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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » DIESEL ‘LOBBY’ Costing Country Rs 40 Billion A Year

DIESEL ‘LOBBY’ Costing Country Rs 40 Billion A Year

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Jeremy

Jeremy
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
By Faraz Shauketaly
http://www.thesundayleader.lk/2014/02/23/diesel-lobby-costing-country-rs-40-billion-a-year/

The Ceylon Electricity Board (CEB) is contracted to pay up to Rs 40 Billion per annum in so-called ‘capacity charges’ to operators of diesel power plants. A capacity charge is also referred to as a ‘standing by’ charge – whereby a payment is made to the operator irrespective of whether the plant produces power or is simply kept on stand-by in case power is required. The cost per unit of electricity produced by the flagship Norochcholai Power Plant is Rs 7.55 per unit in comparison to Rs 35 on average for a unit of power for example produced by the Kelanitissa Power plant, which uses diesel as its fuel.
The negativity associated with the Norochcholai Power Plant has been caused by a number of shutdowns including planned maintenance stops. Additionally, bona fide breakdowns of the plant has helped to further the negativity.

Set to be delivered for operation in February 2012, the Chinese contractor was reportedly persuaded by the CEB to deliver the plant very much earlier in February 2011.
‘The Norochcholai power plant which was to be commissioned on the 9th of February 2012 was handed over a year in advance to the government. Although technically not prudent to be handed over without the planned for and required testing period, or the established commissioning of the plant, the Chinese contractor obliged the CEB as they required power on an ‘urgent’ basis.

‘During this period – of 372 days – the plant generated 1,116,000,000 units of electricity which cost Rs 7.55 per unit. The total cost to the CEB was Rs 8,425,800,000; (Rs 8.4 Billion).
‘By contrast, and for comparative purposes, had the Kelanitissa power plant been relied upon to deliver the same output, the cost would have amounted to a staggering Rs 39,060,000,000 (Rs 39 Billion) – at an average cost of Rs 35 per unit,’ he added.
Coal power one fourth the price of diesel power

According to experts power generated by the Norochcholai Plant is at least four times cheaper than power obtained from any other diesel-fuelled power plants.

The CEB saving is estimated to have been Rs 30,634,200,000 (Rs 30.63 Billion) for the 372 days that the plant was handed over in advance of its planned for delivery date.
From the period 10th February 2012 to 28th February 2013 the Coal Power Plant reportedly generated a further 1,588,510,000 units and as in the previous year the financial saving was Rs 43,604,599,500 for that period.

For the period 1st March 2013 to 31st December 2013 the plant generated 1,159,546,000 units of electricity making a financial gain of Rs 31,829,537,700 (Rs 31.8 Billion).
Some at the CEB feel that the generation cost for diesel should be calculated at Rs 25 as the AES Kelanitissa / West Coast power plant would be in operation. However others argue that the West Coast power plant would have to be used even with the coal power plant in operation hence opportunity costs should be considered with the power plant that would not run in the event the coal power plant is in operation. It is important to note that though Rs 35 is taken as the average price, the price to run Kelanitissa is per unit Rs 60.
‘However for arguments sake, if we were to take Rs 25 as the average the savings would in any event amount to Rs 69,553,008,000 (USD 530 Million).
‘Unlike other infrastructure projects the return on investment of a coal power plant is immediate, and especially significant for Sri Lanka which has been running on diesel, hampering economic growth and burdening the people for decades,’ he adds.

