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Electricity costing and pricing methodology not implemented since 2009

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By Dr Tilak Siyambalapitiya

A few years ago, when a minister tabled an amendment to the Electricity Act, most likely with ulterior motives, his colleagues shot down the amendment hours before it was to be presented in Parliament. The proposed revision would have removed the power vested with the Public Utilities Commission (PUC) to regulate the ‘economic’ operation of the electricity supply industry. The objective of the minister concerned may have been to remove the requirement for competitive bidding to procure power plants.

Was the PUC a good thing to have? Has it proved to be doing any ‘economic” regulation’?

Information in the table (given above) extracted from the PUC’s own publications says it all. Ever since the PUC was empowered (the Ministry or the Cabinet has no power over ‘economic’ regulation), the electricity sector has been making losses, ‘by definition’. The only exception was 2014, which was not because of PUC’s efficient regulation. Year 2014 was the first full year of operation of the coal power plant, conceived two decades earlier and relentlessly pursued by the CEB, commenced producing electricity at one third the cost of using oil.

Yes. Rs. 502 billion (or USD 2.5 billion) by end 2021 was the cumulative loss owing to the absence of proper economic regulation of the electricity industry. Before the PUC was given the job of ‘economic regulation’, certainly there had been years when the electricity supply made losses, but was never making losses continuously for 12 years.

The law and procedures published under the Electricity Act 2009 are clear on who submits the costs to invest and operate the national grid. The licensees, meaning the CEB (its transmission and distribution divisions) and LECO, must submit the costs, once in five years. For costs of fuel and purchases of renewable energy into the grid, the submissions should be done once in six months, says the PUC-approved methodology. Fair enough! Transmission and distribution costs move up slowly and therefore change once in five years. Fuel and renewable costs change rapidly, owing to dry and wet seasons and fuel price movements.

The law is also clear on who approves the costs: it is the PUC, not the government. Not ‘any’ cost, but ‘efficient costs’ should be approved after the due process. How often? Once in five years for transmission and distribution, once in six months for generation.

So, the total ‘approved’ costs will be the cost of generation + transmission + distribution. They change once every six months. Up or down.

With approved costs in hand, what does the law say the CEB and LECO should do? It says they should now submit the customer prices for PUC approval. The law is clear. If government subsidies are forthcoming, PUC considers them, and approves adjusted customer prices. Otherwise, the selling prices submitted by the CEB and LECO are approved.

In short, Price = Cost + subsidies paid by the government.

If subsidies are not forthcoming, then Price = cost.

That is what the law says!

One may say this is unfair, and that electricity supply must be subsidised. Easy to say but where does the difference between cost and price come from? Three ‘sources’ as for the CEB:

(i) stop re-paying the loans taken from the Treasury. (So, citizens, unknowingly, pay through their taxes),

(ii) stop paying suppliers including your meagre earnings from the solar rooftop. (Suppliers recently held a conference to explain their woes, but they were barking up the wrong tree.), and

(iii) borrow from state banks as short-term overdrafts. The money that should be lent by state banks to industries and small and medium enterprises to develop their businesses and create more jobs, and to renewable energy developers to accelerate development, too, is being conveniently lent at a higher interest rate to a reliable, convenient, submissive client––the CEB.

Money that does not produce any new jobs, goods or exports, but only more debts to be repaid by no one else but the electricity customers themselves.

The PUC was established to ensure fairness for all stakeholders. Industry stakeholders are not only the renewable energy developers; electricity customers and electricity suppliers, even if they are state-owned, are stakeholders whose interests and well-being should be guaranteed by the PUC by ensuring that the laws and regulations are implemented and enforced.

The table (given above) shows the performance of the PUC in its first 12 years of existence. It is up to the readers to judge whether the PUC is worth the cost incurred by electricity customers to maintain five commissioners and staff as it serves no apparent purpose. There is hardly any difference between the current situation and the one that existed before 2009, when it comes to (i) ensuring CEB’s costs are monitored and made ‘efficient’ (ii) electricity prices reflect costs so that the CEB will not be a burden on the banks and the Treasury.

