Why is Electricity Tariff Increase Needed..? Part 1 of 2

Average household expenditure per month in Sri Lanka

 So I thought it would good to gain some perspective. The Department of Census and Statistics conducts a large-sample representative survey called the Household Income and Expenditure Survey (http://www.statistics.gov.lk/page.asp?page=Income%20and%20Expenditure).

According to the last one conducted in 2009-10, the average household expenditure per month was LKR 31,331. Of this, the average spend on electricity was LKR 532 (1.7%). Surprisingly, this was considerably lower than average household expenditures on transportation (LKR 2,317 or 7.4%), education (LKR 1,018 or 3.2%), and even communication (LKR 755 or 2.4%).

The below 30 kWh group spent....

With regard to electricity there is an assumption that the households that use the least electricity (less than 30 kWh) are the poorest. According to another representative-sample survey conducted by researchers at the University of Colombo for the Public Utilities Commission of Sri Lanka (PUCSL), the below 30 kWh group spent....

• LKR 1,140 on education
• LKR 1,000 on transportation
• LKR 453 on communication 
• and only LKR 120 on electricity. 

It is noteworthy that this “poor” segment of the population spent more on “free” education than on not-free transportation. The amounts spent on electricity among the entire population as well as the “poor” subset were among the lowest.

Why is a tariff increase needed? Government decides; we pay.

“LKR 59 billion” is the short answer. 

This enormous amount, higher even than the subsidy of LKR 29.8 billion (LKR 29,800,000,000) spent on giving almost-free fertilizer for all crops in 2011, is represented by the inability of the CEB as well as the Petroleum Corporation to pay their bills on time. Money is owed to the Peoples’ Bank. The loss appears in multiple forms and is patched up using ad hoc methods. In the end, we all pay: through inflation and directly. CEB is broke and as a last resort, government pays with our money. Government decides; we pay.

Why is the CEB in such horrendous financial shape? 

According to our analysis, many factors contribute. Our consumption is increasing, with the country well on the way to connecting 100 percent of houses to the grid. We have a lot more appliances in our homes, as should be the case. In 2009-10, according to the Household Survey, 60 percent of households in the Western Province had refrigerators, with the country average being 40 percent (four in ten households). Television ownership was even higher, with 80 percent of all households owning one.

The increasing consumption can only be supplied with very high-cost electricity. The last five percent of electricity used to meet peak demand is responsible for almost 50 percent of the costs. The alternative is load-shedding (blackouts) at peak times. While this is commonplace in neighboring India, we do not like blackouts. Therefore, CEB cannot pay its bills and has to be bailed out by the government with our money repeatedly.

We have ended up in this mess because our political leaders failed to build the necessary low-cost generating capacity over the last two decades or more. The Norochchalai Plant was delayed 15 years, at least. From the last five years we have been talking about commissioning a 500 MW coal-powered generating station in Sampur by 2016. It has been all talk; no action. Not one sod has been turned.

Coal is increasing in price and natural gas is coming down. Where the plans to build right-sized, right-fuel plants that are both economical and fit our energy use profile? What is the status of planning for the power cable connecting us to the South Indian grid so that we can make better use of the right-sized plants?

When there are no low-cost electricity sources left, there are only two ways peak demand can be met: blackouts or expensive diesel-based electricity. So we use extremely costly imported diesel to give us 24/7 power.

Thankfully, Norochcholai Stage 1 was built. Otherwise, we would be in a much bigger hole today. Hopefully, Norochcholai Stage 2 will be connected to the grid next year. With that, we should be able to dispense with the most expensive generators for a few years until the next crisis hits.

Why is Electricity Tariff Increase Needed..? Part 2

Source : Lanka Business Online

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka.