Power paralysis!

By Uditha Jayasinghe

Electricity users are in for a rude shock with the new high tariffs coming into retrospect effect from last Friday as the country grapples between the loss making key utility and fair pricing.

New tariffs in effect mean prices for domestic users up to a maximum of 59.4%.

The Public Utilities Commission (PUSL) yesterday announced the existing Incremental Block Tariff structure will be changed to a Volume Differentiated Tariff structure for Domestic (D-1) and Religious (R-1) Purpose and General -1 (GP-1) customer categories; where monthly (30 day) consumption falls within a certain range (block), the relevant tariffs for that range will be applicable for the entire monthly consumption.

The move evoked mixed reactions from different stakeholders though PUCSL justified the move as the most pragmatic given the circumstances.

Despite holding public consultations with nearly 80 respondents, the PUCSL has largely stuck with its original tariff structure, analysts claimed who insisted that the new framework has taken away the subsidy for poor families and would reduce incentive to conserve energy.  

However the PUCSL said at the public consultation held on the 4th of April 2013, on the CEB’s proposed electricity tariff for 2013, the Commission drew special attention to proposals submitted on the subject of reducing costs pertaining to the supply of electricity. Moreover, the proposals and recommendations presented during the public consultation highlighted the importance of ensuring the transparency and fairness of CEB cost estimates.



A summary report on the written and oral submission made during the public consultation will be available on the Commission’s website www.pucsl.gov.lk commencing from the 17th of April.

Among the proposals submitted during the public consultation, the Commission identified 8 proposals which could be practically implemented in a short time, along with the proposed electricity tariff for 2013. Therefore, along with the implementation of the new tariff for 2013, the CEB will also be required to satisfy a set of conditions specified by the Commission as per the views elicited during the public consultation. These views expressed by the general public during the consultation phase reaffirm the need to ensure transparency and fairness in CEB cost estimates. Therefore, the CEB will be required to satisfy all conditions pertaining to transparency of its data before the end of this year.

The new tariff revisions are expected to boost CEB’s revenue by 72.2% to Rs. 69.9 billion from domestic consumers and 11.3% to Rs. 126.1 billion from industrial users.

The CEB incurred a loss of Rs. 61.2 billion in 2012 (up from Rs. 19.3 billion in 2011) as the Government subsidised electricity since more than 60% of the power in 2012 was generated using expensive fuels.

Verite Research, which provides strategic analysis and advice for government and the private sector in Asia, releasing a report pointed out that under the new structure Ceylon Electricity Board (CEB) has completely removed a 39% subsidy it claimed to give poor consumers.

Moreover Verite Executive Director Dr. Nishan de Mel speaking to Daily FT pointed out that the new numbers released to the media were actually “misleading” since it does not take into account the 25% to 40% fuel surcharge.

“The irony is that the PUCSL seems not to have absorbed any presentations made before it when it called for public input. None of the points that were presented by a large cross section of society has had an effect on the domestic pricing other than to increase the energy charge for households that consume more than 900 units to Rs.32.”

Under the new tariff system Dr. de Mel remarked that the calculated average cost per unit had changed significantly. Accordingly the average cost of 30 units has increased from Rs. 4.75 to Rs. 7.25, 90 units Rs. 8.09 to Rs. 12.90, 120 units Rs. 15.30 to Rs. 23.63, 180 units Rs. 21.40 to Rs. 29.75, 210 units Rs. 25.54 to Rs. 35.10, 300 units Rs. 33 to Rs. 37.45 and beyond 300 units from Rs.33 to Rs. 45.85. Multiplying the new average unit cost with the number of units will give consumers a rough idea of how much more they will have to fork out for electricity.   

PUCSL said the cost estimates for the supply of electricity for the year 2013, provided by the Ceylon Electricity ( CEB) to the Public Utilities Commission of Sri Lanka (PUCSL) was approved after assessments for prudency and alignment with approved tariff methodology. Consequently, the Commission took a decision to reduce Rs. 40 billion from initial CEB cost estimates.

As per section 30 of the Sri Lanka Electricity Act, No. 20 of 2009, the Ceylon Electricity Board is required to file its cost estimates annually with the Public Utilities Commission. Subsequently, after approval from the Commission is granted for these revised cost estimates, the Ceylon Electricity Board has the legal mandate to propose a new revised electricity tariff. The CEB has prepared its new revised tariff proposal based on the cost estimates approved by the Commission.

The Verite Research report also describes the current structure as “wrong-headed and self-defeating” because it discourages consumers from saving power. It gives two reasons for this statement.

First, the report emphasizes that people at the low end of consumption, where marginal costs are increased, will have the least ability to reduce consumption. Those at the high end of consumption where greater vigilance could substantially reduce consumption are being encouraged to consume more through lower marginal costs.

Second, it is also the last units of electricity that cost the CEB the most. Hydropower for instance costs less than about Rs.5 per unit to produce. Coal power costs only a little bit more. Given the average cost in excess of 20, it means that the extra units purchased from Independent Power Producers could be costing the CEB well in excess of Rs.30 (some unconfirmed estimates place it at above Rs.60).

“This means that those consuming between 92 and 210 units that are now being encouraged to consume more by the new tariff structure could in fact be paying less for that extra consumption, than it costs the CEB to source that extra power to them,” the report stressed.

Reuters reported that the new tariff posted in the Public Utilities Commission’s website showed the revisions are expected to boost CEB’s revenue by 72.2 percent to 69.9 billion rupees from domestic consumers and 11.3 percent to 126.1 billion rupees from industrial users.

The CEB incurred a loss of 61.2 billion rupees ($488.04 million) in 2012 as the government subsidized electricity since more than 60 percent of the power in 2012 was generated using expensive fuels.

CEB had posted a loss of 19.3-billion rupees in 2011.

The CEB’s failur e to settle state-run Ceylon Petroleum Corporation’s (CPC) bills for fuels saw the oil firm losing 89.7 billion rupees ($715.31 million) last year, following a 94.5 billion rupees loss in the previous year.

Bankers say the borrowing by these companies has drained liquidity from the banking system, and pushed up borrowing costs for private sector firms.

The IMF, which completed a $2.6 billion loan disbursement in July last year, has repeatedly asked the island nation for power reforms and emphasised the need to move toward with cost recovery pricing to place the entities on a sustainable footing.

“All the sectors are going to see a cost hike due to the power tariff rise,” Danushka Samarasinghe, the head of research at TKS Securities told Reuters.

“Overall, there will be cost pressure and this inflationary pressure. Majority of the business will see low profitability due to the price increase.”

However, the central bank on Friday shrugged off concerns over a spike in inflation due to expected increase in power bills, saying annual inflation in April could be marginally higher than 6.3 percent, but still less than last month’s 7.5%.