Features
Unbundling the CEB II: The Politics of Reforming State Owned Enterprises
byRajan Philips
It is an old truism in policy analysis that there is nothing purely ‘technical’ in policy decisions. Every policy decision has a political aspect to it. Technical analysis is necessary and useful to identify and evaluate feasible options, including the costs and benefits of each option. In the end, what is selected or rejected is a political matter based on political preferences. There is nothing wrong with that. What gets to be objectionable is when decisions are made to reach outcomes to benefit some or deny someone else based on inappropriate considerations.
I say all this because the Minister of Power and Energy Kanchana Wijesekara alluded to forces within the CEB and “a political group that supported this section from outside” and accused them of having “obstructed reforms at the CEB” that he has been trying to get underway since becoming the subject Minister. While the Minister did not identify the ‘political group’ opposing reforms, he could not have been unaware of the criticisms that the Electricity (Reform) Act that he has now got passed also has the backing of political groups both within and outside the CEB, and for reasons that may not be entirely technical or altruistic.
It is a common suspicion that the electricity reform measures are intended to benefit vested interests not only within but also outside the country. There is already a public interest litigation in the Supreme Court filed by the Catholic Bishop of Mannar challenging the 250 MW Mannar Wind Power Project seemingly sequestered by India’s Adani Group. There are suspicions that the Adani Group could be a singular beneficiary of the objectives of the new Electricity Act to promote competition in renewable energy generation and transmission “in accordance with Sri Lanka’s national policies and its international obligations.”
These fears were reflected in the petitions challenging the Electricity Bill before the Supreme Court and in the Amendments suggested by the Court for constitutional compliance. The government accepted the Court’s Amendment, but in his intervention in the debate the Minister did not bother to explain why the government drafted Bill the way it did and to be chided by the Supreme Court.
The Minister has had a previous run in with the Court over the Petroleum Products Bill in 2022. The Court’s strictures were similar then to what they have been now. The only lesson the Minister and the government may seem to have learnt is that after being pulled up by the Court for trying to keep the Petroleum Products law outside the purview of the Bribery Act, they did not try to insulate the Electricity Act from the applications of the Bribery Act. For what it is worth, the Bribery Act would apply to the implementation of both laws.
Reform Antecedents
The restructuring of the supply and distribution of petroleum products that the Petroleum Products Act was created to provide for is a more straightforward and far less complex business than reforming the electricity sector. As I have written earlier, the lining up of firms from India, China, Australia and the US to import and distribute petroleum products at their allocated outlets is a stroke of Ranil Wickremesinghe’s genius. That is Sri Lanka’s ‘Quad’ version of blending foreign trade and relationships. The young Minister is entitled to whatever credit that is due on the petroleum front, but matters are not going to be that simple in the electricity sector.
The Minister also tried to answer criticisms that the new legislation was being rushed through by the government. He reminded parliament that the first Cabinet Paper on the new law had been presented in July 2022. But no one reminded him that the roots of the current initiative go back all the to 2002, when Minister Wijesekara would have been still a student somewhere, and that they were revived again in 2015 when the Minister first entered parliament.
There is an ADB Report from 2015 that provides a summary assessment of power sector reforms in Sri Lanka. The Report acknowledges inputs received from Sri Lankan professionals and government agencies including the CEB. Historically, the provision of electricity was the responsibility of a government department until the establishment of the Ceylon Electricity Board in 1969. The ADB Report notes that “The CEB carried out all the functions of electricity generation, transmission, distribution and retail supply, with no competition at any level.” So, introducing competition is taken to be the essence of reform. And two phases of reform are identified, starting from 1983.
The first phase of reform included the creation of state-owned distribution company, Lanka Electricity Company (LECO), that took over electricity distribution from local government agencies in designated areas. Beginning in 1996, the private sector was allowed in power as independent power producers (IPPs) and small power producers (SPPs). And in 2000, the CEB unbundled itself internally into six divisions, responsible for generation, transmission, and four of them for distribution. This was primarily an administrative restructuring without legal or financial separation of the unbundled divisions.
Significant legislative changes came two years later, in 2002, with the enactments of the Electricity Reform Act and the Public Utilities Commission Act. The latter enabled the setting up of the Public Utilities Commission of Sri Lanka (PUCSL) as the national power sector regulator, but the implementation of the Electricity Reform Act was stymied for want of a Ministerial order that in turn was prevented by political opposition including opposition by CEB staffers. A change in government in 2004, a new President in 2005, and a new Electricity Act in 2009 were all needed for the second reform phase.
