Consumers ‘SHOCKED’ by CEB tariff hike

The shocking revelations that transpired at the Committee on Public Enterprises on Ceylon Electricity Board (CEB) unearthed on August 9 how the latter’s annual expenditure was considered as ‘losses’ and exceeded the annual tax collection of the Department of Inland Revenue and the Public Utilities Commission of Sri Lanka. It also revealed how permission was granted to increase the tariff by a mammoth 75%; a measure which the unions claim as a remedy to recover the losses made.

 Members of different unions confirmed how the Management of the Ceylon Electricity Board (CEB) requested the Public Utilities Commission of Sri Lanka (PUCSL) – the regulator of the electricity industry in the country on March 19, 2022, and April 22, 2022, to consider a tariff increase claiming the institution is incurring huge losses.

“The revenue required by the CEB is Rs.505 billion, requiring an 82.4% increase in revenue to recover the forecast loss for 2022. With the tariff revision, the overall revenue increase is forecasted at Rs.512 billion including Lanka Electricity Company sales,” sources from the PUCSL said.   

Amongst the annual expenditure, CEB has shown in the documentation, are- the funds utilized to pay PAYE tax on behalf of the employees disregarding the provisions of the Inland Revenue Act No: 24 of 2017, payment of staggering unauthorized allowances to Engineers and Technicians and the exorbitant money paid to purchase expensive electricity sans procurement procedure from retired Independent Power Plants (IPP). 

This was revealed at the June COPE meeting where the CEB officials were questioned by the COPE Chairman why they pay higher rates when procuring from retired IPPs without purchasing power by following procurement guidelines.

It came to light at the Committee on Public Enterprise (COPE) meeting held in June this year how the CEB’s annual expenditure has exceeded the annual tax collection of the Department of Inland Revenue. “The main reason for this is because the CEB could not add low-cost power plants for more than seven years,” CEB sources said.  Meanwhile, the Engineers Union has come under severe criticism for their deliberate failure to work out to unbundle the four distribution licenses and establish four companies under separate Chief Executive Officers (CEOs) and management teams to make a systematic competition amongst each other and make profits like how Lanka Electricity Company (LECO) runs their business effectively generating profits as a government-owned entity.
The tariff hike that came into effect from August 10, in the guise of a solution to overcome its losses, have to be recovered from the Management and the members of the Engineers Union, but not from the consumers, claim the union members.

“The Management and the Engineers Union have dragged the Electricity Board to the present adverse financial situation. They get their salaries increased by an exorbitant percentage once in every three years and the unlawful allowances they are enjoying has made this argumentative expenditure. Although they receive higher salary packages and 138% allowance from their salaries, what have they done to bring down the cost of generation and to make profits to the CEB rather than blocking all low-cost power projects?” queried the sources.

  Prior approvals have to be taken from the Finance Ministry, Management Services Department and the Salaries and Cadre Commission to pay allowances. According to government regulations total allowances should not exceed 65% of the salary. The CEB has violated these regulations.

 “According to Section 30 of the Sri Lanka Electricity Act No: 20 of 2009, a Cost Reflective Tariff methodology was approved and introduced by the PUCSL in 2011 based on reasonable cost. It was on that basis the last tariff was revised in 2014. After this revision, the PUCSL imposed conditions for future revisions. As per these conditions, an independent dispatch audit and the establishment of a Bulk Supply Transaction Account has to be carried out. To date the CEB has failed to implement these conditions,” sources added. 

 Although the CEB did not implement any of these conditions, in a letter dated August 9, 2022, Chairman PUCSL, Janaka Ratnayake had sent to the Acting General Manager, granting permission for the tariff revision has once again given deadlines to the CEB to implement the once failed requirements, failing which no more future tariff revisions will be granted.

According to Ratnayake’s letter to the Acting GM, the establishment of Bulk Supply Transactions Account should be completed by November 30, 2022, the Independent Dispatch Audit for the year 2021 has to be completed by February 28, 2023, Power Purchase Agreements between CEB generation plants and the transmission licensee has to be completed by November 30, 2022, power sales agreements between distribution licensees and transmission licensee should be completed by November 30, 2022, and payment of interest for the security deposits obtained from the consumers have to be completed by October 1, 2022.

