Authorising illegal payments

Secretary Batagoda on the same day, had granted approval to the Chairman and GM to settle the outstanding payments to the investor based on approval of the Cabinet. However in the same letter, Batagoda had stated that the Electricity Act did not provide provisions for extension of retired IPPs. “While authorising to make this illegal payment, he has also stressed that there is no provisions to do so. This is a joke,” CEB sources added.   

Hence a new DGM (EP) had been appointed and on his orders, Assistant Finance Manager (Transmission) and Accountant (Energy Purchase) on July 18 had authorised the payments, violating the Electricity Act.   

Meanwhile, B.M.S. Batagoda by a letter dated August 6, 2018, to Secretary to the President, has made a request to direct the PUCSL to issue approvals to extend PPAs of IPPs- 24 MW Ace Power Matara, 51MW Asia Power and 100MW Ace Power Embilipitiya for three years as approved by the Cabinet until new power plants which have been planned will be commissioned from 2021.   

The letter further states that the unit cost of these three power plants are lower than most of the other thermal plants in operation. “Once again Batagoda has tried to mislead the President’s Office by claiming that these three retired IPP supply electricity at the lowest price per unit. Questions are raised as to what made Batagoda to make such a claim when there is sufficient documentary evidence to show how solar, wind and few other IPPs that were selected following a tender procedure supply low cost electricity to the national grid. Although Batagoda in his letter says that the average unit cost of ACE Power Embilipitiya is Rs.23.64, ACE Power Matara is Rs.24.41 and Asia Power is Rs.24.69, he has failed to state in his letter as to how the CEB, after following procurement guidelines, are to procure electricity at a lower cost from 10MW Vavunathiv Solar Plant (Rs.11.86), LNG Kerawalapitiya (Rs.14.99) and 10MW Chunnakam Wind Plant (Rs.10.07)once they are commissioned,” sources further claimed.   

Batagoda’s letter further states, ‘In terms of Section 13 of Electricity (amendment) Act, Section 43 of principal enactment has been amended. According to this amendment, Section 43-2(a), the Commission can grant approval for power plants which had been in operation on the approval of the Cabinet of Ministers prior to the date when this act came into force. According to sub section 4 (a) of Section 43 of the Act, the power plants which have received the approval of Cabinet of Ministers prior to the date of this act coming into force has been exempted from the requirement to submit competitive tender’.   

At the moment the price at which ACE Power Embilipitiya supplies us is Rs.23.64.

Although Batagoda says that as such, page 13 of the COPE report dated August 27, 2018 states that when purchasing electricity after the lapse of the earlier agreements, the CEB has to abide by the Electricity Act (amended) and follow procurement guidelines when purchasing electricity.   

Media Spokesman CEB, Director Development Surakshana Jayawardena refuting the allegations said that there is no necessity to call for tenders from the three retired IPPs as they received Cabinet approval prior to the date the amended Act came into force.   

“Although there are allegations, the CEB cannot interrupt the power supply and that is why we have continuously obtained Cabinet approval to purchase power from retired IPPs. When instructions were given to acquire the retired IPPs, we obtained the Government valuation. The prices these owners submitted were higher compared to the valuation of the government. They did not agree with the report of the Government valuer. As the CEB cannot afford their prices, it was recommended to procure electricity for a period of three years which is beneficial to us. If we enter into agreements more than three years, it would not be beneficial to the CEB,” Jayawardena said.   

He further added that by year 2020, CEB will have its own plants and there won’t be a necessity to acquire these depreciated power plants.   

When asked as to why the CEB is still paying the capital cost to these retired IPPs when this payment was strictly confined to its first term, Jayawardena asked as to how the IPPs could cover the continually repair charges, staff wages and other rehabilitation work if the CEB pays only for the generation cost? He further said that it is cheaper to purchase electricity from these three retired IPPs rather than going for tender procedures, because there is a possibility of them bidding at a higher amount than the price at which they are supplying the national grid.   

“At the moment the price at which ACE Power Embilipitiya supplies us is Rs.23.64. In the event we call for tenders, they will increase their prices knowing that the new competitors cannot supply for a lower rate as they have to pay for the Environmental Impact Assessment reports, to obtain the equipment for the power plants and for other additional costs. So it is beneficial for the country to extend the agreements with these retired IPPs rather than call for tenders to procure electricity,” Jayawardena said.   

