Accounting professionals must actively engage in electricity sector costing exercise: CMA

The Institute of Certified Management Accountants of Sri Lanka (CMA) stated that the accounting professional can aid in costing the products and services in the electricity industry so that the country’s energy needs are met efficiently. CMA Sri Lanka President Prof.  Lakshman Watawala opined the expertise of the accounting profession can be tapped to increase efficiencies in the manner in which state-owned enterprises (SOEs) operate so they do not continue to tax the general public.

In a release to the media, the CMA shared a comprehensive analysis of the areas of inefficiencies observed in the power sector, the room for improvement, and the importance of using professional techniques to provide an affordable price to the consumer.

One of the key areas of concern highlighted by the CMA in the comments and suggestions put forward for the proposed electricity tariff revision, is the maintaining of records, which at present is poorly carried out by the Ceylon Electricity Board (CEB).

The CMA pointed out that the organisation chart of the power generating company shows a lack of Cost & Management Accounting Department, which is a must-have to cover all generating plants and calculate the correct costs which include all direct materials used especially fuel and coal, the output from each generation plant with operating norms, determine wastages, inefficiencies to be efficient and effective.

“Generating company shall forecast its costs based on the variable direct costs which should be properly recorded in the cost accounting records. There should be cost accountants engaged in this exercise,” suggested the CMA.
In the transmission and distribution too, proper records need to be maintained with qualified cost accountants, the CMA added while pointing out that all data provided need to be validated and analysis of assumptions needs to be carried out. 

With regard to the cost records, the association stressed the need for it to be maintained on a regular basis to make it possible to calculate per unit of cost of production or cost of operation, cost of sales, margin for each of its products, and activities for every financial year, or on monthly, quarterly, half-yearly or annual basis.

All such cost records and cost statements maintained shall then be reconciled with the audited financial statements for the financial year specifically indicating expenses or income not considered in the cost records and statements to ensure accuracy and to reconcile the profit/loss of all groups within the overall profit & loss. 

CMA stressed the need for the power-generating entity to maintain all such cost records for a minimum period of eight years.

Further, with regard to the tariff revision, the CMA recommended to have a price based on a fixed increase taking into account actual costs which can be measured and monitored with an agreed mix of power generation and a variable increase.

It suggested creating a variable fuel adjustment in the bill in the event the fuel prices go up above a fixed limit. 
“It is also good for CEB so that they will also not lose nor need to constantly be revising prices and apply to PUCSL but agree on an adjustment in the fuel surcharge up or down immediately,” the CMA said.