According to the CEB’s long term power generation plan formulated in 1981, it was proposed to build the country’s first coal power station in Mawella. The cost of the 120 MW project was calculated as Rs. 1452 million, while each megawatt of power generation was to cost Rs. 13 million.
In 1991 long term power generation plan, in addition to Mawella another coal power plant was proposed to be set up in Trincomalee as well. Due to the rupee devaluation and other factors, each MW of power generation in the first phase was expected to cost Rs. 58 million while in the second stage each MW of power generation was expected to cost Rs. 40 million. According to the minister of power and energy Patali Champika Ranawaka, the reason for the reduction in the second stage power generations cost was due to the fact that jetty facilities and transmission costs were not required in the second phase.
However in spite of these plans none of the above mentioned power plants got off the ground, but instead in 1997 a feasibility study was done to set up the 300 MW coal power plants in Puttlam, with the intention of increasing its capacity to 900 MW in three stages.
According to an agreement signed in 2005 August, the setting up of the first phase of the Norochcholai coal power station of 300 MW, inclusive of the jetty and transmission line was expected to cost $ 300 million. In other words each MW of power generation was estimated to cost $ one million (Rs. 101 million). The funding for this project was obtained as a loan from China at 2% interest.
However all of a sudden in January 2006, the cost of the project suddenly rose to $ 490 million and after subsequent discussion was agreed at $ 455 million. This was a 50% increase in the estimated cost of the within a short span of just four months. According to these estimates, each MW of power generation was expected to cost Rs. 155 million, but even though the plant was said to generate 300 MW of power in actual terms the plant only produced 285 MW. Accordingly each MW of power generation in reality would cost Rs. 162 million to produce. In addition, while the second phase of 600 MW of the project was expected to cost lesser, in fact it increased to $ 891 million, indicating that each MW of power generation would cost a colossal Rs. 169 million to produce. However Ranawaka explained that these prices were calculated while the dollar was at Rs. 102, but taking into consideration the current rate of the dollar, it would cost approximately Rs. 205 million to produce each MW of coal power.
According to estimated costs, in the first phase of the coal power plant in Puttlam from 2014 to 2028, and in keeping with the amount borrowed ($ 485 million) the loan interest was Rs. 22 billion and the loan repayment is Rs. 46 billion amounting to a total of Rs. 68 billion. This figure was calculated while the dollar was at Rs. 102. However with the rupee depreciating, in 2014 the figure rose from Rs. 68 billion to Rs. 87 billion. Hence minister Ranawaka points out that given these circumstances it was highly unpredictable on what the situation would be by 2028. He also revealed the intentional deception of the then government as they had based all their calculations on the basis that the rupee would remain the same and not depreciate. Moreover while the then government while forecasting a power generating capacity of 2122 GWh, during the period 2011 to 2012 not even half of the anticipated power generation was achieved.
Moreover these power sector fraudsters tried to show (through media advertising) that the Puttlam coal power plant had already covered their investment. According to their theory, during the 2011-2012 period the Puttlam coal power plant of 2100 GW (4244 GWh of power was expected to be generated) was constructed, and instead of coal if diesel was to be used the operational loss would be Rs. 20 per KWh.
However minister Ranawaka points out that this formula is wrong based on many factors.
1. Comparisons should be drawn only between two similar power generating machines. Hence if the previous government had not invested in coal power and generated power solely through Diesel, then the above comparison would be acceptable.
2. Since the coal power plant is already constructed comparisons should only be made with other similar coal power plants. In this case even the investment made for the establishment of this coal power plant, the cost of the project has exceeded 50% more than the international standard rates.
3. Had the Puttlam coal power plant generated power as anticipated during 2011-2012 it would have produced 4244 GWh explains minister Ranawaka. However he pointed out that in reality the Puttlam coal power plant had generated only 2100 GWh and not 2144 GWh of power. Had the CEB generated the same quantity of power using Diesel, the loss incurred during that two year period would have been Rs. 43 billion. This financial loss was greatly felt by the CEB as during 2011-2012 since the CEB had to resort to diesel and furnace oil power generation to cater to the shortfall created by the lack of coal power generation, during the drought at that time.
Further if you compare the cost of equipment of the Puttlam coal power plant, the disparities are evident.