Earlier, before the PUC was empowered, the Ministry of Energy was the de facto regulator. In its 50-year history, there was never a continuous period of 12 years during which CEB was forced to sell electricity below cost, and ‘report losses’. All because of the PUC?

Until the mid-1990s, the CEB was profitable and at times lent money to the Treasury!

Power transmission and distribution network expansion and maintenance work are repeatedly postponed. New investments have all been postponed for years. Very soon, even if power plants can be operated with more wind turbines rotating and solar panels shining, the distribution network will be in a state of disrepair, requiring eternal ‘power cuts’.

So, the electricity regulatory system, which has been a tremendous success even in India to uplift the electricity sector and liberate it from the clutches of politicians, has become a failure in Sri Lanka. There is nothing wrong with the Electricity Act 2009, which followed the international best practices of distancing electricity suppliers and their decisions from government control. Most countries have reaped enormous benefits from such laws.

It is not the concept of regulation but the institutions implementing regulation, and individuals running those outfits that have failed the public.

By how much? USD 2,500 million and increasing. The end is very near.



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Thomians triumph in Sydney 

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Nothing is happening for us, at this end, other than queues, queues, and more queues! There’s very little to shout about were the sports and entertainment scenes are concerned. However, Down Under, the going seems good.

Sri Lankans, especially in Melbourne, Australia, have quite a lot of happenings to check out, and they all seem to be having a jolly good time!

Trevine Rodrigo,

who puts pen to paper to keep Sri Lankans informed of the events in Melbourne, was in Sydney, to taken in the scene at the Sri Lanka Schools Sevens Touch Rugby competition. And, this is Trevine’s report:

The weather Gods and S.Thomas aligned, in Sydney, to provide the unexpected at the Sri Lanka Schools Sevens Touch Rugby competition, graced by an appreciative crowd.

Inclement weather was forecast for the day, and a well drilled Dharmaraja College was expected to go back-to-back at this now emerging competition in Sydney’s Sri Lanka expatriate sporting calendar.

But the unforeseen was delivered, with sunny conditions throughout, and the Thomians provided the upset of the competition when they stunned the favourites, Dharmaraja, in the final, to grab the Peninsula Motor Group Trophy.

Still in its infancy, the Sevens Touch Competition, drawn on the lines of Rugby League rules, found new flair and more enthusiasm among its growing number of fans, through the injection of players from around Australia, opposed to the initial tournament which was restricted to mainly Sydneysiders.

A carnival like atmosphere prevailed throughout the day’s competition.

Ten teams pitted themselves in a round robin system, in two groups, and the top four sides then progressed to the semi-finals, on a knock out basis, to find the winner.

A food stall gave fans the opportunity to keep themselves fed and hydrated while the teams provided the thrills of a highly competitive and skilled tournament.

The rugby dished out was fiercely contested, with teams such as Trinity, Royal and St. Peter’s very much in the fray but failing to qualify after narrow losses on a day of unpredictability.

Issipathana and Wesley were the other semi-finalists with the Pathanians grabbing third place in the play-off before the final.

The final was a tense encounter between last year’s finalists Dharmaraja College and S.Thomas. Form suggested that the Rajans were on track for successive wins in as many attempts.  But the Thomians had other ideas.

The fluent Rajans, with deft handling skills and evasive running, looked the goods, but found the Thomian defence impregnable.  Things were tied until the final minutes when the Thomians sealed the result with an intercept try and hung on to claim the unthinkable.

It was perhaps the price for complacency on the Rajans part that cost them the game and a lesson that it is never over until the final whistle.

Peninsula Motor Group, headed by successful businessman Dilip Kumar, was the main sponsor of the event, providing playing gear to all the teams, and prize money to the winners and runners-up.

