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Ceylon Electricity Board : The myth Vote_lcap11%Ceylon Electricity Board : The myth Vote_rcap 11% [ 21 ]
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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Ceylon Electricity Board : The myth

Ceylon Electricity Board : The myth

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1Ceylon Electricity Board : The myth Empty Ceylon Electricity Board : The myth Sat Apr 27, 2013 8:42 pm


Global Moderator

by Maheen Senanayake
Ceylon Electricity Board : The myth 77745610
For many years for us Lankans the CEB or the Ceylon Electricity Board was the source of power for our household and industrial electricity requirements. However, recently released data seems to show otherwise. Despite its pivotal role the CEB is no longer the source of power. Then who is, we ask. Yet before we answer this question it is important to understand the context of the problems that plague the masses in this country of ours. Today we stand at the threshold of being crushed by the cost of living. It is interesting to see whether the impending mammoth increases in electricity tariffs will have any bearing on any of the cost of Living (COL) indices in the country.

The first issue that the CEB has maintained is a root cause and need for this increase is the need to alleviate subsidies. True, it is a fact that as people (if this is truly happening) should pay more and more for their usage as they earn. The question is, are we earning more money? Whilst an answer to this question remains beyond the scope of this investigation, the CEB maintains that its costs are forever increasing. Let us take a look at chart I.

As is clearly visible, the CEB maintains that it incurs 80% of its costs in the generation area. So wasn’t that the idea? The CEB generates and the LECO looks after the distribution. Interestingly, the chart does not indicate any transmission costs. Why we do not know. Whether this is because another organization bears this cost is important but not key to our argument. If the CEB which is the power generating authority, then indeed it’s biggest costs should be generation. What is the problem then? To seek an answer to this question it is important to draw your attention to chart II.

This chart details the sources of power and their respective contribution to the entire pie. For instance CEB’s thermal power generation contributes 17%. Ooops…!! Really. I am baffled. The CEB only generate 17% of the thermal power when we thought the CEB generated 59% of its power from thermal. Another point is given hydro capacity; these numbers must fluctuate. But then when the powers that be release numbers, it is no longer possible to be really sure. So who generates the other 42%? This is the most interesting question? Take a look at chart III.

What this chart provides is the list of independent contractors who provide thermal power to the CEB grid and at what cost.

In the first instance it is clear that there is no standardization of power purchase agreements. This means that the authorities have left it at the discretion of whoever holds office to determine the rates at which power would be purchased from each contractor. At one end Polpitiya sells one unit of Electricity to the CEB at Rs. 1.3 whilst at the other extreme AGGREKO sells one unit of electricity at Rs. 40.02. Now do you see? There are altogether 30 Independent contractors supplying thermal power to the CEB grid. Did you know that this was the case? Now if we were to get ballistic, then we could have run statistics on minimums, maximums, which I have already detailed along with standard deviations and means. But all those technicalities are unnecessary. The fact is that 59% of thermal energy is generated and that 42% comes from independent contractors. Whilst from an academic perspective it would have been interesting to know which supplier provided what quantity, the issues are that;

* There is no standardization of pricing

* Discretion appears to have been used in the determination of the rate at which power is purchased

* And clearly the IPPs (as the CEB likes to call them) are now calling in their pound of flesh.

Bar corruption, waste and a host of other popular factors, the ``most dangerous moment’’ after Churchill’s for us Lankan’s have arrived: the moment when the corporates take over the social structure and turn utilitarian services into profit maximization opportunities.

What is the Washington Consensus?

The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank, and the US Treasury Department. The prescriptions encompassed policies in such areas as macroeconomic stabilization, economic opening with respect to both trade and investment, and the expansion of market forces within the domestic economy. Subsequent to Williamson’s coining of the phrase, and despite his emphatic opposition, the term Washington Consensus has come to be used fairly widely in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach. Williamson himself has argued that his ten original, narrowly-defined prescriptions have largely acquired the status of "motherhood and apple pie".

As Williamson has pointed out, the term has come to be used in a broader sense to its original intention, as a synonym for market fundamentalism or neo-liberalism. In this broader sense, Williamson states, it has been criticized by people such as George Soros and Nobel Laureate Joseph E. Stiglitz. The Washington Consensus is also criticized by others such as some Latin American politicians and heterodox economists such as Erik Reinert. The term has become associated with neo-liberal policies in general and drawn into the broader debate over the expanding role of the free market, constraints upon the state, and the influence of the United States, and globalization more broadly, on countries’ national sovereignty.