According to the above chart it is clear that costs for the Jetty, transmission, preparation of premises, construction of buildings and certain other purposes, payments have been made twice. Moreover Ranawaka points out that when one machine is built at a power plant, the expenditure for a second machine is greatly reduced due to their similarities. But in this case that has not happened. Further when you consider the main machinery and equipment of the power station, the cost of services cost is extremely high, explained Ranawaka.
Further he said that comparing the power plant’s machinery and equipment, the service cost is very high. However during the breakdowns of the machines it was evident that the CEB supervision during the planning, manufacture and placement of the machine was very minimal. Citing an example Ranawaka pointed out that both machines in the second stage of the power plant were almost simultaneously built in 2009, and the planning features of the first machine was used for the other two machines. However he pointed out that in comparison with the first machine cost ($ 171 million), the second machine cost has been $ 242 million, which is a cost hike of 42% and the third machine a cost hike of 20%.
The second stage jetty expansion cost $ 23 million, while the Chilaw substation cost $ 27 million and the Anuradhapura transmission network cost $73 million. It is noteworthy though that while the cost of the whole project was $891 million, $477 million was spent on equipment and materials, and $ 414 million was spent on services. According to Ranawaka this explanation cannot be justified in any manner be it financially or technically.
While the 1981 transmission plan was revised in 1987, it was decided in 1998 to build a 150 MW power plant in Sampoor Trincomalee. As the Trincomalee harbor was the most viable natural harbor, it was the most cost effective in terms of unloading the coal and all other factors. This harbor was not only beneficial to Sri Lanka but it could provide storage facilities for oil, gas and coal to cater to international power requirements.
Even though the Puttlam coal power project was to be offered by tender to an Indian company (NTPC) it was later offered to a Chinese company and Sampoor (1000MW) was offered to India in a bid to compensate for losing Puttlam in a joint venture between NTPC and CEB (29-12-2006).
Further cementing the deal the then secretary to the ministry of power and energy had included a special clause in the agreement that specified that in the whole of Trincomalee, no one else can establish a power station other than India. The CEB also had plans to increase the Trincomalee coal capacity to 4600MW by 2030. This basically handed over Sri Lanka’s power security to India, pointed out minister Ranawaka. This clause in the agreement was amended in 2009. One of the reasons that this was done was because there were plans to grant permission to a suspicious company to set up a merchant plant and industrial zone. Later in November 2009 a feasibility study was carried out on Sampoor, and the following issues were raised;
1. Although the power sector authorities had publicly stated that the first phase of the Sampoor power plant (2×250 MW) would cost $500 million (1 million dollars generation cost per MW), the power plant cost was eventually $615 million and inclusive of the jetty and transmission line cost (from Trinco to Veyangoda), the whole project cost $ 916 million. Accordingly each MW of power generated would cost $ 1.83. Therefore the cost of a unit of power rose from the initial estimate in 2012 of Rs. 08 to Rs. 17.40.
2. Due to less efficient machines being utilised the annual losses (as calculated in 2012) were between Rs. 4000-6600 million. The 2013 September agreement was therefore signed an agreement that if such losses were incurred, it would be borne by the treasury.
3. Due to the Return on equity (ROE) being at a high level, another Rs. 2000 million loss was anticipated.
4. In addition to the above losses it was also noted that due to 250 MW machines being used, in case the base load does not vary, it will not be able to function at maximum capacity during peak hours (6.30 – 9.30 pm) further losses were expected annually. This situation is evident even in Puttlam power plant (900 MW) where although it should annually generate around 7000GWh, in reality it only generates between 5000-6000 GWh. Minister Ranawaka warns that this same situation could arise in Sampoor too.
5. Although the CEB has 50% of ownership of Sampoor, since the CEB has to purchase the whole power load, any losses will invariably have to be borne by the CEB and the consumer, while the profits will only be enjoyed by NTPC. The minister further pointed out that unlike the Puttlam power plant, as all technical and financial discrepancies have been revealed from the start, no CEB official or any other person responsible for operating this plant in spite of the faults can be forgiven. Further, due to the delay in commencement of the Sampoor power plant, the establishment of an alternative 300 MW diesel power plant has become a vital necessity, and this burden too falls on the poor consumer.