The plan for the future is to make this event more attractive and better structured, according to the organisers, headed by Deeptha Perera, whose vision was behind the success of this episode.

In a bid to increase interest, an over 40’s tournament, preceded the main event, and it was as interesting as the younger version.

Ceylon Touch Rugby, a mixed team from Melbourne, won the over 40 competition, beating Royal College in the final.

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Marked stress on Asia in US foreign policy

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US President Joe Biden disembarks Air Force One as he arrives at the Osan Air Base in Pyeongtaek, South Korea May 20, 2022

US President Joe Biden’s recent tour of some Asian powers is indicative of a renewed and enhanced interest the US is beginning to take in the Indo-Pacific region. In this his first Asian tour the President chose to visit Japan and South Korea besides helming a Quad meeting in Tokyo and there is good reason for the choice of these venues and engagements.

The first phase of these bridge-strengthening efforts by the US began in late August last year when US Vice President Kamala Harris visited South-east Asia in the wake of the US troop withdrawal from Afghanistan. Besides being driven by strong economic compulsions, the US intention was also to ensure that too much of a power vacuum did not open up in the region, following its pull-out from Afghanistan, since China’s perceived expansionist designs are a prime foreign policy concern of the US.

However, the US President’s recent wide-ranging tour of East Asia seems to have been also prompted by some currently intensifying trends and tensions in the wider stage of international politics though the seeming power vacuum just referred to has a significant bearing on it. The immediate purpose of the US President’s tour seems to have been to bolster his country’s backing for Japan and South Korea, two of the US’ closest allies in East Asia. This is necessitated by the ‘China threat’, which, if neglected, could render the US allies vulnerable to China’s military attacks on the one hand and blunt US power and influence in the region on the other.

While Taiwan’s airspace has reportedly been frequently violated by China, sections in Japan have reasons to be wary of perceived Chinese expansionist moves in Japan’s adjacent seas. Moreover, many of China’s neighbours have been having territorial disputes with China, which have tended to intensify the perception over the decades that in the Asian theatre in particular China is a number one ‘bogey’. For historical reasons, South Korea too has been finding the increasing rise of China as a major world power considerably discomforting.

Accordingly, the US considers it opportune to reassure South-east Asia in general and its allies in the region in particular of its continuous military, economic and political support. Though these are among the more immediate reasons for Biden’s tour of the region, there are also the convulsions triggered in international politics by the Russian invasion of Ukraine to consider.

Whereas sections of international opinion have been complacent in the belief that military invasions of one country by another are things of the distant past, the brutal Russian invasion of Ukraine in February this year proved them shockingly wrong. We have the proof here that not all authoritarian rulers are prepared to adhere to the international rule book and for some of China’s neighbours the possibility is great of their being attacked or invaded by China over the numerous rankling problems that have separated them from their economic super power neighbour over the decades. After all, China is yet to condemn Russia’s invasion of Ukraine and is increasingly proving an ‘all weather friend’ of Russia. Right now, they are the strongest of allies.

The ‘China threat’ then is prime among the reasons for the US President’s visit to East Asia, though economic considerations play a substantive role in these fence-strengthening initiatives as well. While South-east Asia is the ‘economic power house’ of the world, and the US would need to be doubly mindful of this fact, it would need to reassure its allies in the region of its military and defense assistance at a time of need. This too is of paramount importance.

President Biden did just that while in Tokyo a couple of days back. For instance, he said that the US is ‘fully committed to Japan’s defense’. Biden went on to say that the ‘US is willing to use force to defend Taiwan.’ The latter comment was prompted by the perceived increasing Chinese violations of Taiwan’s air space. After all, considering that Russia has invaded Ukraine with impunity, there is apparently nothing that could prevent China from invading Taiwan and annexing it. Such are the possible repercussions of the Russian invasion.

