If these amendments go through, the electricity in this country would go to the monkeys
By a Special Correspondent
The Government has published Amendments to the Electricity Act No. 30 of 2024, which they plan to approve in the month of June. These amendments reverse some of the main provisions of the original Act to the detriment of the country.
The context of the reform
The electricity sector in Sri Lanka has been run as a State-owned, vertically integrated monopoly with poor efficiency, management practices and technology – that belie investment in it by both Government and funding agencies. The cost of electricity has been significantly high during some years compared to the region, while blackouts have been a regular occurrence spanning the last decade.
While investments have been made, their prioritisation and efficacy remain questionable. While the ADB has pumped millions of dollars into the CEB purportedly to increase the absorption of renewable energy into the grid, the CEB has recently resorted to curtailing renewable energy generation and deterring further additions by imposing non-viable feed-in-tariffs, citing technical challenges that other countries have long since overcome. This is inexcusable, as curtailing energy from the sun and wind will hurt the consumer.
The utility’s finances have been in shambles, and the recent tariff stand-off with the IMF appears to have been triggered by bad accounting practices related to deferred income. State interference in blocking tariff increases resulted in CEB making losses from 2016-2022. The losses and additional capex were funded by debt from DFIs, treasury and state banks – ultimately, the public.
These debts were “repaid” by treasury either infusing equity or converting debt to equity – which happened in 7 out of last 12 years, with the largest in 2022 amounting to a staggering Rs. 450 billion. Now most of CEB’s losses, inefficiencies and wasteful borrowings sit on the Government’s balance sheet, socialising their losses to the public.
When cost-reflective tariffs were introduced after the economic crisis, poor projections by CEB resulted in massive profits on the backs of consumers in 2023 and 2024.
Most countries in the world went through the unbundling of vertical monopoly utilities into separate (multiple) generation entities, transmission, system control and (multiple) distribution entities in the early 2000s. Sri Lanka also embarked on this path in 2003, but this was blocked due to action by CEB’s unions.
During the debt restructuring talks of 2022, SOE reform – primarily CPC, CEB and SriLankan Airlines – were in focus. Most of the reform objectives of CPC were met, and CEB reform objectives were captured in a new Electricity Act legislated nearly 12 months ago. However, this process is now in grave danger of being subverted by the proposed Amendment Bill.
The Electricity Act of 2024
The Electricity Act of 2024 was developed with the input of specialists from many sectors, chambers, professional associations, DFIs, unions and political parties. The three-year process began with a position paper and was guided by experts brought in by the DFIs to support Sri Lanka, who had previous global experience in sector reform, including in India.
The reform was to not merely unbundle CEB, but to set the stage for modern, dynamic and market driven architecture for the sector, supported by strong analytics-based policy formulation and independent regulation. The objectives of the Act include,
a. inclusive, coherent, sustainable policy formulation;
b. independent and accountable corporate entities, with performance-based cultures, with oversight through the Companies Act and Securities and Exchange Commission rules;
c. fair market competition in the generation, distribution and grid services;
d. strong independent regulation by minimising undue political interference and/or corruption;
e. accelerating Renewable Energy deployment leveraging decreasing cost of renewable energy generation and storage to meet national climate targets;
f. creating an environment to attract local and foreign private sector investments;
g. self-sustainability of the electricity sector without a treasury burden
h. to ensure the energy security of the country
The elements of the Electricity Act of 2024
The Electricity Act of 2024 envisaged CEB generation units to be unbundled into four specialised successor companies (hydro, coal, oil and renewable energy), the four distribution divisions of CEB to be unbundled into four independent successor companies (alongside LECO), a national transmission network company to operate the national grid, a national system operator (NSO) tasked with planning, procuring, and dispatching power, and companies to hold legacy functions like the CEB pension fund and shared services. The Act also envisages the establishment of wholesale/retail energy markets, and a market for system services such as storage and grid stability elements.