"Stabilize, privatize, and liberalize" became the mantra of a generation of technocrats who cut their teeth in the developing world and of the political leaders they counseled.

—Dani Rodrik, Professor of International Political Economy, Harvard University in JEL ‘Dec’06

So what are these points of the consensus?

A discussion on all the points may be beyond this piece. But the following paragraph provides an outlook at how the Washington Consensus views subsidies by a government to its people. The Washington Consensus as formulated by Williamson includes provision for the redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment. This definition leaves some room for debate over specific public spending programs. One area of public controversy has focused on the issues of subsidies to farmers for fertilizers and other modern farm inputs: on the one hand, these can be criticized as subsidies, on the other, it may be argued that they generate positive externalities that might justify the subsidy involved.

The Argentinian experience

Here we look at the effect of the consensus on one aspect of the totalitarian Argentinian experience. Mark Weisbrot says that, in more recent years, Argentina under former President Néstor Kirchner made a break with the Consensus and that this led to a significant improvement in its economy; some add that Ecuador may soon follow suit.

However, while Kirchner’s reliance on price controls and similar administrative measures (often aimed primarily at foreign-invested firms such as utilities) clearly ran counter to the spirit of the Consensus, his administration in fact ran an extremely tight fiscal ship and maintained a highly competitive floating exchange rate; Argentina’s immediate bounce-back from crisis, further aided by abrogating its debts and a fortuitous boom in prices of primary commodities, leaves open issues of longer-term sustainability.

The Economist has argued that the Néstor Kirchner administration will end up as one more in Argentina’s long history of populist governments.

In October 2008, Kirchner’s wife and successor as President, Cristina Kirchner, announced her government’s intention to nationalize pension funds from the privatized system implemented by Menem-Cavallo. Accusations have emerged of the manipulation of official statistics under the Kirchners (most notoriously, for inflation) to create an inaccurately positive picture of economic performance. The Economist removed Argentina’s inflation measure from its official indicators, saying that they were no longer reliable.

Interesting isn’t it? Because we hear on a daily basis that our per capita income has increased and that it will be such and such in a number of years. Furthermore, and resulting from this increase in average income, the government justifies its removal of subsidies. In particular the loss of confidence in the Argentinian government’s measures is a fact that several businesses fear today in this very country. Under anonymity, several businessmen find corporate planning exercises extremely difficult due to the fading reliability of national statistics.

Economic hitmen and coal

The Minister of Power and Energy has gone on record stating that several more coal power plants will be established in the country and put down that with their commissioning this situation could become better. Given primarily that many intelligent naitons are moving out of coal, and the experiences with the existing second hand forever broken down coal power plant, there may not be too many citizens who would rely too much on these statements. However, the fact is that the independent contractor may despite the increasing down time of the power plant end up owning the facility due to our inability to service our debt component. Now this is straight out of any Washington Consensus Script you could find anywhere in the world.

To illustrate the point I leave you with two quotes form the "confessions of an economic hitman"

"For them, this is a war about the survival of their children and cultures, while for us it is about power, money, and natural resources ."

"We’re a small, exclusive club," she said. "We’re paid — well paid — to cheat countries around the globe out of billions of dollars . A large part of your job is to encourage world leaders to become part of a vast network that promotes U.S. commercial interests. In the end, those leaders become ensnared in a web of debt that ensures their loyalty . We can draw on them whenever we desire — to satisfy our political, economic ,or military needs . In turn, these leaders bolster their political positions by bringing industrial parks, power plants, and airports to their people. Meanwhile, the owners of U.S. engineering and construction companies become very wealthy."

Rings a bell, anyone?