Meanwhile, North Korea is reportedly carrying on with its development of weapons of mass destruction, including nuclear weapons. On this issue too, South Korea would need to have US assurances that the latter would come to its defense in case of a North Korean military strike. The US President’s visit to South Korea was aimed at reassuring the latter of the former’s support.

However, as mentioned, economic considerations too figured prominently in the US President’s South-east Asian tour. While being cognizant of the region’s security sensitivities, bolstering economic cooperation with the latter too was a foremost priority for the Biden administration. For example, the US is in the process of formalizing what has come to be referred to as the Indo-Pacific Trade Treaty. The US has reportedly already inducted Japan and South Korea as founding members of the Treaty while, Thailand, the Philippines, Vietnam, Singapore, Australia and New Zealand are mentioned as prospective members to the treaty.

The perceived threat posed to Western interests in South-east Asia by China needs to be factored in while trying to unravel the reasons for this region-wide endeavour in economic cooperation. It needs to be considered a Western response to China’s Belt and Road initiative which is seen as having a wide appeal for the global South in particular.

While the Russian invasion of Ukraine is having a divisive political and economic impact on the world, international politics will increasingly revolve around the US-China stand-off on a multiplicity of fronts in time to come. Both sides are likely to try out both soft and hard power to an exceptional degree to exercise foremost influence and power in the world. As is already happening, this would trigger increasing international tensions.

There was a distinct and sharp note of firmness in the voice of the US President when he pledged defense and military support for his allies in Asia this week. Considering the very high stakes for the US in a prospering South-east Asia, the US’ competitors would be naive to dismiss his pronouncements as placatory rhetoric meant for believing allies.

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A Majoritarian Constitution

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1972 Constitution in Retrospect – II

By (Dr) Jayampathy Wickramaratne, President’s Counsel

In this the second part of a three-part article on the 50th anniversary of Sri Lanka becoming a republic, the writer submits that the 1972 Constitution paved the way for constitutionalising majoritarianism in multi-cultural Sri Lanka.

The unitary state

Although Tamil parties expressed their support for the Constituent Assembly process, they were to be disappointed by the substance of the new constitution.

Basic Resolution No. 2 proposed by the Government called for Sri Lanka to be a unitary state. The Federal Party (FP) proposed an amendment that ‘unitary’ be replaced by ‘federal’.

In a memorandum and the model constitution that it submitted to the Steering Committee of the Assembly, the FP proposed that the country be a federal republic consisting of five states made up as follows: (i) Southern and Western provinces, (ii) North Central and North Western provinces (iii) Central, Uva and Sabaragamuwa provinces (iv) Northern Province and the districts of Trincomalee and Batticaloa and (v) Ampara district. The city of Colombo and its suburbs were to be administered by the centre. A list of subjects and functions reserved for the centre, with all others going to the states, was included. Interestingly, law and order and Police were to be reserved subjects.

However, Assembly proceedings show that the Tamils were clearly for a compromise. Dharmalingam, who was a main speaker of the FP under Basic Resolution No. 2, stated that the existing constitution had failed as it was not designed for a multi-ethnic country. He pointed out that in ethnically heterogeneous countries where unitary constitutions had been in operation, concessions to the federal principle have been made to meet the demands and aspirations of the minorities. Where there has been a refusal to concede the federal principle, there have been movements for separation. The FP distanced itself from secessionists such as C. Sunderalingam and V. Navaratnam, referring to them by name, and stated that it was not asking for a division of the country but for a division of power.

Dharmalingam made it clear that the FP’s draft was only a basis for discussion. Stating that the party was only asking that the federal principle be accepted, he suggested that as an interim measure, the SLFP, LSSP and CP should implement what they had promised in the election manifesto, namely that they would abolish Kachcheris and replace them with elected bodies. He stated: “If this Government thinks that it does not have a mandate to establish a federal Constitution, it can at least implement the policies of its leader, S.W.R.D. Bandaranaike, by decentralising the administration, not in the manner it is being done now, but genuine decentralisation, by removing the Kachcheris and in their place establishing elected bodies to administer those regions.”