NOROCHCHOLAI – SHUTDOWNS
• In 2011 October the machine had a problem with the turbine steam valve and had to be rectified.
• In 2012 January there was a coal mill fire and had to be repaired.
• In February there was a hydrogen leak and needed rectification.
• In August a bearing failure occurred along with a transformer defect.
• In December it was closed due to the planned annual maintenance.
• In 2013 April the system tripped as a result of a disturbance; however it was rectified in a couple of days and the machine generated 149,900,000 units of electricity for that month falling just short of the expected 160,000,000 units per month.
• In August it was suspended for a period of three weeks for routine maintenance and most importantly to synchronize Phase two of the plant.
According to our engineering sources, the expected annual availability of the plant is 80% and it has met this criteria. ‘The global average of the expected annual availability for a very good plant would be 80%. With all these breakdowns – whether planned or otherwise – the expected annual availability is 72.69%’ they add. Considering that the plant was handed over 372 days earlier, without a reliability test run, sources say the percentage is satisfactory. ‘It is important to also take into account that like in any machine as time goes by this machine too will eventually stabilize and increase production as it settles in. For example the production percentage in 2011 was 42.87%, in 2012 it went up to 59.87% and in 2013 it increased to 62.53%.

‘It is very important to be cognizant of an unavoidable fact that during the night and on holidays, when demand is low, the production of electricity is controlled (deloading) and this affects the production percentage. A plant of this nature generally has to shut down for planned annual maintenance for at least 55 days each year. However when all three units are up and running by June next year the CEB will be better able to plan its maintenance work, so as not to disrupt the generation of power.

‘On the one hand the CEB has developed a new found reliance on the financial benefits generated by the Norochcholai Coal Plant, and these benefits have not been highlighted. The CEB and the Ministry of Power and Energy for some odd reason have never responded to the negative publicity the plant has attracted by vested parties’ he accused.
Promoters believe ‘detractors’ choose to highlight the high cost during the periods that Norochcholai has been non-operational but also question the plants’ viability. ‘However logic determines that the same perceived loss should be applied to profit when operational’, he added.

Proponents of the coal power plant say that the biggest threat Norochcholai poses has more to do with the imminent reduction of reliance on diesel fuelled power plants and more importantly ‘the very thought that the pro-diesel lobbyists fear the most’. With a nearly four times lower per unit cost of production the coal power plant has a financial advantage over the diesel fuelled plants.

‘It is hardly surprising that Sri Lanka’s current Minister of Power and Energy is displaying little appetite towards renewing controversial and significantly expensive stand-by charges in agreements with the diesel fuelled power plant operators.
‘The Norochcholai plant’s problems have become highlighted principally because the contractor was not afforded the time necessary to complete the testing period and due to the urgent requirement by the CEB to hasten the delivery of the plant. The haste was necessitated by planning engineers predicting a potential return to power cuts and interrupted power. Analysts say, “You can’t blame the CEB as this plant was already 15 years late in the making”.
‘For the so-called diesel lobbyists the problems at Norochcholai and the time taken for the Chinese to begin rectifying those faults has provided them with an opportunity to lobby for the continuance of diesel powered plants citing issues at Norochcholai.
‘The greater issue is that the contracts governing the diesel fuelled plants carry important clauses that guarantee those operators’ payment whether or not the plants generate power. In some instances the ‘capacity charge’ clauses are just as important as the per unit charge imposed by the operators of diesel fuelled plants,’ they further add. Sources at the Ministry of Power and Energy have also revealed that up to Rs 40 Billion is at stake every year to pay for this ‘capacity charge’ to seven heavy fuel plants.
The CPC imports USD 300 Million worth of oil every year for the Diesel power plants
Lakwijaya: A critical plant

The promoters of Norochcholai plant claim that it has been referred to as a ‘super-critical plant’ because of the greater technicalities involved – for example a diesel fuelled plant can be shut down in ten minutes whilst the coal plant can take up to fourteen days in some instances. This is the confusion amongst many as they are used to diesel and hydro powered plants which are completely different to a plant such as this. It is then misconstrued that the plant has broken down for so many days.

