Powering growth

Friday, 5 November 2010 05:46 - - {{hitsCtrl.values.hits}}

A new electricity tariff might be included in the Budget with the proposal being considered by a host of stakeholders including the Power and Energy Ministry, Treasury, Ceylon Electricity Board (CEB) and Ceypetco.

The public have been given 21 days to voice their proposals before a decision is taken leaving room to wonder about the development outcomes of such a move. The importance of cheap power can hardly be overstressed for development. An integral part of infrastructure reasonably priced and reliable power is the cynosure of investors. However in the past Sri Lanka has struggled to become self sufficient in electricity and even with government funded massive projects in the pipeline including Upper Kotmale, Norochcholai and Sampur as well as numerous private ventures fuelling the national grid the public still have to pay high amounts for power. Hydro power is saturated in Sri Lanka and according to the government the most cost effective options left are coal and nuclear power generation. The former will make Norochcholai and Sampur a reality — after the lapse of several decades when the power generation should have been enhanced but for a variety of reasons that delayed the progression. Now it seems that the people have to pay the price.

Earlier in the month Power and Energy Minister Champika Ranawaka vested the CEB with the responsibility of repaying the entire Rs.154 billion loan granted by China for the construction of the Norochcholai power plant. This elicited a response from the Petroleum Resources Minister who must have decided that if the CEB was rich enough to pay off a loan of such magnitude then it should be perfectly capable of paying off millions in outstanding debt to the Ceylon Petroleum Corporation (CPC).

With the CEB facing a possible loss of Rs.40 billion for 2010 it dawned on officials that without the fuel subsidy electricity bills would have to increase by 15%. Adding to this already tense situation the Minister remarked on Wednesday that another tariff is being contemplated sending more questions of what the people can expect in the Budget.

The only silver lining in this scenario is that the CEB documents are to be made public so that misconceptions of the organisation can be cleared, yet it is doubtful whether this will make the institution profitable and that is what most practical people care about. Finding out how the money is spent makes little difference in the long run and only underscores the magnitude of the task of converting State Owned Enterprises (SOE) into professionally run organisations.

While it is understandable that the government will have to increase power prices in the short term it can also act as a deterrent to investors. The question now is how can the government stick to its principle of fast tracking development if the production costs remain high? This would have added impact on foreign investments and while it is admitted that the government can do little in such a circumstance there must be an increased vigilance to ensure that the business community are not deterred by increased tariffs.

Revenue for the government should be earned in more investment friendly ways so that economic growth is given clear priority.