Sarath Muttetuwegama of the Communist Party, the first political party in the country to propose federalism, in 1944, followed Dharmalingam and stated that ‘federal’ had become a dirty word not because of the federal system of government but because of what the FP had advocated. He was clearly referring to the FP’s association with the UNP and the conservative policies it had followed, such as voting against nationalisations, the takeover of private schools and the Paddy Lands Bill. Seemingly oblivious to the offer that Dharmalingam had made, he asked why the FP had not used the phrase ‘regional autonomy.’ Speakers from the UF who followed Muttetuwegama made it clear that the UF was in no mood to consider the FP’s offer to settle for much less.

Consequently, Basic Resolution No.2 was passed, and the FP’s amendment was defeated in the Steering and Subjects Committee on 27 March 1971.

Dr Nihal Jayawickrama, who was the Secretary of the Ministry of Justice, under the UF Government, and played an important role in the constitutional reform process, has said that the first draft prepared under the direction of the Minister of Constitutional Affairs did not contain any reference to a ‘unitary state’. However, Minister Felix Dias Bandaranaike proposed in the Ministerial Sub-Committee that the country be declared a ‘unitary state’. The Minister of Constitutional Affairs did not consider this to be necessary and argued that while the proposed constitution would have a unitary structure, unitary constitutions could vary a great deal in form. Nevertheless, the proposed phrase found its way to the final draft. ‘In course of time, this impetuous, ill-considered, wholly unnecessary embellishment has reached the proportions of a battle cry of individuals and groups who seek to achieve a homogenous Sinhalese state on this island’ Dr Jayawickrama observed. ‘Reflections on the Making and Content of the 1972 Constitution: An Insider’s Perspective’ in Asanga Welikala (ed), The Sri Lankan Republic at 40: Reflections on Constitutional History, Theory and Practice vol 1 (Centre for Policy Alternatives 2012) 43.

It is significant that the FP continued to participate in the Constituent Assembly even after its amendment was rejected. Records show that its leader, S.J.V. Chelvanayakam, regularly attended the meetings of the Steering and Subjects Committee.

With the advantage of hindsight, it could be said that acceptance of the FP’s proposed compromise for a division of power would have proved to be a far-reaching confidence-building measure on which more could perhaps have been built later. Moreover, such an acceptance would have ensured the continued participation of the FP in the Constituent Assembly. Even had the FP, as the UNP eventually did, voted against the adoption of the new constitution, their participation in the entire constitution-making process would have resulted in greater acceptance of the 1972 Constitution by the Tamil people.

Although they discontinued participation at a later stage, Federal Party MPs nevertheless took oaths under the new Constitution. Tamil parties soon united under the banner of the Tamil United Front (TUF), which later became the Tamil United Liberation Front (TULF). At the famous Vaddukoddai conference of 1976, the TULF embraced separatism and adopted a resolution calling for a separate state called ‘Tamil Eelam’ in the Northern and Eastern provinces. At the 1977 elections, the TULF contested on a separatist platform and swept the Tamil areas.

The place of Buddhism

According to Dr Jayawickrama, Dr. de Silva’s original proposal called for the guarantee of freedom of thought, conscience and religion to every citizen. However, the Prime Minister requested that this proposal be added with a provision for the protection of institutions and traditional places of worship of Buddhists.

Basic Resolution No. 3 approved by the Constituent Assembly was for Buddhism to be given its ‘rightful place’: ‘In the Republic of Sri Lanka, Buddhism, the religion of the majority of the people, shall be given its rightful place, and accordingly, it shall be the duty of the State to protect and foster Buddhism, while assuring to all religions the rights granted by Basic Resolution 5 (iv).’

