Sri Lanka's CEB urged to have competitive bidding for all new plants

Some diesel plants running reciprocating engines are selling power at a little over 20 rupees to the CEB. There are also questions over the efficiency of other combined cycles. An independent power producer (IPP) is selected on two criteria. A capacity charge is set for a guaranteed payment on the promise of a minimum availability of the plant. The cost of building the plant and profits usually come from the capacity charge. An energy charge is also paid for every unit produced for fuel and operating costs: the greater the efficiency (heat rate), the lower the energy charge. Competitive Bidding In a competitive bid, operators will try to build the cheapest plant with the cheapest financing and most efficient to outbid others and try to run the plants as efficiently as possible. Usually little or no profit is made on the energy charge. On the basis of a 'state connection' Kerawalapitiya was 'negotiated'. Its heat rate was not guaranteed (usually the responsibility of the foreign turnkey contractor) and was expected to be re-negotiated after the lapse of a year, according to sources. It is not known whether the heat-rate was re-negotiated or not. Many speakers at the public hearing on tariffs asked for independent audit of plant efficiency. "We would also suggest to re-visit the power purchase agreements that have been signed by the CEB without a proper competitive bidding process which are at substantially higher rates and to re-establish reasonable rates," Dushyantha Ranaraja, who represented an association of Sri Lankan industries said. The Kerawalapitiya plant, however saved Sri Lanka from power cuts, before the coal plant came. Under Sri Lanka's power sector rules there is no competitive bidding to supply power through a spot market after a plant is built, like in other countries like Singapore. The only mechanism to get cheap power and prevent corruption is to have open tender at the entry. The process is sometimes referred as 'competition for the market' as opposed to 'competition in the market.' Some power consumers also called for all IPPs contracts to be re-negotiated, a move that could harm Sri Lanka's investment prospects, which had already been dented by the controversial expropriation of a number of firms. Still others said since some of the plants came at a time when there was a war-risk they could now require less returns. State Connection Meanwhile, under power sector rules that were revised some time ago all generators must mandatorily have a 'state connection,' through an equity stake, despite some fully private firms being in the system for years. As a result some plants how operate out of the remit of the regulator, the Public Utilities Commission. A proposed amendment to the existing power regulation law that is scheduled to be passed in parliament shortly is set to allow new plants to escape competition, if they are government-to-government. Critics allege that is a ploy by elected rulers to allow state functionaries to 'negotiate' and make deals without tender, between enterprises controlled by ruling classes of two countries whether elected or not, at the cost of the consumer. A proposed 500MW coal plant which is to be a 50/50 joint venture between Indian and Sri Lankan state firms is now reported being re-negotiated after some officials found out that the heat rates originally agreed were unfavourable to the CEB, according to sources. Transparency Meanwhile, at least three plants on which power purchase agreements had lapsed are now idling. The CEB proposed to dispatch them on tariff proposals filed ofor- apparently on the same terms before - which the regulator refused to allow. But the plants, which are now fully depreciated and paid for should not be renewed on the same terms, even if they were originally bought on competitive and were therefore cost effective. "Several IPP agreements are up for renewal" Sunil Wijesinghe, who represented joint business chambers in the island, said. "We urge the CEB to enter into renewal agreements in a transparent manner with cost justification." It could allow an opportunity for the CEB to contract cost-effective thermal power, at rates even below that being proposed for new renewable plants, if competitively acquired or even give a chance for a competitive market to be set up for peak power purchase. A 270 MegaWatt plant build by Sri Lanka's Lanka Transformers group, which is partly owned by the CEB came under heavy fire from numerous consumers at a public hearing called by the power regulator on a proposed tariff hike. 'Negotiated' The controversial plant originally promised to be 300 MegaWatts. runs now on a special fuel. It was not acquired following competitive bidding but was 'negotiated' on the basis that it had a connection to the CEB which in turn is state-run or ultimately controlled by politicians. The plant, which is a combined cycle of supposedly greater efficiency, has ended up being more expensive than diesel plants running simple reciprocating engines, which had came on competitive bidding. "Kerawalapitiya has a problem," Jayantha Ranatunga, who heads a consumer consultative committee, told the public hearing. "Kerawalapitiya is producing today at 30 rupees (a kiloWatt hour) which is very high."