Power Minister proposes drastic reduction in powers of PUCSL

Power and Energy Minister Ravi Karunanayake is seeking to whittle down the authority of independent regulator, Public Utilities Commission of Sri Lanka (PUCSL).

Since taking over the portfolio in January this year, the minister has already floated various emergency power proposals; contracted barge- mounted electricity outside accepted procurement procedure; and ordered the Ceylon Electricity Board (CEB) to appoint 27 personal nominees as coordinators to projects that have not even been initiated.

Now, Mr Karunanayake wants to dramatically reduce the powers of the PUCSL to the great detriment, experts warn, of electricity consumers. In April, he presented a Cabinet memorandum titled ‘Amendments to existing Acts to remove Legal and Regulatory barriers of the development of the Electricity Industry in Sri Lanka [sic]’.

In it, he envisages the downgrading of the PUCSL--which was set up to be a strong, independent regulator-- to the mere status of a ‘safety regulator’ and ‘ ombudsman’ to the electricity industry. He also proposes to amend the Sri Lanka Electricity Act No 20 of 2009 and Sri Lanka Electricity (Amendment) Act 31 of 2013 so that the “economic and technical regulatory powers” of the industry are transferred to the Cabinet of Ministers through the minister and the ministry in charge of the subject of power and energy.

The minister claims that the expected outcome from the PUCSL as overall regulator of the electricity industry “has not been achieved”. He “highly recommends” that the Government takes “corrective actions without delay to avoid any further complications and to put the electricity sector back on the correct track without any undue influence to achieve the desired economic goals of the country”.

The Cabinet paper blames all manner of electricity sector ills on the regulator. The move has been couched as an attempt to make the electricity sector more efficient.

Mr Karunanayake attributes the current deficit in power to “legal and institutional barriers”. This goes against some of his other Cabinet papers which state that none of the coal power, liquefied natural gas ( LNG), furnace oil or large scale solar power plants in the CEB’s long-term 20132035 and 2015- 2037 generation plans was implemented due to reasons such as policy decisions, tender issues and pressure from external parties.

The Cabinet paper, however, points to “many other legal barriers for the development of the power sector as a whole such as licensing processes and the tendering and regulatory barriers”.

The PUCSL was set up under the Public Utilities Commission of Sri Lanka Act 35 of 2002. Technical, economic and safety regulatory powers over the electricity industry were entrusted to it on April 8, 2009, seven years later. Until that time, the Cabinet paper says, the technical, economic and safety regulatory functions were smoothly carried out by the Government through the subject minister and the Ministry of Power and Energy.

Mr Karunanayake also argues that the “present conflicting situation between the Ceylon Electricity Board ( CEB) and the PUCSL with regard to long delays and policy differences in approving the Least Cost Long Term Generation Expansion Plan prepared by the CEB, determination of the transmission and bulk sale tariffs, determination of the distribution and supply tariffs, etc, have even resulted in the litigations between the two institutions.”

Thus, he says, “no tangible base load power projects” have been implemented since 2011 and, as a consequence, “the country is now facing power cuts due to the inadequate base load power generation capacity of the national grid having greater impacts to the socioeconomic activities of the country [sic].”

The minister maintains this is “mainly due to the disputes between the CEB and the PUCSL”.

“It is pertinent to mention that the CEB and the ministry had to face many difficulties with regard to the implementation of the proposed important power projects, determination of distribution and supply tariffs, determination of transmission and bulk sale tariffs, including renewable energy purchase prices, etc,” his Cabinet paper claims.

“Furthermore, procurement of power plants for power generation purposes by the CEB is strictly in accordance with the stipulated Government Procurement Guidelines,” it states. "However, PUCSL has gone beyond its mandate to interfere with the existing Government Tender Procedures and imposed new rules and conditions for power plant procurement. Hence, the CEB need to follow the Government Procurement Guidelines as well as PUCSL Guidelines.” No examples are provided.

Mr Karunanayake justifies his attempt to undermine the regulator by saying the CEB has a highly skilled technical workforce that is “fully capable of taking highly technical decision such as implementation of power plants and determination of tariffs etc in accordance with Government policy”.