“Once again the CEB Engineers will not abide by the guidelines issued by the PUCSL and the latter will once again revise the tariff and give another deadline for the CEB,” CEB trade unionists alleged.  

Be that as it may, the latest revelation how the members of the Ceylon Electricity Board Engineers Union (CEBEU) got their salary increased unscrupulously in 2014 has raised eyebrows of all employees. 

Members of the Lanka Viduli Podu Sevaka Sangamaya told this newspaper how the CEBEU arbitrarily got their salary scales increased in 2014 by introducing an ‘E’ salary scale for the newly established Unified Engineering Service (UES) causing grave injustice to other services at CEB. Engineers, Senior Engineers, Assistants and Engineering Assistants have been placed under the UES.

“Until November 25, 2014, salaries applicable to the employees were placed in scales K, L, M and N based on their designations. Although on December 1, 2014, all trade unions and the Management entered into a Collective Agreement for a three-year period from January 1, 2015, to December 31, 2017, in the interim, on November 26, 2014, the Board has approved a salary scale applicable only to those in the UES by Circular 2014/GM/46/Pers. This ‘E’ scale has been created surreptitiously without following due process. From this ‘E’ scale, higher salaries exclusively only for those in the UES has been recommended. It was the then Vice Chairman Prof. K.K.C.K. Perera who introduced this UES. When questioned by the Commission members appointed to study into CEB salary anomalies, he has justified his action claiming that proficiencies and standards required for engineering and para-engineering services within CEB are ‘unique’ to the Electricity Board. Does this mean the other categories are not unique to this institution?” sources claimed.

The sources further said how the members of the Engineers Union had disregarded the Court of Appeal order delivered on April 2, 2019, that quashed the controversial Unified Engineering Service and the ‘E’ scale.
“Trade unions filed a Writ Application against the CEB Management in the Court of Appeal (CA Writ 195/2015) challenging the CEBEU’s move to get their salary scales increased. Considering these facts, the Attorney General (AG) refused to appear for the CEB Management. Although the CA quashed the UES and the ‘E’ scale and instructed the Management to revert back to the old salary scales, the Engineers Union got former President Gotabaya Rajapaksa to approve the quashed salary scale which is contempt of court,” sources added.

According to a Senior Manager who wished to remain anonymous, it is the Engineers that run the CEB and no one will oppose, even they are paid double the amount that they are drawing as of now, provided, they implement the blocked Least Cost Long Term Generation Expansion Plan (LCLTGEP) immediately paving the way to purchase low-cost electricity. 

“No major power plants have been connected to the national grid since 2014 after Lakvijaya Phase III. Sobodhanavi 300MW LNG plant is next in line that is expected to be completed by end 2023 or early 2024. Instead of implementing the LCLTGEP, the Engineers Union blocked these projects, as for them it is ‘profitable’ to purchase emergency power from retired IPPs at a higher rate. As a result, the CEB at the beginning of this year has requested the Public Utilities Commission of Sri Lanka (PUCSL) for a schedule of manual load shedding to balance the demand and supply of electricity,” sources claimed.

Failure to implement the LCLTGEP, bridging the gap in the electricity requirement in future is challenging according to the PUCSL.

Although Gotabaya Rajapaksa in his 2019 manifesto promised to generate 70% of the total electricity requirement through renewable energy projects by 2030, the CEB has so far failed to make any move to start these projects.
“This alone shows how lethargic CEBEU is to attend to low-cost energy projects, but is very eager to obtain approvals from PUCSL to purchase emergency power. From 2015 to 2022, the CEB has requested 17 times from PUCSL for approvals to purchase emergency power out of which approval was granted on one instance,” PUCSL sources said. In a letter, former Ministry Secretary B.M.S. Batagoda in 2017 to the Chairman CEB has questioned why the progress of implementation of power plants scheduled in the LCLTGEP is very slow, as it can lead to a serious power crisis by 2022. A progress meeting was then held on June 6, 2017, at the Ministry, chaired by the Minister with senior Ministry and CEB officials.