The ADB Report notes that the Electricity Act No. 20 of 2009, finally enabled the regulatory functioning of the PUCSL, but it reduced the scope of CEB restructuring that had been envisaged by its predecessor, the Electricity Reform Act No. 28 of 2002. The upshot was a partial unbundling of the CEB, virtually continuing the internal unbundling of 2000, with the addition of a license requirement for each of the unbundled division.
In place of financially and legally independent entities in the power sector, the CEB continues its unreformed existence by holding six separate licenses – one for generation, one for transmission, and four for distribution. The PUCSL itself though created for the grand purpose of regulating all or most public utilities, would seem to have been reduced to a license issuer in the power sector. In addition to the six CEB licenses, the PUCSL would seem to have issued 311 other licenses, the vast majority of them for mini hydro power plants and others for solar and wind power generators. This is according to the spreadsheet listing the license holders that is available on the Commission’s website.
The purpose of the new (2024) legislation would seem to restore the objectives of the 2002 legislation that were slashed by the 2009 legislation. That is to break up the CEB not only administratively, but also legally and financially. The ADB Report acknowledges that for all the financial woes of the CEB, there have been remarkable achievements in the technical assets of the electricity sector – especially in hydropower generation and the transmission grid that spans the whole country, in improving national energy supply efficiency, as well as in fulfilling the social purpose of enabling accessibility to virtually every household. It would be a challenge to ensure that these gains are not lost or made unaffordable as a result of wholesale unbundling.
The main shortcomings are two-fold: absence of cost-based pricing for electricity; and the lack of capital for future investment. The CEB’s financial stress is rightly blamed on the approach of successive governments to dictate pricing for electricity that will not cover the cost of producing it. The irony is that this government or any government will not try to stop dictating insufficient pricing, but would rather hand over a whole sector to the market. What connects the two horns of this apparent dilemma is of course corruption. And no amount of institutional unbundling would provide the magical cure unless government corruption itself is bundled out.
Ranil and Reform
If there is one political name that consistently appears in all the efforts to reform the energy sector, it is the name of Ranil Wickremesinghe. It was his co-habitation government in 2002 that started the legislative process for reforming and regulating the electricity sector. Those efforts came to a sudden halt when President Chandrika Kumaratunga dismissed the government ‘headed’ by Ranil Wickremesinghe as Prime Minister. The second set of attempts came as part of Mr. Wickremesinghe’s second co-habilitation government, this time with Maithripala Sirisena as President. Nothing much came out of that government that was all talk and no result.
The ten year period (2005-2015) in between was the first Rajapaksa decade, and as I wrote in my commentary on the 2022 Petroleum law, Mahinda Rajapaksa as President continued from where Ranil Wickremesinghe had left as Prime Minister. Mutatis mutandis, you might say. Here we are again, more than 20 years later, having Ranil Wickremesinghe rescuing the Rajapaksas from the disaster that their second decade was turning into, and spearheading reforms not only in the electricity and the overall energy sectors, but also in all the so called State Owned Enterprises.
As with the electricity sector and the CEB in particular, the SOEs are universally blamed for being a big part of the current economic crisis, and their reform has become a fundamental condition for getting IMF help to overcome the crisis. There are reportedly 400 SOEs, a majority of them likely created after the great liberalization of the economy. The state of affairs is such that full information is not readily available for the vast majority of them. Even an officially accurate list of all the SOEs is apparently not available.
The government, rather the President true to form, has initiated a virtual Shah process to reform the SOEs based on a shortlist that includes a rather long list of 80 or 130 (depending on who is reporting) of SOEs. That too in this election year with hardly four months to go before the presidential election. If these actions of Ranil Wickremesinghe were to be presented to a shareholders meeting, he would be declared Chairman of the Board for life. But political elections are a different world and Mr. Wickremesinghe seems determined to fight one last time for his political life.
Features
‘Lord Edgware Dies’
It has been some time since I read an Agatha Christie, the plot of which I cannot remember. So, I was delighted to find on the shelves of a friend Lord Edgware Dies, which I had a vague memory of, but no certainty about who had done it.