Within the fraternity of the engineers selected to operate Norochcholai, there is an additional factor stymying the smooth operations: mechanical and electrical engineers are at loggerheads as they try to wrest ‘control’ of the most critical roles which confers great responsibility as much as professional kudos.
A senior electrical engineer maintains that in an ideal scenario the coal power plant should be run as a base power plant to maximize the benefits – technical and financial – with a mix of other plants with different inputs ready and available in the event the coal plant is down for maintenance, etc.

Sri Lanka has previously also been subject to breakdowns at the major power stations – but on a far greater scale. For instance,
AES Kelanatissa 2003- 2005 – shutdown 50 times.
Yugadanavi Power Plant 2010 – 2012 – shutdown 59 times,
Kotmale Power Station,
Unit 1 Total Running Time: 9 months – shutdown for 24 months (1985-1987)
The CEB maintains that it has ‘called upon the Chinese to rectify these issues immediately if they are to protect their reputation.
‘These issues have been and are being resolved continuously – the plant comes with a Chinese government guarantee. These issues were resolved successfully in the past fortnight. It must be also noted that it is the Chinese specialists who fixed the most recent problem working side by side with the CEB.
‘It is important to note that the breakdowns also could be part of inexperience by operators as the training period may not have been sufficient. There has been speculation of sabotage due to the fact that four power plants have broken down recently.
‘It is inevitable that the CEB will not renew the contracts and turn to becoming a profitable entity when Phase one and Phase two are fully operational. The negative canvassing portrayed in the recent past with much vigor and aggressiveness is a confirmation of the “Oil Lobby” frustration and desperation,’ allege promoters.

An engineer attached to the CEB claims that its staff should be commended on pulling this project off even under these circumstances. ‘They have worked tirelessly to build Sri Lanka’s first ever coal power plant which notably is owned by the CEB and not a private power producer. This ownership gives Sri Lanka energy security and control of power generation in the country. The CEB unions and engineers have fought for a coal power plant for more than 15 years. They picketed on the roads asking for this plant. Now that the plant is running at full capacity and the 2nd Phase is due to come on line imminently, it is logical that the CEB will have to reduce tariff rates when all Phases have stabilized operations’.

The technical consultants for the project were Electrowatt Ekono AG – a reputed Swiss consultancy firm which was involved in the price negotiation. ‘There have been misinterpretations about the price of the plant which has been compared erroneously. In Phase one the plant cost USD 283,250,000. However, it is obvious that there is other infrastructure required for the plant to run economically.

‘The main power block alone cannot run the plant – balance of plant including coal handling system, port and equipment with the Jetty and storage facility USD33 Million,118KM Transmission line and sub stations which alone cost USD 62 Million, employers housing compound USD 35 Million, Engineering survey design and drawing USD 15Million, Logistics USD 18Million, preliminary survey USD 100,000, Access Road to the plant from Palavi USD 6 Million, Resettlement housing complex USD 1.5 Million, SCADA and Environment Process USD 1.5 Million making a grand total of USD 455Million. However the agreed amount was USD 450 Million. The engineering estimate alone, for the scope of work prepared by the consultant Switzerland Electrowatt Company is USD 471,687,000 Million (This estimate did not include construction of houses, roads etc.)
‘However the quotation was evaluated by the Technical Evaluation Committee and negotiations by the Tender Board were approved by the Cabinet successfully managed to negotiate to the lower figure of USD 450 Million in total for the project.
‘It is obvious that within the scope of work of the project that there are various other projects (large in nature) which have been included. Some of the common infrastructure for all three Phases has been included in Phase 1 of the project as well’ he added.
Projects within one project

They maintain that the scope of work was changed many times by the CEB and with it the price The Swiss consultant was involved in making and approving the scope of work. ‘Hence it could be viewed as projects within one project especially taking into account the 5,000 ton coal jetty, 117 km 220 KV double circuit transmission line with substations, employers housing compound, several environmental monitoring systems including four sets environmental protection stations and related monitoring vehicles, the entry road from Palavi to the power plant site which were all additional to the scope of works and were included in Phase one of the project. Hence the argument that the price was increased without a basis does not hold water.