2Ceylon Electricity Board : The myth Empty Re: Ceylon Electricity Board : The myth Sat Apr 27, 2013 9:00 pm

Jake Sully

Jake Sully
Manager - Equity Analytics
Manager - Equity Analytics

විදුලි බල මන්ඩලය සම්බන්ධව හිටපු විදුලි බල ඇමති චම්පික රණවක මහතා එකල ජනතාවට පෙන්වුයේ කලින් එය විශාල අන්දමින් දුෂනයට ලක්ව පාඩු ලැබු එකක් බවත් තමන්ගේ ඉංජිනේරු මොලෙන් එය දැන් යථා තත්වයට පත්වෙමින් පවතින බවත්ය. එසේ නම් එය ඔහුගෙන් ගලවා පවිත්‍රාට ලබාදුන් විගසින් එය අපවිත්‍ර වීද? පවතින විදුලි බිල අර්බුධය සම්බන්ධව පවිත්‍රා ඇමතිනිය පවසන්නේ කවුරුන් හෝ ඇයට ලියාදුන් දෙය පමණක් බව අපට ඉතා පැහැදිලිව පෙනෙන්නට තිබෙන කරුණකි.

3Ceylon Electricity Board : The myth Empty Re: Ceylon Electricity Board : The myth Sat Apr 27, 2013 10:15 pm


Associate Director - Equity Analytics
Associate Director - Equity Analytics

දැනට අපේ ශ්‍රී ලංකාවේ වාර්ෂික ගෘහස්ත විදුලි පරිභෝජනය ගිගා වොට් පැය 6000 කි .
ජල විදුලි නිෂ්පාදනය ද සාමාන්‍ය වැසි වසරකදී ගිග වොට් පැය 6000 කි.
එහි නඩත්තු හා බෙදාහැරීමේ වියදම් ගැන සැලකු විට විදුලි ඒකකයක් රුපියල් 2-3 කට දිය හැක
ඒ කියන්නේ සියලුම නිවාස සඳහා අඩු වියදම් ජල විදුලිය අඩු මුදලට දිය හැක. ( අධික විදුලි භාවිත නිවාස හැර )

මීට අමතරව තවත් ගිගා වොට් පැය 8000 ක් පමණ තාප බලය යොදා අධික මුදලට නිපදවා කම්හල් , රජයේ ආයතන, විදේශ ආයතන ආදියට අඩු මුදලට විකිනෙ .
එහි පාඩුව සාමාන්‍ය ජනතාවගේ ගෘහස්ත විදුලි බිල් වලින් අය කර ගැනේ .

නමුත් මේ ජල විදුලි බලාගාර සාදා ඇත්තේ මහජන මුදල් වලිනි. විදෙස් ණය ගත්තේ නම් ගෙවන්නේ රජයයි එනම් ජනතාවගේ බදු මුදල් වලිනි. තවමත් එම ණය ගෙවමු . තමන්ගේ මුදල් යොදවා සැදු ජල විදුලි බලාගාර වල නිපදවෙන බලය තමන්ට ලබා ගැනීමේ පරම අයිතිය මහා ජනතාවට ඇත .
විදුලි බල මණ්ඩලය එම අයිතිය හොරකම් කර තමන්ගේ බුදලයක් මෙන් සලකමින් එම බලාගාර ඉදිකළ අයිති කරුවන් වන මහජනතාවටම අධික මුදලට විකුණයි.

විදුලි ජාවාරම් කරුවන් හා එක්ව අධික මුදලක් තාප විදුලියට ගෙවා එම මුදල් මහජනතාවගේ විදුලි බිලට එක් කර තාප විදුලි සැපයුම් කරුවන් ද, එම අධික විදුලිය පරිභෝජනය කරන අයට වියදමට වඩා අඩුවෙන් අයකර ඔවුන්ද ලෙස දෙපක්ෂයම සනසති.
තමන් ද සැනසෙති. ජනතාව පෙළෙති .



The government is blaming a mafia comprising private sector power producers for the CEB’s predicament, but the opposition alleges that the current administration was responsible for breeding and nurturing crony capitalists in this sector.

Opposition lawmaker and UNP Economic Spokesman Dr. Harsha De Silva charged that poor governance and privatisations by the state had resulted in heavy losses at the Ceylon Electricity Board (CEB), and although a price hike was necessary to ensure macroeconomic stability in the long run, the current formula was taxing the poor to subsidise heavy users.

Dr. De Silva, a trained economist, said the Auditor General’s Department had recently told the Committee on Public Enterprises that several transactions carried out by the CEB with regard to IPPS were flawed and irregular.

"This in only the tip of the iceberg," Dr. De Silva told journalists last week.

