Conflict between power supplier and regulator II – President’s ruling
By Dr. Janaka Ratnasiri
The conflict that has arisen between the Ceylon Electricity Board (CEB) and the Public Utilities Commission Sri Lanka (PUCSL) was described in detail in my article in The Island of 21.04.2018. As the the conflict between the two organisations remains unresolved even with the intervention of the Ministry of Power and Renewable Energy (MP&RE), President Maithripala Sirisena has taken up the task of resolving it.
President’s ruling on the matter
One state TV channel in its evening news programme telecast on 25.04.18, showed the President chairing a meeting specially summoned to discuss this issue, with a summary posted in the site: http://www.itnnews.lk/sinhala/. The matter was also reported in the Island of 26.04.2018. The President was heard instructing the PUCSL to take early steps to implement the CEB’s Long Term Generation Expansion (LTGE) Plan that has been submitted for approval. He further said that the parties need to be flexible and the decisions should fall in line with the government policy and should not cause any inconvenience to the public and that they should look into the human aspect of the issues also. The President instructed the officials to resolve any problems through discussions and remove any barriers in view of the urgency of the matter. He urged the CEB Engineers’ Union representatives not to pursue trade union action as proposed, giving an assurance that he would take a decision with regard to their other grievances after discussing them at the Cabinet. The President appeared to have been cautious not to give any firm directive either way.
It should be noted that prior to PUCSL coming out with its own recommendation, it has requested CEB to revise their plan taking into consideration several suggestions made by PUCSL including some for fuel pricing and other parameters under several scenarios and to resubmit them to PUCSL before July 07, 2017. The PUCSL has also requested several clarifications regarding preparation of the plan. Thus, it appears that the CEB was given an opportunity to make amends in their plan, but it is not known whether CEB responded. If they did not, they cannot now find fault with the PUCSL for recommending a better plan on their own.
Policy on fuel for power generation
With regard to the fuel options for power generation, the President has quite clearly announced his policy. According to a report filed by Reuters in May 2016 (https://in.reuters.com/article/sri-lanka-india-coal-idINKCN0Y90R8), the former Minister of Petroleum Chandima Weerakkody has said that President Maithripala Sirisena told Indian Prime Minister Narendra Modi of the decision to cancel plans for the 500 MW Indian-built coal-fired power plant at Sampur and instead to opt for a liquefied natural gas (LNG) power plant, at a meeting during Sirisena’s visit to India. Weerakkody told Reuters further that "We do not want to hurt India. So President Sirisena in his visit has offered an LNG plant instead of the coal plant," adding "This has been discussed at the highest level and there is consensus."
In the meantime, Japan had submitted an unsolicited proposal to build a 1000 MW coal power plant, initially limited to 500 MW, also at Trincomalee. This plant is supposed to be a high efficiency clean coal power plant, though in reality there is no such thing as a clean coal power plant. President Sirisena had requested the Japanese Prime Minister to cancel this offer too and instead wanted it replaced by a natural gas power plant. Later Sri Lankan Government has signed memoranda of understanding (MOU) with the Indian and Japanese Governments for building 500 MW each by the two countries.
The Cabinet on 18.07.2017 has assigned the task of formulating the "Government Policy on the usage of Liquid Natural Gas (LNG) for Electricity Generation and the Construction of required infrastructure for the purpose" to a Cabinet Sub‑Committee under the Chairmanship of Hon. (Dr.) Sarath Amunugama, the Minister of Special Assignments, in particular, "to determine the government policy relevant to the infrastructure facilities required for the usage of LNG for Electricity Generation and the construction of required infrastructure focusing attention on ensuring the energy security of Sri Lanka, diversification of fuel options used for electricity sector and the minimizing of electricity generation cost".
On the recommendations made by the said Sub‑Committee, the Cabinet at its meeting held on 29.08. 2017 granted approval "to accept as a matter of policy for the usage of natural gas as a fuel for generating electricity in Sri Lanka by the year 2019 and to operate the Natural Gas Electricity Plants with the capacity of about 1000MW, and to improve expeditiously the infrastructure facilities for unloading and re‑transforming of LNG".
(http://www.cabinetoffice.gov.lk/cab/index.php?option=comcontent&view=article&id=16&Itemid=49&lang=en&dID=8082)
Subsequently, the Cabinet of Ministers at its meeting held on 11 July 2017 granted approval for the Governments of India and Japan to establish two 500MW capacity Liquefied Natural Gas (LNG) Power Plants in Sri Lanka on Government to Government basis, and to issue Letters of Intent to the Governments of India and Japan, to establish the two power generation plants based on memoranda of understanding entered into with the two countries previously.