‘Some have tried to misconstrue the facts and state that during the MOU signed in 2005 in China the amount was much less; However it must be noted that they are not comparing the scope of work that changed as well. In fact the MOU did not speak of a price at all and left the negotiations to the CEB and the Swiss consultant.
‘Even in Phase 2 there are many other large projects included; for instance the new Chilaw substation at USD 26.8 Million, the Transmission Line and the Anuradhapura substation for USD 73 Million and many other necessary add-ons,’ he clams.

Sabotage?
The CEB is conducting an investigation into an accusation of sabotage. At the time The Sunday Leader went to press the investigation was still underway – with AGM CEB, M.C. Wickremesekera stating that he expected a conclusion early next week.

The restart of the power plant very nearly did not happen when the Chinese contractors discovered that the sodium ion content and the hydrazine dosing system had become abnormally high – threatening to shut down the plant yet again. In an interesting turn of events, it was revealed that the CCTV camera in the dosing room had been moved to film a blank wall. The CCTV camera in question is used in the dosing room to monitor activities clearly because of the sensitive nature of the work carried out in the room
The chemical liquor in Number 1 and Number 2 chemical dissolving tanks were found to be abnormal according to data. What is worse is that resin was discovered in these tanks. After analysis it was concluded that resin cannot come from the water source and that it could only mean that ‘deliberate man-made throw-in activities’ had taken place.

http://www.thesundayleader.lk/2014/02/23/diesel-lobby-costing-country-rs-40-billion-a-year/

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
News in news section please.

Al lease be an example.

CSE.SAS

CSE.SAS
Global Moderator
@Redbulls wrote:News in news section please.

Al lease be an example.

Redbulls  are u new mods to this forum  Question Question



Last edited by CSE.SAS on Sun Feb 23, 2014 6:15 pm; edited 1 time in total

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Redbulls do you wanna get banned???  Shocked  Cool 

Cheers!

CSE.SAS

CSE.SAS
Global Moderator
@Rapaport wrote:Redbulls do you wanna get banned???  Shocked  Cool 

Cheers!

Redbulls 1 of 2000 mate. Hope u understand mate.

Jeremy

Jeremy
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@Redbulls wrote:News in news section please.

Al lease be an example.

Sorry, I moved. I am new to this moving business!

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
GMNet wrote:
@Redbulls wrote:News in news section please.

Al lease be an example.

Sorry, I moved. I am new to this moving business!

Thanks mate, I know you are good in removing rather than moving.

CSE.SAS

CSE.SAS
Global Moderator
GMNet wrote:
@Redbulls wrote:News in news section please.

Al lease be an example.

Sorry, I moved. I am new to this moving business!


Ya. You finally accept that your new to moving business.

In chess game bad moves easy creates checkmate  Very Happy 

Don't trap into the checkmate situation.

Jeremy

Jeremy
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@CSE.SAS wrote:
GMNet wrote:
@Redbulls wrote:News in news section please.

Al lease be an example.

Sorry, I moved. I am new to this moving business!

Ya. You finally accept that your new to moving business.  

In chess game bad moves easy creates checkmate  Very Happy 

Don't trap into the checkmate situation.  

I am playing 4 Knights and currently in the end game.

CSE.SAS

CSE.SAS
Global Moderator
GMNet wrote:
@CSE.SAS wrote:
GMNet wrote:
@Redbulls wrote:News in news section please.

Al lease be an example.

Sorry, I moved. I am new to this moving business!

Ya. You finally accept that your new to moving business.  

In chess game bad moves easy creates checkmate  Very Happy 

Don't trap into the checkmate situation.  

I am playing 4 Knights and currently in the end game.

You already lost your 2 Kinghts 2 Bishops 2 Castles and Queen.

Ya ur correct ur in the end game. Very soon checkmate  lol! lol! lol! 

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