When I read it, I found that my memory of who was probably the killer was correct, but I could not be certain and the red herrings Christie threw in were so diverting that until almost the very end I wondered if I had been wrong.
The plot is very simple. Jane Wilkinson, who is married to Lord Edgware, tells him that she is desperate for a divorce since she is in love with a very proper Anglo-Catholic peer, Lord Melton, but Edgware refuses to divorce her. She asks Poirot to talk to him, which he does, and is surprised to find that Edgware has told Jane he is prepared to give her a divorce. This was, after he had categorically refused, through a letter, which Jane said she had not received.
That night Edgware is murdered, after Jane had been to see him, or so the butler said, and also Edgware’s secretary. But Jane had been that evening at a grand dinner many miles away, where a dozen fellow guests could swear to her presence.
There was a solution however to the mystery of two Jane Wilkinsons, namely a skilful impersonator called Carlotta Adams who, in the opening chapter had impersonated Jane Wilkinson, who had also been at the performance. But when Poirot goes to see her, he finds that she had been found dead on the morning after Edgware had been killed, of an overdose. And in her bag was a gold case, with a strange inscription, that contained the drug, along with a pair of pince-nez.
Her maid said she had written a letter to her sister in America and posted it the previous night. Poirot asks Inspector Japp to get the letter, and a transcript is received from America, and in it the name of Edgware’s nephew Ronald Marsh is mentioned; he had taken Carlotta to dinner after her performance, with which the book opens, and had then set her a challenge. Japp arrests Marsh, but Poirot is not happy and asks for the original of the letter, which the sister sends him. That shows that a page is missing, and the tear is obvious, though that raises the question as to why it had not simply been cut.
Matters are further complicated by the fact that Marsh had gone in a taxi to the Edgware house, along with Edgware’s daughter Geraldine, in the interval of an opera which had previously seemed to provide them with cast iron alibis. Geraldine had gone in to fetch her pearls so that Marsh could raise money he needed, and thus had an opportunity to kill Edgware, as did Marsh, for the driver said he had got out of the taxi while waiting and gone into the house.
Marsh explained why he had gone to the house on the night of the murder as having followed Bryan Martin, an American actor, who had been in love with Jane, whom he saw go into the house with a key. But there was no one visible when he entered, and Geraldine almost immediately came down and they left together. And Martin too has become an object of suspicion to Poirot, for he had been to see him before the murders were discovered with a story of being followed by a man with a gold tooth – a story Poirot immediately realized was false when he was asked how old the man was, and was told he was young, for young people did not have gold teeth.
A heap of French money Edgware had got for a trip to Paris was missing, but since Marsh had no need for it after his cousin’s offer of help, Poirot deduces that it must have been taken by the butler, who has disappeared. Christie has stressed that he is astonishingly handsome, unusual in a butler, and Poirot notes a resemblance to Martin, so he thinks the mysterious man going into the house must have been him.
Incidentally, later Poirot assumes that Edgware’s change of mind was because he was involved in some scandal, and I believe Christie intends us to see the cause of this in his handsome butler, though this is not specified.
Meanwhile, Poirot has asked Japp to find out the provenance of the case found in Carlotta’s handbag, and it turns out to have been made in Paris, specially commissioned, and collected by a woman with pince-nez.
But then another murder occurs—that of another guest at the grand dinner, which provided Jane with her alibi. The victim is an actor who had been bemused when Jane, at a lunch, thought the Judgment of Paris referred to the city. He told Hastings he wanted to see Poirot, but was killed before he could get to the appointment. Poirot had rushed there when told about his request, but it was too late.
Meanwhile, Poirot has tried out the pince-nez on Edgware’s secretary, but she could not see through these. It was only a chance remark heard outside the theatre that led him to try them out on Wilkinson’s maid Ellis, a spare pair that had been appropriated for the night of the murders.
Poirot then lays things out, having summoned Martin and told him that he probably suppressed Edgware’s letter, as he had been dropped by then and he did not want Jane to marry another. But after teasing Martin, Poirot says that Jane was in fact the murderer, and she got Carlotta to impersonate her at the dinner while she went to the house and killed her husband. After meeting Carlotta later and checking with her through a call that she had
not been rumbled, Jane had gone ahead with the murder – she put veronal into her drink and the case with veronal into the handbag. She forgot to take out the pince-nez she had used earlier to imitate an American. Carlotta had registered as the American in a hotel and Jane had gone to see her, and there they exchanged identities. After seen the letter, she made use of it by tearing off the page that referred to her, and the S of She, so that the person who had challenged Carlotta to impersonate her seemed to be a man.