While the government, blame private power producers for CEB’s predicament, Dr. De Silva said the government was responsible for divesting CEB’s stakes in these ventures and entering into flawed agreements that deteriorated further the financial position of the state utility.

"The government created and nurtured the mafia," he charged.

Since 2005, the CEB had lost its entire 63 percent stake in LTL Projects which is owned by LTL Holdings Pvt. Ltd, of which the CEB still holds a 63 percent stake. It had also lost a 40 percent stake in Heladhanavi, also controlled by LTL Holdings. The CEBpresent stake in Heladhanavi is 23 percent.

There are several other private companies operating under LTL Holdings, for example Lakdhanavi, of which CEB owns a 53 percent stake.

IPPs Lakdhanavi I was signed in 1997, Asia Power (45MegaWatts) in 1998, Barge Mounted 2000 (60MW), ACE Matara 2002 (20MW), ACE Horana 2002 (20MW), AES Kelanitissa 2003 (165MW) Heladanavi 2004 (99MW). Coolair 2005 (not in operation) and Aggreko 2005 and the controversial West Coast Kerawalapitiya the largest private plant of 270MW was initiated in 2005.

"So it was this government that privatised power generation in the country, and now they cry about a mafia," Dr. De Silva said.

While LTL Holdings reported a Rs. 4.5 billion profit in 2011/12 it reported a Rs. 3.7 billion profit in 2010/11. "But the CEB continued to report heavy losses, so there is something terribly wrong," Dr. De Silva charged.

While CEB officials sit on the LTL Holdings Director Board, none sit on the various private IPPs (Independent Power Producers) operating under LTL Holdings.

The Auditor General had also disclosed that according to agreements the CEB had entered into with the IPPs, the CEB had undertaken to pay VAT, debit tax, economic service charge and Customs duties on behalf of the IPPs.

Dr. De Silva also said the Central Bank’s 2007 report had highlighted that the CEB was sustaining losses because of flawed power purchase agreements entered with IPPs.

"But nothing has happened to address these issues since then," he charged.

Dr. De Silva said the price hike was necessary because it would ensure macroeconomic stability in the long run, but said the current formula approved by the Public Utilities Commission was taxing the poor and subsidising the rich. The UNP has proposed an alternative which would take into account the ‘electricity poor’ and still help the CEB reign in losses. (See The Island Financial Review of April 27, 2013)

"Of course the tariff hike will impact productivity and the competitiveness of our exports," Dr. De Silva said.

Over the years the Ceylon Electricity Board has sustained massive losses, reaching almost 1 percent of GDP in 2012. Losses at the CEB grew 217 percent to Rs. 61.2 billion in 2012 from Rs. 19.3 billion a year earlier.

CEB’s short-term borrowings from banks, other outstanding liabilities to the Ceylon Petroleum Corporation and to Independent Power Producers (IPPs) amounted to Rs. 137 billion while long-term outstanding liabilities stood at Rs. 296 billion as at end 2012.

Containing losses at both the CEB and CPC (where losses fell 5 percent to Rs. 89.7 billion in 2012 from Rs. 94.5 billion a year earlier) were seen as crucial steps in tackling long standing structural imbalances in the economy.

However, the government has failed to clean up the CEB and its connections with crony capitalists.

"There were two ways in reforming the power sector: One was to adjust electricity prices and two, reform the CEB where supply side problems such as generation, transmission and distributional losses were contained. Ideally it should have been a combination of both," Institute of Policy Studies (IPS) Executive Director Dr. Saman Kelegama recently said.

He said that in the past, attempts were made to reform the CEB and address the supply side problems.

"Once a proposal was made to restructure the CEB by unbundling its various functions and establish private-public partnerships. But this never took off. Then, another proposal was made to create separate business units without unbundling the CEB, with each unit expected to function on a commercial basis. Both these strategies never took off. So there were no supply side reforms, so today, the entire burden has been passed on to consumers.

"For industries, this (the electricity price hike) would mean rising costs of production, which should reflect in the exchange rate, otherwise our exports would continue to lose their competitiveness," Dr. Kelegama said.

"The electricity price hike will affect the people very badly, but if this helps to bring down loses at the CEB, and help the country address its resource gap, then growth could be redistributed more equitably, and this would help households going forward," IPS Chairman Prof. W.D. Lakshman said.

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