Basic Resolution 5 (iv) referred to read: “Every citizen shall have the right to freedom of thought, conscience and religion. This right shall include freedom to have and adopt a religion or belief of his choice, and freedom, either individually or in community with others and in public or private, to manifest his religion or belief in worship, observance, practice and teaching.”

But by the time the final draft was approved, the proposal had undergone a further change. Article 6 of the 1972 Constitution is as follows: ‘The Republic of Sri Lanka shall give to Buddhism the foremost place and accordingly it shall be the duty of the State to protect and foster Buddhism while assuring to all religions the rights granted by section 18 (1) (d).’ Section 18 (1) (d), in the chapter on fundamental rights, assures to all citizens the right to freedom of thought, conscience and religion.

To the question of whether constitutionally guaranteeing special status to Buddhism not available to other religions of the land might adversely affect the non-Buddhists, Dr de Silva retrospectively responded in the following manner: “The section in respect of Buddhism is subject to section 18 (1) (d) and I wish to say, I believe in a secular state. But you know when Constitutions are made by Constituent Assemblies they are not made by the Minister of Constitutional Affairs. I myself would have preferred (section 18(1) (d)). But there is nothing…And I repeat, NOTHING, in section 6 which in any manner infringes upon the rights of any religion in this country. (Safeguards for the Minorities in the 1972 Constitution (Young Socialist 1987) 10.)

Dr Jayawickrama has been more critical. ‘If Buddhism had survived in the hearts and minds of the people through nearly five centuries of foreign occupation, a constitutional edict was hardly necessary to protect it now’, he opined. (‘Colvin and Constitution-Making – A Postscript’ Sunday Island, 15 July 2007).

Language provisions

Basic Resolution No.11 stated that all laws shall be enacted in Sinhala and that there shall be a Tamil translation of every law so enacted.

Basic Resolution No.12 read as follows: “(1) The Official Language of Sri Lanka shall be Sinhala as provided by the Official Language Act No. 32 of 1956. (2) The use of the Tamil Language shall be in accordance with the Tamil Language (Special Provisions) Act No. 28 of 1958.”

Efforts by the FP to get the Government to improve upon Basic Resolutions Nos. 11 and 12 failed. On 28 June 1971, both resolutions were passed, amendments proposed by the FP having been defeated. S.J.V. Chelvanayakam informed the Constituent Assembly that they had met with both the Prime Minister and the Minister of Constitutional Affairs, and while the meetings had been cordial, the Government had refused to make any alteration to the Basic Resolutions. He stated that the FP would therefore not attend future meetings. “We have come to the painful conclusion that as our language rights are not satisfactorily provided in the proposed Constitution, no useful purpose will be served in our continuing in the deliberations of this Assembly. By taking this step, we mean no offence to anybody. We only want to safeguard the dignity of our people.” There was not even a dramatic walk out. ‘We do not wish to stage a demonstration by walking out’, he added.

That Dr Colvin R. de Silva, who prophetically stated in 1955, ‘one language, two countries; two languages, one country’, should go so far as to upgrade the then-existing language provisions to constitutional status has baffled many political observers. In fact, according to Dr Jayawickrama, the Prime Minister had stated that it would be unwise to re-open the language debate and that the better course would be to let the ordinary laws on the subject operate in the form in which they were. By this time, the Privy Council had reversed the decision of the Supreme Court in A.G. v Kodeswaranthat a public servant could not sue the Crown for breach of contract of employment and sent the case back for a determination on other issues, including the main issue as to whether the Official Language Act violated section 29 (2), as the District Court had held. Dr. de Silva did not wish the Supreme Court to re-visit the issue. ‘If the courts do declare this law invalid and unconstitutional, heavens alive, the chief work done from 1956 onwards will be undone. You will have to restore the egg from the omelette into which it was beaten and cooked.’ He had, however, resisted a proposal made by Minister Felix R. Dias Bandaranaike that Sinhala be declared the ‘one’ official language of Sri Lanka.

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