There is a coda in which Jane, condemned to death, writes to Hastings, still full of pride at her ingenuity hoping she will be remembered.
Features
Desilt reservoirs, learn from our ancient irrigation systems
by Prof. O. A. Ileperuma
Silting of reservoirs is a major problem today affecting our hydropower production and irrigation systems. The main Mahaweli reservoirs are silted to a considerable extent reducing the water holding capacity of them. Due to poor soil management practices, floodwaters deposit large amounts of silt in these reservoirs. When the Polgolla reservoir was fully drained about two years back, one could see mountains of silt in the lower reaches of the reservoir. A rough estimate is that 50% of the total capacity of these reservoirs has been lost to siltation. This is a serious issue which affects not only power and agriculture but also flood control.
Our ancient irrigation systems ensured that desilting of reservoirs took place under royal decree where all users of the reservoirs were ordered to carry out desilting of reservoirs during the dry season. The clay thus collected was used in making bricks for the construction of great stupas which dot the landscape of our ancient kingdoms. This ensured that the reservoirs had their full capacity filled with water for the next cultivating season. Our ancient kings were clever enough not to construct reservoirs by blocking main rivers such as the Mahaweli. A classic example is the Minipe left canal where they tapped only the surface water of Mahaweli. Even the bigger tanks such as Nuwara Wewa and Parakrama Samudraya were fed with minor rivulets. There were also other ingenious features in the cascade irrigation systems built by the ancient kings, such as mud sluice canals and forest reservations between the reservoirs in the cascade system. These reservations helped trap silt and remove excess nutrients, which could otherwise contribute to increasing salinity as water flowed from one reservoir to another.
- Parakrama Samudraya
- Kalawewa
- Kotmale
A classic engineering marvel is the former Yoda Ela, which carries water from Kalawewa to Nuwara Wewa and Tissa Wewa. It is 87 km long although the straight distance between these points is only about 40 km. The gradient of this canal is about 10 cm per km or 6 inches per mile. Yodha Ela functions as a moving reservoir and feeds about 4,600 hectares of paddy lands. It is a winding canal with about 120 smaller reservoirs on its way. It was constructed during the reign of King Dhatusena around 459 AD and later expanded by King Parakramabahu by connecting more reservoirs to the network. Unfortunately, during the Mahaweli project our modern-day engineers constructed a concrete canal replacing the winding path of this Yoda Ela also called Jaya Ganga. This effectively removed the ability of the old Yoda Ela to remove silt and nutrients. The bank of this Ela has wet zone trees such as jak and areca nut growing well. They take up the nutrients from the flowing stream making the water suitable for irrigation later.
Ancient Mesopotamian civilisations depended on dams constructed along the two main rivers, Euphrates and Tigris. After continuous irrigation of their fields over several thousand years, salinity of the irrigated lands increased making them unsuitable for agriculture. People died due to famine and this clearly illustrates the danger of blocking main rivers for agriculture. There is scientific evidence that the salinity of paddy soils in the Mahaweli C area is increasing.
We saw the devastation caused by Cyclone Ditwah. The sluice gates of the Kotmale Reservoir were opened, and Kandy and Peradeniya were flooded. If the reservoir had had greater storage capacity, couldn’t the opening of the gates have been delayed? This may not be an argument that modern-day engineers would readily accept, and I am not an irrigation expert. These ideas may well be naïve. But most of us tend to think of reservoirs mainly in terms of hydropower generation and irrigation, while their role in flood control receives much less attention. The question therefore deserves serious consideration. Could restoring lost reservoir capacity through desilting help improve our ability to manage extreme rainfall and reduce flood risks?
Desilting our reservoirs should be considered a national priority.
Features
Losing out to Ethiopia
Export diversification – Missing the wood for the trees – Part III
by Gomi Senadhira
In Sri Lanka, the word “Ethiopia” is often used as disparaging slang to describe individuals or areas experiencing extreme poverty, starvation, or severe economic hardship. This linguistic habit originated in the 1980s with the Western media coverage of the devastating Ethiopian famine of 1983-85. That media coverage shocked the world but also left an outdated and offensive global stereotype that the country is permanently starving. Much has changed since then. By now, with an annual growth rate of around 9%, it is the fastest-growing economy in sub-Saharan Africa. Ethiopia has also emerged as a highly competitive exporter and is challenging not only its competitors in the region but also countries like Sri Lanka. This article is on how Sri Lanka has lost ground to Ethiopia (and a few other countries) in the GCC markets for agricultural and floricultural products.
