Fully cost-based pricing possible only by 2017: Expert

26 February 2013 02:39 am - 0 - {{hitsCtrl.values.hits}}

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A fully cost reflective electricity pricing formula in Sri Lanka can only be possible by 2017, following the expected breaking even of the electricity sector in 2016 , a leading energy sector consultant said told a recent forum.

This comes i n the wake of I nternational Monetary Fund (IMF) calling for similar reforms to make the sector’s pricing to fully reflect the fluctuations in the generation cost no sooner than end of this year.

“The electricity industry is in turmoil with large debts. Income is adequate only to meet 70 percent of expenses, if all commitments are to be met. So, Sri Lankan authorities must embark on a reform process immediately to at least to see that the sector reaches its equilibrium by 2016, followed by a fully costreflective pricing at least by 2017,” said Dr. Tilak Siyambalapitiya, setting forth a five-year road map (2013-17) for the revival of the sector.

During the media briefing held on February 13, shortly after the end of Article 4 consultations—the regular economic health check carried out in the member countries—the IMF staff mission from Washington raised their serious concerns about the poor financial performance of the Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB).

As they pointed out, the colossal losses of these two institutions pose a major threat to fiscal consolidation and balance of payment of the country.

The mission Chief John Nelmes discussed the financial performance of the CPC and CEB which were adversely affected by last year’s drought and emphasized the need to move toward ‘ cost recovery pricing’ to place them on a sustainable footing.

Dr. Siyambalapitiya however urged the government to build the three key power plants on time in order to accomplish the set goal in 2017.

As he pointed out, the completion of phase two and three of Norochcholai coal power plant, Tricomalee (Sampur) coal power plant and Upper Kotmale hydro power plant must be carried out as planned.

“Now our country has a great opportunity to re-start this reform process. With the costly Independent Power Plant (IPP) ( mostly thermal) agreements entered in to with the private sector reaching expiration, the process becomes even easy,” he remarked.

Meanwhile according to the Secretary to the Ministry of Power and Energy M. M. C Ferdinando, the extension of some of the Power Purchase Agreements (PPA) were doubtful due to high cost to CEB. Further he was also of the view that the renewal of the thermal based PPAs was unlikely along with the expansion of coal and hydropower plants in the country as their generation cost was significantly less than thermal plants.

Dr.Siyambalapitiya also mentioned that Sri Lanka was well ahead South Asian regional peers in terms of lower network losses and even outperformed her own target set for 2015 (at 12.1 percent) much earlier in 2011 by accomplishing a network loss of 11.8 percent.

However, Sri Lankan authorities appear to be hasty in bringing about reforms, much earlier than Dr.Siyambalapitiya’s projections. This was evident with Central Bank Governor Ajith Nivard Cabraal, calling for breaking even the sector over the course of this year which was also echoed by the Treasury Secretary, Dr. P.B Jatasundera.

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Fully cost-based pricing possible only by 2017: Expert

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