriLankan Airlines have in the past blamed the Ceylon Petroleum Corporation for not extending concessions to them. The CEB is in arrears of Rs. 28.3 billion while SriLankan Airlines owes Rs. 27.4 billion to the CPC. Others who have run heavy bills include the Sri Lanka Navy Rs. 6.7 billion, Sri Lanka Railways Rs. 5.3 billion, the Army Rs. 4.1 billion, and the Air Force Rs. 1.8 billion.

Minister Yapa has remarked he discussed the new plans with heavy consumers of oil and oil products at a recent meeting at his Ministry. The latest CPC fuel price hike on 24 February, Yapa said at a news conference last week, was the result of losses suffered by the CPC. The new measures were intended to reduce those losses.

From last Saturday, the price of diesel was increased by Rs. 6 a litre and petrol by Rs. 3. The CPC plans to increase both low and high sulphur fuel used in power generation from 1 April. The losses suffered by the CPC have been aggravated by the corporation having to pay Rs. 18 billion as interest on Letters of Credit opened so far to buy fuel for the CEB. The Minister said he was initiating measures to ensure State institutions pay back their debts to CPC. But given that previous such attempts were thwarted, it is questionable whether this round will bear any fruit.

Meanwhile, two private power plants found themselves having to suspend electricity production after the CPC put its foot down. After some shuttle diplomacy, including the intervention of the Power Ministry Secretary, supplies were grudgingly released to the companies, but repeated curtailing of power production in this way could result in power cuts.

It is therefore worth considering why such massive amounts were allowed to be racked up by institutions and whether they can be rationalised to provide maximum benefit to the consumer. In this vein, it can be pointed out that the Rs. 12.7 billion in arrears accumulated by the military would be one place to start. Given the whopping Budget allocation for the defence sector, which is larger than any other, it would seem that they are in the best position to repay their debts to the CPC so that it in turn can concentrate on areas more central to economic development of the country at large.

Caught in a financial black hole, it is clearly time to introduce some transparency and good governance to Sri Lanka’s petroleum sector. But it would seem that only band-aid solutions are preferred by the Government.