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By Chathuri Dissanayake
Industry experts in the power sector warn of a negative impact to the power industry if economic and technical regulatory powers of the Public Utilities Commission are to be trimmed as proposed by the Minister of Power and Renewable Energy.
Experts say that multilateral partners who started funding only after the PUCSL was set up and given powers through the Electricity Act of 2009 may pull back if the proposed changes are adopted.
Through a Cabinet paper presented last month, Power, Energy and Business Development Minister Ravi Karunanayake has sought to strip the PUCSL of economic and technical regulatory powers, leaving it to “act as the safety regulator and ombudsman for the electricity industry”.
The Cabinet paper seen by Daily FT, proposes to amend the Electricity Act No. 20 of 2009 and Sri Lanka Electricity Act (Amendment) Act No. 31 of 2013 to vest the “the economic and technical regulatory power of the electricity to the Cabinet of Ministers through the Minister and the Ministry in charge of the Subject of Power and Energy”.
However, experts in the industry view the proposal as “going back on industry standards” with no independent regulator to monitor the utility functions.
Independent regulator an assurance given for development partners
“This is a commitment that the Government has given regarding the sector many years ago, and when the 2002 Act [Electricity Act] was passed, but it was not enacted, most of the development partners stayed out of the sector,” an industry expert who declined to be named due to his current professional commitments told Daily FT.
The expert, who was also instrumental in setting up the PUCSL, also noted that Government should not be complacent since development partners had now got involved in the sector.
“They should not think that they can go back on their word, get rid of the Electricity Act, and go back to what the situation was 20 years ago. Partners such as ADB came back into the sector because of the regulations that came into play and afterwards the electricity industry moved forward,” the expert said.
Since its set up, the PUCSL has held a number of public consultations regarding tariff revisions and long-term generation plans to gather public opinion, giving opportunity for consumers to express their views. This is a space which was never available for the consumer before, noted Asia Development Bank, South Asia Development, Energy Division Director Dr. P. Wijayatunga, who was also involved in setting up the framework for the PUCSL in 2002.
“All the gains we have had for the past so many years will be lost, things other countries have had for so long, in fact they are advancing way beyond that. We are going backwards,” he said.
Dr. Wijayatunga notes that there should be a clear separation of the policy (Government), regulation (PUCSL) and utility operations (CEB). The functions should not be mixed and should be assigned to different institutions.
“Development partners like ADB would like to see this separation continued and advance even further with more reform actions in the sector with increased accountability,” he noted.
PUCSL imposes controls, ensures checks and balances
The independent regulator was set up to ensure that tariff control is managed with consumer interests in mind with checks and balances to ensure that the utility provider is also held accountable for taking measures to improve system efficiency without passing costs onto the consumer.
“We never looked to evaluate if the proposed tariff was correct and justified and if CEB has enough incentive to be efficient or inefficient. Nobody looked into the functions of the CEB in the context of protecting the consumer. Consumers were asked to pay whatever the Cabinet decided, which was decided virtually by the CEB on behalf of the Cabinet. But later, increasingly, because of political interventions, the CEB proposed tariffs were never approved due to political interest being more important. Approving the tariff became a political decision, nothing to do with the sector – this was not for the best for the sector,” Dr. Wijayatunga noted.
Sri Lanka, which set up PUCSL in 2002, was late to enact the Electricity Act giving powers to regulate the utility, even compared to its closest neighbour India. PUCSL was established to ensure competition and market-based determination in utility sectors such as electricity, water and petroleum, which have monopolistic characteristics which needed the intervention of the independent regulator to ensure that consumer interests are looked after and the utilities follow policy directions of the Government while being free of political interference during the day-to-day running.
Regulator to maintain a level playing field and encourage investments
“We considered establishment was necessary so that private participation can be encouraged. Multilateral agencies such as the IMF and World Bank encouraged the introduction of independent regulator which would take the utility sectors out of political interference, creating a conducive environment for further investment in the sector,” explained Lakshman Siriwardana, one of the co-team leaders in developing the framework to set up the PUCSL.
Sector-based funding by multilateral and bilateral agencies such as the World Bank and ADB were to be encouraged to lend money for the sector with the setting up of the regulator.
“The regulator was set up to ensure conditions maintained were beneficial for the consumer and economic situation,” added Siriwardana.
The proposed move will further discourage investments and create an environment worse than what it is today, Siriwardana noted, adding that none of the development institutions would be comfortable in supporting the power sector if PUCSL powers were curtailed.
The public policy analyst, who worked with policy expert Dr. Rohan Samarajiva, also noted that a regulator was needed “to encourage more private sector intervention and participation to ensure that the Government sector does not have an undue advantage”.
“Most of the utilities have been predominantly dominated by Government entities, power (CEB) and many other areas of operation, such as transmission and Government monopoly; petroleum is also now a duopoly, this was done to ensure cost-reflective pricing was followed, not monopoly pricing, among other reasons,” he said.
Siriwardana views the move to trim the powers of the PUCSL as “an attempt to clear grounds for discretionary procurement procedure”.
“Electricity sector procurement-based corruption, more that the project, particularly emergency power purchases and barge-mounted power purchases, are entirely a direct burden to power consumers and it goes even beyond the consumers as it leads to higher prices and costs.”
Energy analysts also found the Minister’s proposal to vest the economic and technical powers in the Ministry, allowing the Cabinet to take decisions, raises concerns over capacity to execute the functions effectively.
Bringing in recent examples by the Ministry to procure emergency power for the country, an energy expert, who declined to be quoted as he is not authorised to talk to the media, noted that the exercise clearly displayed the inability of both Cabinet and Ministry “to do either (technical and economic regulation) even at a nominal level”.
“In January, we were told we need 100MW of emergency power, then we were told we do not, and then we had a power cut, and now 570MW of emergency power without anyone knowing the energy shortage and assumptions behind it. We have emergency power barges being brought in without clear technical or economic evaluation – the capacity and terms of which keep changing from one Cabinet paper to another, and there are a lot of papers. Locations and how they are connecting are also changing,” the expert said.
The amendments will also give rise to conflicts of interest as “policy and regulation are held in the same body who also controls a monopoly utility”. The regulator is responsible for all players in the sector and represents public, which will be lost if changes are to go ahead, an analyst notes.
The situation is highlighted in the current context, where the “Minister has clearly stated that he is only interested in making CEB (a monopoly utility) profitable.”
“As seen in his moves against the rooftop solar industry, we clearly see that sector interest, national interest, social/environmental concerns, and public interest are being willingly sacrificed to support a monopoly,” an analyst said.
The changes have also raised concerns over transparency where the public is not informed on decisions taken. Drawing examples from decisions made in the past which have cost the country serious losses, experts warn that axing PUCSL powers to carry out independent evaluations may have serious repercussions on the industry.
“We have suffered immense losses from badly structured power purchase agreements in the past, such as West Coast, where an estimated loss of over Rs. 200 billion has been discussed. PUCSL was empowered to review and direct amendments for the PPAs before them being signed, and the Barge power plant and the LNG power plant would have been the first two to be reviewed. With the new changes, the Ministry and CEB, who negotiate, will sign the same without independent review as done previously,” one analyst warned.