When asked as to why the CEB hurriedly signed the three year contract with ACE Power Embilipitiya on April 5, 2018 before they received the Cabinet approval document, Jayawardena did not agree with the allegation, but said that the CEB will never enter into an agreement unless they receive the necessary approvals in writing.   

There are no provisions for any Government institution to enter into any agreement based on a Cabinet approval unless they receive the approval in writing. “We raised this issue in the COPE meeting held on August 7
 

  Sunil Handunnetti  

A blatant lie 

Nalin Edirisinghe, Director Licensing Division PUCSL, meanwhile told the Daily Mirror, that the CEB’s claim that even after the first term ends, the CEB has to keep on paying the IPPs the capacity charges to run the plant is a blatant lie.“CEB’s claim cannot be accepted as these plants have been in operation for 10 years only. Easily they have a lifespan of 20 years or more. And if we check what CEB has spent after taking over the Barge mounted power plant, we can have an idea of any rehabilitation costs. That plant was used in Sri Lanka for 15 years and for a few more years elsewhere before it was brought to Sri Lanka. There are few components in the capacity charges agreed on for these plants, one for Return on Equity; Equity is fully paid so no need to pay this (in case of ACE Embilipitiya this payment is Rs. 58 Million per month), and there is a fixed O&M that covers salary, etc.. Then you have variable O&M and fuel cost in the energy charge. In the case of ACE Embilipitiya, fixed O&M and variable O&M have increased from the last year (of the PPA) figure and the fuel rate has remained constant,” Edirisinghe said.   

With regard to the allegations the CEB has levelled against PUCSL for not granting generation license to retired IPPs, which is against the Electricity Act No: 20 of 2009 (amended), Edirisinghe said that Sri Lanka Electricity Act stipulates the requirements to be followed in addition of new power plants is Section 43 of the Act.   

“In the Act, there is no specific Section to accommodate extension of retired plants, thus it is not recognised in the Law, and so it must be treated as a new addition. Globally, the thermal plants are not having a going concern after the PPA period and thus PPAs are modelled as such; where the total capital is paid off by the end of the PPA. According to Section 43, unless the power plant is procured under emergency situation in the country, the Transmission Licensee is required to follow competitive bidding process in procuring the power plants,” Edirisinghe claimed.   

Edirisinghe further said that Section 8 and 9 of the Act stipulates the requirements on ownership requirements for generators over 25 MW capacity and any generation plant procured under the due process and meets the requirements on the ownership can be issued with a license irrespective of whether it is a retired plant or a new power plant.   

With regard to the CEB’s claim that there is no reason for the PUCSL now not to issue generation licenses, because the Commission in 2016 and 2017 has issued no objection letters to the retired IPPs, Edirisinghe said that the Commission at any point had not issue generation licenses to any of the IPPs in 2016 nor in 2017.   

“The Commission granted a no objection to procure electricity from ACE Embilipitiya power plant in April, 2016, but not in 2017.In 2016, the approval for the procurement was requested by the Transmission Licensee and the no objection was granted by the Commission on emergency basis, where water supply to Mahaweli power plants were restricted and one 250MVA transformer is out of operation in Kotugoda Grid substation. However in 2017 and 2018, CEB did not justify that the procurement is conducted on emergency basis and hence, competitive bidding process was required to be followed. Since, this requirement was not met, the Commission was unable to issue even a no objection for the procurement. Further, the plant did not fulfill the requirements on ownership of the plants above 25MW, as per Section 8 of the Sri Lanka Electricity Act, to be eligible to be issued a generation License. Hence, the plant was not granted a generation License even in 2016,” Edirisinghe said.   

When asked what the benefits are to request CEB to procure electricity following Government procurement guidelines, Edirisinghe said, “That is the Law, and Law must be abided by everyone, especially the state institutions. It would ensure transparency, and there could be other parties and other technologies that meet CEB requirements (if any) at a lower cost, even these plants themselves may bid cheaper, under competition. If we don’t trust the competitive tender process, then that must be addressed without by-passing that”.   

To the CEB’s argument that in the event tenders are called these retired IPPs will certainly bid higher rates than what the CEB now pays them as the other power plants will bid higher prices to cover up their expenses to carry out EIAs and other instalment costs, Edirisinghe refuted the CEB’s claims.   

“Recent bids for Solar and Wind were in the range of Rs10-13, thus they could outbid these plants even with battery storage. We must keep in mind that what the country needs at this moment is energy (if at all) not capacity (we have 4,000 MW installed capacity while the peak demand is only 2,400 MW). CEBs’ practice of inaction and extending PPAs calling emergency requirements is not the fault of the consumer. There may be a transmission issues in the southern region, so that we need generation in that region; there are other transmission solutions to solve that transmission issue other than adding generation, all these must be explored before buying expensive power,” Edirisinghe said. 