The policy advisory role, which has historically been ad-hoc, leading to lack of coherence and consistency, was channelled to a body corporate called National Electricity Advisory Council (NEAC) with permanent staff and cabinet appointed/ex-officio members. This would have given transparency, accountability and rigour for policy while eliminating shadow advisors/deals. This would ensure that the transition to market structures, which may take 5-10 years, will be guided by a process assured of continuity. The Power Sector Reform Secretariat (PSRS) was created to guide the reform process through its various phases.
The Act, passed on 27 June 2024, had two key dates – the enactment date, in which certain provisions became operational, and an Appointed Date, which must come into operation within a year of enactment, when the full Act becomes operational.
Breaking the law
The reform process stalled as soon as the NPP Government came into power, and the staff of the PSRS were sent home, including its head, Dr. Pradeep Perera, an experienced sector specialist from ADB. With it, all activities of the reform process ended up in limbo. The Government broke the law by failing to inform employees which successor companies they would be assigned to by 27 October 2024 as required in the Act and omitted to perform certain other functions essential to the corporatisation, on the basis that “they were planning to make changes to the law in the future”. The PSRS has recently sputtered back to life, staffed exclusively by local electrical engineers, lacking in the diversity of skills and experience needed to usher through a complex corporate restructuring process.
Playing to the gallery
The current amendment began from a Cabinet approved committee and a policy document – which has very poor semblance to the final amendments proposed. The committee composition was itself problematic, as raised by Dr. Harsha de Silva in Parliament, with 9 out of 10 members being electrical engineers (including 7 university lecturers) – whereas a sector reform and corporate restructuring is not related to electrical engineering. Committee included chairmen of CEB and LECO, creating a conflict of interest. Legal/investment specialists, senior civil servants and specialists in restructuring were absent. No global experience of sector reform was present. Anecdotes of those who participated in the limited consultations spoke of the lack of depth and breadth of the committee.
The process appeared to be designed to manage various stakeholder groups including the unions, rather than to address a national need.
By a Special Correspondent
The Government has published Amendments to the Electricity Act No. 30 of 2024, which they plan to approve in the month of June. These amendments reverse some of the main provisions of the original Act to the detriment of the country.
The context of the reform
The electricity sector in Sri Lanka has been run as a State-owned, vertically integrated monopoly with poor efficiency, management practices and technology – that belie investment in it by both Government and funding agencies. The cost of electricity has been significantly high during some years compared to the region, while blackouts have been a regular occurrence spanning the last decade.
While investments have been made, their prioritisation and efficacy remain questionable. While the ADB has pumped millions of dollars into the CEB purportedly to increase the absorption of renewable energy into the grid, the CEB has recently resorted to curtailing renewable energy generation and deterring further additions by imposing non-viable feed-in-tariffs, citing technical challenges that other countries have long since overcome. This is inexcusable, as curtailing energy from the sun and wind will hurt the consumer.
The utility’s finances have been in shambles, and the recent tariff stand-off with the IMF appears to have been triggered by bad accounting practices related to deferred income. State interference in blocking tariff increases resulted in CEB making losses from 2016-2022. The losses and additional capex were funded by debt from DFIs, treasury and state banks – ultimately, the public.
These debts were “repaid” by treasury either infusing equity or converting debt to equity – which happened in 7 out of last 12 years, with the largest in 2022 amounting to a staggering Rs. 450 billion. Now most of CEB’s losses, inefficiencies and wasteful borrowings sit on the Government’s balance sheet, socialising their losses to the public.
When cost-reflective tariffs were introduced after the economic crisis, poor projections by CEB resulted in massive profits on the backs of consumers in 2023 and 2024.
Most countries in the world went through the unbundling of vertical monopoly utilities into separate (multiple) generation entities, transmission, system control and (multiple) distribution entities in the early 2000s. Sri Lanka also embarked on this path in 2003, but this was blocked due to action by CEB’s unions.