“At this meeting, it was decided that by August 2017 action should be taken to tender all the power plants in order to complete on or before 2020. Subsequent to this meeting, the CEB approved these projects and issued instructions to the GM for further action. These 13 power plants were to add 995MW to the national grid and the proposed commissioning years were 2019/ 2020. Out of these 13 power plants 100MW Mannar Wind power plant was commissioned in 2021 and tenders were called in 2021 for the 300MW Kerawalapitiya LNG plant. Had the CEB been able to implement all these projects in time, the country wouldn’t have faced the present power crisis,” the sources claimed.

Although these instructions were given in 2017, the GM who is a member of the CEBEU is yet to call for tenders for the following power projects and there is no evidence as to when these projects can be commissioned. Had the tenders been called on time and selected the suitable bidders, from the proposed 11 power plants, 595MW could have been added to the national grid by 2020.

The eleven LCLTGEP projects that are yet to see the light of the day are-

1.Solar Project Valachchanai From this project, 10MW was to be connected to the grid. Tenders were to be called by June 20, 2017 and was to be commissioned by 2019.

 2.Solar Project Polonnaruwa Welikanda Tenders were to be floated by June 20, 2017, and was to be commissioned by 2019.  10MW were to be added to the national grid.

3.Solar Project Siyambalanduwa Was to add 100MW to the national grid. Tenders had to be called by August 8, 2017, and to be commissioned by 2020.

4.Solar Project Pooneryn 100MW was to be added to the grid and tenders were to be called by August 8, 2017, and to commission by 2020.

5.Battery-operated Solar From this project 5MW was to be added to the national grid and tenders were to be called by August 8, 2017. The project was to commence operations by 2019.

6.Wind Project Pooneryn Was to add 100MW to the grid by 2020. Tenders were to be called by August 8, 2017.

7.Wind Project Pooneryn Was to add 50MW to the grid by 2020. Tenders were to be called by August 8, 2017.

8.Wind Project Pooneryn Was to add 10MW to the grid by 2020. Tenders were to be called by August 8, 2017.

9.Wind Project Pooneryn was to add 10MW to the grid by 2020. Tenders were to be called by August 8, 2017.

10.Heavy Fuel Oil barge in Galle  Was to add 100MW to the grid by 2019 and tenders were to be called by July 6, 2017.

11.Barge/ Land projects in Trincomalee/ Puttalam. These were to add 100MW to the grid by 2019 and tenders were to be called by July 6, 2017. 

  
Days before the amendments to the Electricity Act No: 20 of 2009 was taken up in parliament in June 2022, the CEBEU threatened to instigate trade union action against the amendments claiming, that it is a plan to abolish the competitive bidding process when procuring electricity in future.

As part of this trade union action, the day new amendments were to be brought, an unscheduled power interruption was carried out by the Engineers Union in many parts of the island. Two Engineers who were responsible for the power outage have now been sent on compulsory leave as the unscheduled power interruption and releasing water from reservoirs without power generation has caused the CEB a loss of more than Rs.600 million. This is due to the operation of private thermal power plants instead of hydro although there was enough water in all reservoirs.

“The Engineers Union has operated Westcoast and Sojitz thermal plants owned by private parties, instead of generating electricity from hydropower. This power outage was beyond the approved schedule. Had the CEB operated the hydropower plants from the early hours of June 9 till the same afternoon without releasing water freely, we could have saved approximately Rs.600 million. We are in receipt of a complaint from the Irrigation Department how the CEB failed to operate hydro plants as scheduled. Hence the Mahaweli Authority has opened the spill gates of Randenigala and Rantambe as scheduled for irrigation purposes. According to them, they have released approximately 1.17 million cubic metres of water out of which, around 120MW could have been generated,” sources added.      

 Although the Engineers Union says that the proposed amendments are to abolish the competitive bidding process in procuring electricity from private parties, CEB officials query as to why they continuously failed to procure emergency power by following the government tender procedure when there were provisions in the Act? 
“In the guise of purchasing power urgently they disregarded procurement process and purchased power from retired IPPs at a higher rate. That was the reason why they prevented low-cost energy plants coming up. Before the enactment of the Sri Lanka Electricity Act, the CEB was able to enter into agreements with IPPs without following tender procedure. However, after the Act came into effect, tenders had to be called to select the lowest supplier when there was a need to procure electricity as per Section 43,” sources added. 

According to the purchasing cost from low costs energy for the month of June 2022, (this newspaper is in possession of this document) the cost to generate from large hydro project was Rs.4.855 per kWh while the cost to generate one kWh from CEB’s mini hydropower plant was Rs.15.4, solar- Rs 19.9, wind- Rs. 12.11 and Biomass Power – Rs.38.31.

Although it is clear, how low, the purchasing cost from low-cost energy plants are, compared to the thermal power cost, questions arise as to why the CEBEU is mum when purchasing high-cost electricity.

 As per the said June plant-wise cost, when purchasing power from retired IPPs- price for one kWh from Sojitz (163MW) is- Rs.90.03, Ace Matara- Rs.107.95, Ace Embilipitiya (72MW) is - Rs.101.16 and Asia Power (50MW) is - Rs 104.  

“At the recent COPE meeting, it also came to light how the CEB is still paying the investment cost and its interest component to the retired IPPs when purchasing emergency power.  Even in 2018, they were exposed at a COPE meeting headed by former MP Sunil Handunnetti. When the CEB first entered into agreements with Asia Power in 1988 for a 20-year period and with subsidiaries of Aitken Spence PLC- ACE Power Matara (20MW for 10 years) and ACE Power Embilipitiya (for 100MW for 10 years) in 2002 and 2005 respectively, the agreement was to acquire the plants after the lapse of the contract period. Instead of acquiring them, CEBEU claimed purchasing these plants are not profitable. Having said so, CEB entered into agreements continuously with them not only paying the generation cost but also the investment cost and its interest component,” sources added.

Meanwhile, over the years it has now proved that the existing CEB structure has not been geared to deliver the required generation plant addition, capacity expansion of the transmission and distribution system to meet the demand.

“All attempts to ensure the addition of electricity capacity has fallen well below the requirement due to the issues and weaknesses in the present structure.  

If the government policy target of 70% renewable energy generation is to be achieved, reforming the electricity industry and the CEB to suit the challenges have to be a mandatory requirement. The present industry structure has proven that it is not capable to cater the present and future requirements,” sources said.     

 The CEB functions under six different licenses issued by the PUCSL as per the Sri Lanka Electricity Act. They are the Generation License, the Transmission License and four Distribution Licenses.

Considering how the CEB has failed to cater its consumers with an uninterrupted power supply, according to the PUCSL, CEB has to be restructured by unbundling the four distribution licenses into four distribution companies.
“Without unbundling the distribution there is no way the Board can enhance the efficiency and transform the CEB as a profitable and effective institution. Unless the distribution is unbundled and form four companies there wouldn’t be a systematic competition amongst each other, cut off unnecessary expenditure and bring down the production cost to benefit the consumers. However, the CEBEU allege that the unbundling of the distribution is a move to privatize the CEB which is untrue,” sources added.

In addition to these six licenses, Lanka Electricity Company (LECO) has been granted with a distribution license and is running effectively with profits since its inception as a government-owned entity. 

“Although CEB has been granted six separate licenses, there is no clear financial separation and accountability of the licensed business units through autonomous management structures. This structure has proven to be ineffective, inefficient and outdated. Therefore a structure that is capable of facing the modern challenges and facilitate to cater the required demand for electricity has to be in place and positioned without further delay. Hence for the proposed structure, the Act has to be amended to place each licensed business under a separate Chief Executive Officer (CEO) and a management team who is responsible for managing a profitable licensed business,” sources said.

Accordingly, each business unit should need to have full financial autonomy and the CEO has to be responsible to ensure the profitability of the business and execution of the scoop of business assigned under the license. For speedy execution of achieving the policy targets, a separate business unit has to be established for procurement of power plants in compliance with the LCLTGP and manage the power system through bulk energy procurement and sales.

CEB officials further said that a healthy competition can be achieved through such changes amongst electricity distribution business units. 

“An uninterrupted, better quality electricity supply at a lower rate and a better service can be given to the consumers. This particular business unit shall be issued with a separate bulk supply license where transmission licensee’s business shall be confined to transmission wire business. Apart from this, separate business units have to be established under a separate license entrusting the functions of procurement of power plants and managing power systems. Cash flows to power purchase agreements, transmission service agreements and power sales agreements shall be independently managed,” sources added.

Meanwhile, the CEB sources further said how the CEB Management has violated the Inland Revenue Act by paying the PAYE Tax on behalf of the employees.

“PAYE Tax is not payable by the institution as prescribed in the Inland Revenue Act. It should be paid by the employees. It is emphasized that adherence to the provisions of the Statute on PAYE Tax is the responsibility of the Board of Directors. When the salaries are paid, the employer is required to deduct the tax on the employee’s income. But at CEB, the employer pays the tax on behalf of the employees,” sources said.

The sources further said that CEB pays allowances to Engineers which is 138% of their salaries.
“Prior approvals have to be taken from the Finance Ministry, Management Services Department and the Salaries and Cadre Commission to pay allowances. According to government regulations total allowances should not exceed 65% of the salary. In case of payment of any allowances, beyond the approved limits approvals have to be obtained from the approving authorities without such payments are considered as unauthorized. There again the CEB Management has openly violated the government rules and regulations and causing losses to the company,” sources alleged. 

President CEBEU, Anil Ranjith however said that it was not the Engineers Union that has blocked the LCLTGEP but was due to PUCSL’s failure to grant the approvals.

“It is the Planning Branch that implements these projects. It is the Distribution Division that gives the planning division how many power projects have to be implemented. On this information, the Planning Branch plans to implement these projects. PUCSL did not grant the necessary approvals on time for LCLTGEP 2015-2034. Anyone can accuse the Engineers Union for blocking these plans but no one knows that it is the PUCSL that delays these plans by not giving approvals on time,” he added. 

When told Ranjith that this newspaper is in possession of a copy of the approval given by the PUCSL in 2018, the President of the Engineers’ Union said that he has to check it with CEB officials.

He further accused former Presidents Maithripala Sirisena and Gotabaya Rajapaksa and incumbent President Ranil Wickremesinghe for taking decisions that gives political advantage to them. “When there was a proposal to implement the Sampur Coal power project, President Sirisena stopped it. Then when it came to the LNG project, both Sirisena and Wickremesinghe wanted two different countries to get involved in this. Although President Gotabaya Rajapaksa promised to generate 70% power from renewable energy by 2030, he did not give us the necessary assistance when we told him that it needs considerable amount of funds. None of these politicians really want to introduce low-cost power plants,” he added.

In regard to the trade union action that caused Rs.600 million loss to the CEB on June 9, Ranjith said that the loss should be corrected as Rs.2 million. “Even if we generated from Rantambe and Randenigala, we still wanted to operate thermal plants to cater for the demand. By operating Westcoast and Sojitz plants during our trade union action was not a major loss to the CEB. At that time we needed 500MW but if used hydropower then we could add only 120MW to the grid,” he added.  

However, according to Ranjith, there is no fault in paying the investment cost when purchasing electricity from retired IPPs. “I am not aware as to why these plants were not acquired after the first agreement. Paying them the investment cost over and over when we purchase emergency power is not wrong. Unless we pay, if a breakdown occurs, who will pay for the repairs? They need to have money to make these repairs,” he said.

When asked why the CEBEU disregarded the 2019 Court of Appeal Order that quashed the UES and the ‘E’ salary scale, Ranjith said, that it was on the Attorney General’s directive they got the President’s approval to go ahead with the ‘E’ scale salary structure.

“We never disregarded the CA Order. The Attorney General wanted us to obtain the President’s approval which we obliged,” he added.