             No necessity of calling for tenders             

However, Secretary MOPRE B.M.S. Batagoda is of the view, that there is no necessity to call for tenders when purchasing power from ACE Power Embilipitiya, ACE Power Matara and Asia Power. “Prior to the enactment of this Act, a decision had been taken by the Cabinet of ministers and the PUCSL to give their respective approvals to purchase power from these three IPPs. “The PUCSL and the Cabinet can give approval for these three IPPs which started supplying electricity to the national grid prior to the date of the coming into force of the Electricity Act. According to sub section 4 (a) of Section 43 of the Act, these power plants have been exempted from the requirement to submit competitive tenders. If the CEB says that electricity should be purchased to avoid a calamity situation and if these three IPPs are the only plants that sell cheap electricity to the national grid comparing to the other plants, why does the PUCSL want the CEB to follow a tender procedure? Do they want to purchase electricity at a cost?” Batagoda queried.   

Batagoda further said that he couldn’t understand PUCSL’s stance not to grant its approvals to these three IPPs although under the same conditions, the latter granted the approvals when CEB extended the agreements in 2016 and 2017.   

“At that time the PUCSL did not raise its objections, but now, as if it has woken up from a deep slumber, it says that unless power generation plants are selected following competitive bidding procedure, its approval cannot be given. What is the theory behind this argument? This Commission is maintained by the people’s money to provide a better service to the citizens of this country, but not to take care of certain power plants that supply electricity at a higher cost. As we have to purchase electricity to provide an uninterrupted power supply, we have to purchase more power. ACE Power Embilipitiya and ACE Power Matara supply electricity at the lowest cost to the grid with the price being in the range of Rs.20 to Rs.22. We also purchase electricity from 20MW plant in Embilipitiya, which is situated in close proximity to the ACE Power Embilipitiya. We purchase electricity from them at Rs.28 per unit. We also purchase power at Rs.36 per unit from factories that generate electricity with their own generators,” Batagoda claimed.   

When asked as to why he says that these three IPPs supply electricity at the lowest cost. His recent letter to the President’s Secretary requesting the intervention to obtain the PUCSL approvals for these IPPs giving the breakdown of unit prices, the CEB purchases, which show that there are few plants that sell low cost electricity, Batagoda said that those plants are owned by the CEB. When asked if the CEB owned plants can sell low cost electricity why can’t it acquire these three IPPs as directed by the former Finance Minister Ravi Karunanayake, Batagoda said that if the TEC and the Tender Board says that it is not viable to acquire for a higher price than the price given by the Chief Government Valuer, neither the Ministry nor the CEB has the authority to purchase them.   

Clarifying as to why the CEB continues to pay capacity cost for these three IPPs even after the laps of the initial agreement period, Batagoda said that the CEB has to pay a lower capacity cost to maintain these plants. “If we do not pay the capacity cost how can they run their plants? The country is heading towards a power crisis situation in 2019 and 2020 and we have to purchase more power. If we do not pay the capacity cost to them and if they refuse to supply electricity to the national grid what would be the situation? The electricity that generates from these three plants are insufficient and we purchase more from other plants. Having a PhD and with much working experience, I know how to discharge my duties genuinely by my country, but not like the way how Engineers and PUCSL officials work for an agenda. They want to look after their personal interests, but don’t work for the betterment of the country,” Batagoda charged.   

Meanwhile, when asked as to what happened at the COPE meeting, Batagoda said that the COPE members listened to his explanation carefully and asked him to send a report regarding the allegations levelled against the PPA.   

“This report will be send to the COPE within this week. They accepted what I explained and that was why I was asked to submit this report. The COPE pointed its finger at us based on the attacks by the media on us. I asked COPE to give us permission to purchase electricity at Rs.28, Rs 36 and Rs 45, which request was turned down by the Committee,” he added.   

Chairman COPE, JVP Parliamentarian Sunil Handunnetti However Chairman COPE, JVP Parliamentarian Sunil Handunnetti told the Daily Mirror, that the MOPRE Secretary was instructed to submit a full report on PPAs and why capacity charges are still paid to these three IPPs.   

“What we have observed is that there is a s huge scam associated with these PPAs,” Handunnetti said.