Norochcholai fourth unit: CEB engineers redlight contract to Chinese company
Senior Ceylon Electricity Board ( CEB) engineers, including the Manager of the Lak Vijaya Coal Power Plant (LVPP), have slammed Government moves to offer a fourth unit at Norochcholai “on a silver platter” to China Machinery Engineering Corporation (CMEC).
Since mid-last year, it has been proposed to add a new CEB- owned 300 megawatt unit as an extension to the existing plant at Norochcholai. But the Government is now steaming ahead with plans to form a joint venture between the CEB and LVPP builder CMEC to implement the project as an “independent power producer” (IPP).
The proposal is disadvantageous to both the utility and the country, the engineers say. The CEB will stand to gain nothing from it “but will be left to handle the mess” created from running an IPP power plant within LVPP premises.
“We don’t see any benefit to the CEB in offering the coal power plant to CMEC on a silver platter through the valiant [sic] efforts made by our members,” said a petition to the President of the CEB Engineers’ Union (CEBEU). “This raises a question on the outcome of the trade union actions we have taken to secure a coal power plant: Is that for the benefit of the CEB through CEB-owned low-cost coal power plants or for the benefit of foreign companies?”
The signatories express “grave concern” on the recent developments and request the CEBEU head to consult the membership and make arrangements to change the current format of the project which they say is detrimental to national interest and the existing power plant.
The petition observes that there were attempts during successive Governments to privatise LVPP. For instance, a special purpose vehicle (SPV) was once proposed to convert LVPP to a public-private partnership. There was also a proposal to offer 50 percent of the equity of LVPP to CMEC. The most recent development is action to create LVPP Unit 4 as an IPP.
In September 2019, the Cabinet gave approval for the CEB to directly request a concessionary loan from China to meet 100 percent of the project cost and to implement the project on a Government- to- Government basis. In November, the CEB issued a letter of intent to CMEC to carry out a feasibility study.
But by early this year, the plan was “suddenly changed” from a debt-funded project to an IPP under a joint venture company. Cabinet approval has already been granted and the Board and the CEB management are formulating the relevant agreements.
Throughout the last year, LVVP engineers shared their “hard-earned expertise” on power plant operation and maintenance to prepare a comprehensive study identifying improvements to the proposed plant, the petition says.
“They have given their maximum commitment with the intention of constructing a CEB-owned plant,” it says. “They will not be compensated; nor will the CEB gain any advantage
due to implantation of an IPP plant in the existing power plant premises. Instead, they will be forced to bear the consequences of sharing the CEB assets and resources with a private party, which will make their job scope much harder and challenging in the future.”
The petition highlights what engineers say are “grave financial and operational concerns related to the proposed IPP”. CMEC already supplies a significant share of LVPP’s spare parts and also carries out overhaul activities. It, therefore, has good leverage over unit cost and availability of all three units of LVPP.
“By offering their own power plant at the same premises, a huge conflict of interest will arise and the contractor will easily influence the performance of existing plants,” it states. “This will create too much dependence on CMEC, leading to a loss of independence of the CEB in carrying out O& M ( operations and maintenance) activities.”
The CEB, being a Government entity, will have to follow cumbersome procurement procedures but CMEC will not face such issues, leading to higher efficiency and lower transaction costs.
The engineers also warn that the CEB and the CMEC will compete for shared services. The coal yard, conveyor belts, reverse osmosis and hydrogen/ chlorination plants, wastewater/sewage treatment, coal ash water treatment plants, ash yard, GIS (geographic information system) operation and control room facilities will have to consider the IPP’s requirements.
“There’s a possibility that the day-to-day activities of the upcoming plant will affect the O&M activities of the existing plant,” the petition states.
“The IPP will insist on maintaining their plant factor since it will be a profit-oriented organisation,” it continues. “Therefore, the CEB will always have to prioritise their needs over ours by de- loading our plant whenever there’s a shortage in supply of coal and diesel or other raw materials.”
The CEB will have to bear availability issues arising out of insufficient coal unloading facilities. Transmission line capacity will also have to be met by the utility. “In such situations, one of the three CEB plants will be required to shut down since the IPP will not be willing to compromise their availability,” engineers say.
The CEB over the years had tried to solve many environmental issues at LVPP. "However, it is unlikely that the IPP will be benefited with handling any of the environmental issues associated with coal and ash yards since they are outside the boundaries of their plant,” they point out. "Therefore, the CEB will be left to handle the environmental issues arising out of Unit 4.”
The utility will also have to provide services such as security, fire-fighting, cleaning, gardening, jetty, coal yard, coal belt and ash yard operation to the IPP on a cost-sharing basis.
“However, if any lapse occurred during the provision of such services, the blame and the cost will be passed on to the CEB by the IPP,” they said. “Moreover, it is difficult to quantify the services provided by security forces and other Government organisations to maintain the power plant operation. Therefore, the IPP will be given a riskfree environment to do its business and gain huge profits, passing the burden of ancillary services to the CEB.”