During the debt restructuring talks of 2022, SOE reform – primarily CPC, CEB and SriLankan Airlines – were in focus. Most of the reform objectives of CPC were met, and CEB reform objectives were captured in a new Electricity Act legislated nearly 12 months ago. However, this process is now in grave danger of being subverted by the proposed Amendment Bill.
The Electricity Act of 2024
The Electricity Act of 2024 was developed with the input of specialists from many sectors, chambers, professional associations, DFIs, unions and political parties. The three-year process began with a position paper and was guided by experts brought in by the DFIs to support Sri Lanka, who had previous global experience in sector reform, including in India.
The reform was to not merely unbundle CEB, but to set the stage for modern, dynamic and market driven architecture for the sector, supported by strong analytics-based policy formulation and independent regulation. The objectives of the Act include,
a. inclusive, coherent, sustainable policy formulation;
b. independent and accountable corporate entities, with performance-based cultures, with oversight through the Companies Act and Securities and Exchange Commission rules;
c. fair market competition in the generation, distribution and grid services;
d. strong independent regulation by minimising undue political interference and/or corruption;
e. accelerating Renewable Energy deployment leveraging decreasing cost of renewable energy generation and storage to meet national climate targets;
f. creating an environment to attract local and foreign private sector investments;
g. self-sustainability of the electricity sector without a treasury burden
h. to ensure the energy security of the country
The elements of the Electricity Act of 2024
The Electricity Act of 2024 envisaged CEB generation units to be unbundled into four specialised successor companies (hydro, coal, oil and renewable energy), the four distribution divisions of CEB to be unbundled into four independent successor companies (alongside LECO), a national transmission network company to operate the national grid, a national system operator (NSO) tasked with planning, procuring, and dispatching power, and companies to hold legacy functions like the CEB pension fund and shared services. The Act also envisages the establishment of wholesale/retail energy markets, and a market for system services such as storage and grid stability elements.
The policy advisory role, which has historically been ad-hoc, leading to lack of coherence and consistency, was channelled to a body corporate called National Electricity Advisory Council (NEAC) with permanent staff and cabinet appointed/ex-officio members. This would have given transparency, accountability and rigour for policy while eliminating shadow advisors/deals. This would ensure that the transition to market structures, which may take 5-10 years, will be guided by a process assured of continuity. The Power Sector Reform Secretariat (PSRS) was created to guide the reform process through its various phases.
The Act, passed on 27 June 2024, had two key dates – the enactment date, in which certain provisions became operational, and an Appointed Date, which must come into operation within a year of enactment, when the full Act becomes operational.
Breaking the law
The reform process stalled as soon as the NPP Government came into power, and the staff of the PSRS were sent home, including its head, Dr. Pradeep Perera, an experienced sector specialist from ADB. With it, all activities of the reform process ended up in limbo. The Government broke the law by failing to inform employees which successor companies they would be assigned to by 27 October 2024 as required in the Act and omitted to perform certain other functions essential to the corporatisation, on the basis that “they were planning to make changes to the law in the future”. The PSRS has recently sputtered back to life, staffed exclusively by local electrical engineers, lacking in the diversity of skills and experience needed to usher through a complex corporate restructuring process.
Playing to the gallery
The current amendment began from a Cabinet approved committee and a policy document – which has very poor semblance to the final amendments proposed. The committee composition was itself problematic, as raised by Dr. Harsha de Silva in Parliament, with 9 out of 10 members being electrical engineers (including 7 university lecturers) – whereas a sector reform and corporate restructuring is not related to electrical engineering. Committee included chairmen of CEB and LECO, creating a conflict of interest. Legal/investment specialists, senior civil servants and specialists in restructuring were absent. No global experience of sector reform was present. Anecdotes of those who participated in the limited consultations spoke of the lack of depth and breadth of the committee.
The process appeared to be designed to manage various stakeholder groups including the unions, rather than to address a national need.