Sri Lanka – A Pioneer in the Agriculture and Floricultural Market in the GCC
As discussed in Part II of this article, by the mid-1980s Sri Lanka had established a strong foothold in the GCC’s fruit, vegetable, and floricultural market. Geographical proximity and well-established shipping and air links gave Sri Lanka a strong comparative advantage over Southeast Asian and African nations. Thailand, Vietnam, and Kenya were not even in the market. At that time, Ethiopia was experiencing (as BBC news reports described) “a biblical famine”.
The market was not very large, but it was lucrative and growing. Trade Minister Lalith Athulathmudali as well as the Chairman of the Export Development Board, Victor Santiapillai, who visited Kuwait (and the GCC countries), recognised the market potential for these products and encouraged us to continue with our work. The minister was particularly keen to further develop links between the market for these products, exporters, and his Export Production Villages (EPVs). So, it was becoming a successful case not only for export diversification but also for transferring gains from exports directly to rural households.
From Trailblazer to Tailender
As a result, even by the beginning of this century Sri Lanka had a larger market share than most of its competitors from Asia or Africa. But since then, our competitiveness has weakened significantly. The tables below provide a comparative snapshot of Sri Lanka’s performance vis-à-vis Thailand, Vietnam, Kenya and Ethiopia in the GCC market for vegetables, fruits and floricultural products. As illustrated therein, in 2001 Sri Lanka was ahead of Thailand, Kenya and Ethiopia in this small but rapidly growing market. Since then, we have fallen behind Thailand, Kenya and many other countries in that lucrative market. If this trend continues, Sri Lanka will fall behind Ethiopia within the next few years. (See Table 1)
In the GCC market for vegetables (covered in HS chapter 07), Sri Lanka was ahead of most other competitors in 2001. As illustrated in Table 1 , Sri Lanka had failed to develop this market, while Thailand, Kenya, and even Ethiopia had very efficiently increased their market shares. The GCC is a market to which Sri Lanka can supply some vegetables, like cabbages, by sea. It appears Sri Lanka had also failed to exploit this mode of supply.
We can see a similar trend in the market for fruits. Vietnam, Kenya, and Thailand have emerged as major players, while exports from Sri Lanka have staggered on slowly. In this segment, Vietnam has emerged as a leading player during the last twenty years and the GCC imports from Viet Nam have shot up from US$44 thousand in 2001 to US$346 million by 2024. In part one of these articles, I discussed the remarkable increase of jackfruit exports from Vietnam “…just $3 million in 2015 to an impressive $236.8 million in 2023” while most of our jackfruit production rots under the trees. This explains how countries develop their markets, geographically and product-wise. (See Table 2)
Sri Lanka’s performance has been weakest in the market for floricultural products (HS Chapter 06), which groups live trees, cut flowers, and ornamental foliage. When we first entered the market in the 1980s, the market was dominated by the Netherlands, and Kenya and Ethiopia were not even in the market. At that time, we identified the Gulf states as a market where Sri Lanka could have a dominant presence due to geographical proximity. Even in 2001, Sri Lanka was ahead of Kenya, Ethiopia, and Thailand. But by now, Kenya has emerged as the dominant supplier. Ethiopia is also expanding its market share and is the third-largest exporter. (See Table 3)
Missing the Wood for the Trees
In the mid-1980s, Sri Lanka first established its foothold in the GCC market. Since then, Thailand, Vietnam, Kenya, and even Ethiopia have moved well ahead of us and have become leading players. Why did we lag behind in our export diversification efforts in general and, more particularly, in the GCC market?
The reasons are very clear. After the initial attempts in the 1980s and early 1990s, Sri Lanka has not been proactively involved in identifying, developing, and promoting new products and markets, or protecting and further developing new markets already established. The focus has simply been on traditional exports: tea, coconut, cinnamon, and garments, while other products were almost ignored. In essence, we have been and continue to focus intensely on a narrow group of products and markets, and we have lost sight of the bigger picture.
(The writer can be reached at senadhiragomi@gmail.com)
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