It is therefore clear what the government policy is on power generation – to move away from coal power towards cleaner option of natural gas power. Hence, the decision of the PUCSL to disallow more coal power plants and proposing that only natural gas (NG) fired power plants be built is within the government policy framework on energy.
Inconvenience to the public
The President said clearly that implementation of the generation plan should not cause any inconvenience to the public. Between coal power plants and NG power plants, there is no question as to which causes inconvenience to the public. A full page news report appearing in another local daily of 25.04.2018 describes graphically the inconvenience caused to the public living around CEB’s coal power plant at Puttalam since its inception in 2011. Proponents of coal power claim that today’s coal plants are clean with no emission of pollutants. It is said that there are filters installed to remove almost 99% of the polluting substances such as fly ash and Sulphur Dioxide and emissions should not be of any concern. It is well and good if the filters operate within specifications throughout the life time of the plant. But more often than not, these filters operate either at below rated efficiency or do not operate at all, as described in the above news report.
In addition to inconvenience caused by emissions after combustion, people are inconvenienced by coal dust getting blown into surrounding areas during unloading, transporting and storage. In order to mitigate the environmental issues including coal dust and ash particles getting blown into neighouring agriculture land and households, Cabinet gave approval on 09.01.2018 for the construction of a wind barrier around the coal yard and the ash yard at Puttalam Power Station at a cost of LKR.723.7 million. In July 2017, CEB called for Expressions of Interest for developing a sustainable solution for disposing the total ash collected at the coal power plant. Such a process once implemented will cost an enormous amount of money. With a gas power plant there are absolutely no particulate emissions or Sulphur Dioxide emissions or heavy metal emissions or ash collected after combustion, and as such no expenditure on their mitigation is necessary. Hence, when there is a suitable economical alternative, building coal power plants generating mountains of coal ash and then seeking expensive solutions for their disposal is nothing but a waste of money.
Health impacts of coal power
Readers point out that countries like India and China are building coal-fired power plants. They ask why Sri Lanka should not do so. With the heavy demand for electricity to cater to their large populations and industries, coal plants are a necessity as the demand cannot be met from NG alone. Both countries are investing heavily on renewable systems, too. But this is not the situation in Sri Lanka, where the demand could be easily met from NG. Further, disposal of coal ash is a problem here with limited land extent unlike in India and China. We cannot find land even to dispose our municipal garbage. But both these countries have to pay a heavy penalty for excessive use of coal power. It is reported that in India impacts from the existing fleet of coal power plants included premature deaths between 80,000 and 115,000 annually due to exposure linked their particulate emissions in 2011-12 (http://cat.org.in/portfolio/engery-conservation/). In China too, burning coal has the worst health impact of any source of air pollution which has caused 366,000 premature deaths in 2013 (https://www.nytimes.com/2016/08/18/world/asia/china-coal-health-smog-pollution.html). Do we want a similar situation created in Sri Lanka too?
A matter of concern here is the lack of legally binding emission standards for thermal power plants in Sri Lanka. The Central Environmental Authority (CEA) which is the body responsible for formulating and enforcing emission standards has released only some interim standards which are not legally binding. As a result, no one can take any legal action against a power plant operator not complying with the standards, and the plant operators are free to emit any amount of polluting substances unlike in other countries where regulations on emissions are strictly enforced. In reality, in Sri Lanka, there is no programme to monitor emissions from thermal power plants on a regular basis which is the responsibility of CEA, despite the fact that some power plants operating on heavy oil emit excessive amounts of Sulphur Dioxide. The President holding the portfolio of environment should look into this lapse of an organization coming under his purview.
Delay in implementing the CEB
The instructions given by the President to PUCSL to expedite the implementation of the CEB Plan shows that he has not been properly briefed on the issue. The PUCSL, probably in the absence of any response for revisions to plans and clarifications sought from CEB in June, suggesting that the CEB Plan has not been correctly formulated and needs reformulation, particularly for not complying with the relevant Electricity (Amendment) Act No. 31 of 2013, in July 2017, released its decision on the CEB’s Plan.(http://www.pucsl.gov.lk/english/wp-content/uploads/2017/09/Decision-on-LTGEP-2018-2037.pdf).
There is nothing more the PUCSL could do about it. The President did not ask the PUCSL to withdraw their decision but wanted any dispute resolved through discussions. It is up to the CEB to implement the plan proposed by the PUCSL or if they are not happy with it to come out with another plan that complies with the Act, without insisting that their original plan be implemented.