He also says the CEB is a monopoly under the strict control of the Ministry and the Cabinet. The Government and the Treasury provide significant economic input to the sector. “Therefore, the technical and economic regulatory function should be vested with the Government,” he rationalises. “However, the safety, consumer protection, consumer rights which can be violated using the monopolistic power, can be empowered to the PUCSL [sic].”

The Minister has already repeatedly bypassed the PUCSL in the six months he has held the portfolio. His Cabinet papers related to procurement make no mention of the regulator. And he has himself ignored procurement procedures in his haste to get the two power barges contracted.

The minister’s proposal to weaken the PUCSL was assessed by a ministerial committee. One member--Harsha de Silva, Non Cabinet Minister of Economic Reforms-has recorded his strong opposition to the move. He points out that the fundamental cause of the power crisis is the failure or inability of the authorities to move forward and initiate the procurement of the planned power projects “and not regulatory and institutional hindrances”.

For instance, the Sampur coal power project was cancelled due to environmental factors. But the steps needed to finalise the LNG power plant and other projects were not initiated. “Furthermore, the decision of whether the source of power generation should or should not be coal is a policy-oriented decision and not an institutional or regulatory one,” Dr de Silva states in a strong note conveyed to the Cabinet via President Maithripala Sirisena.

It is also pointed out that, under the 2009 Sri Lanka Electricity Act, the supply of electricity comes under the jurisdiction of the PUCSL. The CEB, which functions under the Power Ministry, is a licence-holder of the PUCSL.

“In that light, the Ministry responsible for the CEB cannot function as both the regulatory body and licence- holder,” it states.

“In order to meet customer requirements, every country needs a regulatory body for essential services such as power generation,” Dr de Silva asserts. “Their main responsibility is to ensure a trustworthy and high quality service offering the minimum cost. However, the Cabinet paper in question suggests that the power generation sector does not require a regulatory body.”

“A regulatory body has a specific role,” he stresses. “This said specific and autonomous role cannot be altered based on requirements/wishes of the service provider, CEB or the policymakers, the Ministry. Based on the Cabinet paper in question, it is evident that there was no collaboration between the CEB, Ministry and the regulatory body.”

One clear instance of Minister Karunanayake attempting to bypass the PUCSL is in the procurement of power from the Turkish barges. The Turkish Ambassador recommended a company named M/ s Karatdeniz Holdings which sent in two proposals to supply electricity using power ship technology. The CEB submitted a Board Paper seeking approval to procure, in the first instant, 200mw from Karatdeniz via a barge anchored at Kerawalapitiya.

“However, due to present social, political and legal situation, the Board of Director of the CEB is cautious in recommending the power procurement and no decision is made yet,” a Cabinet paper dated April 20 presented by Mr Karunanayake observes.

A technical evaluation committee (TEC) appointed to buy electricity from this power ship also needed at least two weeks to evaluate the proposals and “the TEC is not ready to make a quick decision”, this Cabinet paper reveals.

The tender board and the Cabinet will require another seven to ten days after the TEC recommendation. “The CEB is of the view that the approval of the PUCSL should also be obtained prior to this procurement, even if it is under emergency basis,” the paper says.

Separately, the power purchase agreement ( PPA) must be approved by the Attorney General. This will take another week. So the Minister has sought Cabinet approval to direct the CEB Chairman and Board to issue a letter of intent to Karatdeniz; to direct the TEC and Cabinet appointed negotiating committee (CANC) to evaluate the PPA and finalise negotiations with Karatdeniz; to direct the CEB Chairman and Board to sign the PPA and so on. There is no mention of the PUCSL.

A good regulator is the backbone of the electricity industry, multilateral agencies such as the World Bank ( WB) state. “Electricity services are among the most regulated areas of economic activity, and research has shown that sector performance is linked to the quality of regulatory institutions,” The WB says in its ‘Doing Business’.

“A study covering 28 developing economies found that high- quality regulatory governance is associated with higher per capita electricity generation,” it states. “Energy regulators play various roles across economies, from the supervision of electricity supply quality to setting maximum thresholds for duration and number of power outages to the setting of electricity tariffs for final consumers. In this sense, an independent energy regulatory agency can be essential for governments to promote an efficient and reliable energy sector operation.”