It appears the PUCSL representative had not presented the case with adequate force to defend its decision. In fact the Director General of PUCSL was interviewed in one of the private TV channels on the 24th evening on the topic of CEB-PUCSL dispute. Even there, he did not speak convincingly why CEB plan should be rejected. He did not mention the fact that the CEB plan did not comply with the Electricity Act and their inability to approve an illegal plan. He also did not mention about the incorrect fuel pricing used in the CEB plan which was corrected in the PUCSL plan. The fact that the CEB plan too had an option of building only gas power plants under the scenario of "No future coal plants", similar to what the PUCSL has proposed, was also not highlighted. He also failed to stress about the financial advantages when using natural gas.
In any case, the immediate requirements of power generation has already been approved by the PUCSL when it granted approval for CEB’s proposal to build a 300 MW combined cycle plant at Kerawalapitiya for which proposals were invited by CEB from the private sector to build the plant on build, own & operate (BOO) basis. However, CEB and the MP&RE took more than one year to evaluate and select the party for building the plant. It is to be noted that building a combined cycle plant itself does not take more than two years. Hence, the delay is not on the part of the PUCSL but with the CEB and MP&RE which the President should have noted.
Price of LNG in the region
One important matter of concern is the price for LNG Sri Lanka will have to pay in the event the country opts for NG power plants. According to media reports, India and Japan have come forward to assist Sri Lanka to set up terminals for importing LNG and also in acquiring LNG. This is probably because Sri Lanka has no expertise in these areas, as evident from the fact that no action was taken to implement a cabinet decision taken in 2010 recommending that NG be introduced to all sectors including power, transport and industries.
In the past, LNG was purchased on long term contracts where the price was linked to either Brent or Japanese JCC indexes. But today, majority of LNG trading is based on spot market prices which vary only with market forces such as supply and demand fluctuations. In 2017 during summer months, the price of LNG in the spot market in Asia was around USD/MBtu 5-6 while currently because of the higher demand for space heating during winter, the spot price in Asia has increased up to about USD/MBtu 10. This will invariably drop once the demand falls after winter. On the other hand, coal prices which were as low as USD/t 60 in 2016 has now escalated to over USD/t 100 for Australian coal with less than 1% Sulphur. Singapore is developing a large storage facility for LNG to serve as a hub for the region ensuring its availability at spot market rates.
On the other hand, LNG prices in USA and Europe are very much less being in the range USD/MBtu 3-4 and to take advantage of this price difference India is importing LNG from USA. In fact, India is planning to build a trading hub for LNG of its own by October, creating an Indian gas benchmark which will spark a surge in consumption of the cleaner-burning fuel. The Petroleum and Natural Gas Regulatory Board (PNGRB) of India has sought bids to hire a consultant to help develop a regulatory framework for operationalizing the gas trading/exchange hub, saying it will boost the consumption of natural gas in the country, where natural gas can be traded, and supplied through a market-based mechanism instead of multiple formula driven prices." "The Government has envisaged ushering into a gas-based economy by increasing the share of natural gas in the primary energy mix of the country from current level of about 6 per cent to 15 per cent by 2030," PNGRB said in a news item published in the Hindu. (https://www.thehindubusinessline.com/economy/india-to-launch-natural-gas-trading-hub-by-october/article23556778.ece). India is planning to build 11 more LNG terminals over the next seven years which will raise India’s LNG import capacity to more than 70 million tonnes per year, according to a report filed by Reuters (https://www.reuters.com/article/indonesia-lng-summit-india/india-plans-massive-natural-gas-expansion-lng-imports-to-soar-idUSL4N1PW5M0). If Sri Lanka could acquire LNG at this price, it will definitely reduce the electricity price from NG to a value below that from coal, even without accounting for cost of externalities.
Conclusion
It is a pity that the President has not been properly briefed on the dispute between the power supplier and the regulator by the officers concerned. It was wrong for the CEB and the ministry to take this issue to the President knowing his commitment for cleaner energy and attempting to get him to make a decision in favour of coal plants. The worst was to take along with them trade union officials armed with the whip of "trade union action". As highlighted in the writer’s previous article appearing in the Island of 21.04.18, there is no justification whatsoever for building coal power plants when a more economical and cleaner option of NG power plants are available, other than saving the face of a few officials in the CEB. Fortunately, the President did not make any firm commitment leaving the matter in the hands of the power supplier and regulator to thrash out the issue between them.
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