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Generation cost grossly underestimated and objectives not achievable



Proposed new coal power plant at Norochcholai:

The Chairman of the Ceylon Electricity Board (CEB), at a press briefing held at the CEB recently, has announced that a fourth unit of 300 MW would be added to the Norochcholai Coal Power Plant. This plant is estimated to cost around USD 300 million and it will produce 1.8 billion units (1,800 GWh) of electricity annually at a cost around Rs. 8.50 plus per unit of kWh (The Island of 31.07.2020).

Regrettably, the Chairman is giving a grossly underestimated value for the generation cost leaving out more important costs. The specific capital cost being USD/kW 1,000, one may assume that the plant is a subcritical type with low efficiency and high emissions. These types of plants are no longer installed in developed countries as they have efficiency below 35% meaning the plant consumes higher amount of coal than a high-efficient plant to generate the same amount of electricity.

A low efficient plant will also emit higher amount of pollutants such as oxides of nitrogen, oxides of sulphur and particulate matter as well as generate higher amount of ash than a higher efficient plant. These emissions cause serious damage to health of people as well as damage to vegetation and crops and also fisheries within the exposed area. The disposal of ash collected at the rate of about 100,000 tonnes annually from a 300 MW plant has not been properly addressed even with the existing plants. The addition of a fourth unit will aggravate the ash problem and its impact on the environment.

A study undertaken by the Sri Lanka Energy Managers’ Association recently, the monetized value of such damage referred to as external costs of thermal power plants have been worked out. The cost of externalities in respect of a coal power is found to be about LKR 10 per kWh, according to this study. Though the CEB may not be accountable for such damages, the government will have to meet the cost of healthcare for affected people as well as cost to the economy due to loss of agricultural and fisheries productivity. Hence, it is important to include cost of these externalities when assessing different types of generation plants. With this cost included, the cost of generation of a coal power plant will be around LKR/kWh 18.50, rather than the LKR/kWh 10 as quoted by the Chairman.

The Chairman’s statement also says that an environment impact assessment (EIA) study is underway. Actually, in Sri Lanka, an EIA study has no meaning and is carried out merely to get over a legal requirement. There is no system to monitor regularly the performance of the plant once it is commissioned after receiving approval for its EIA. For example, in a coal power plant special pollution control equipment are installed to reduce the emissions such as Sulphur dioxide and particulates to a level making it eligible for EIA approval. If the control equipment starts malfunctioning due to some reason or other, pollutants are emitted in large quantities that violate the relevant emission standards but the plant will continue to operate causing heavy pollution.

When the control equipment is new, they reduce the emissions as expected, but there is the possibility that they will start malfunctioning soon, especially when operating in coastal environment. This was evident in the existing coal plant and there is the possibility it will happen with the new plant as well. The EIA only says that with the control equipment installed, emissions will be reduced to permissible levels. Though such an assurance is given at the beginning, there is no assurance that the plant will perform as expected throughout its lifetime. Hence, what should be selected is a power plant that will intrinsically not generate pollution such as a gas power plant or one operating with renewables.

Another issue is how the capital cost is met. The cost of the plant is expected to be USD 300 million or LKR 60 billion. How will the CEB raise this amount of capital? Is it on a loan raised from a Chinese source or from a commercial bank or from a multilateral financial agency like ADB or World Bank, but it is unlikely these institutions will fund coal power projects? Hence, the choice is limited to a Chinese Institution or commercial bank/s. There were also media reports that CEB may enter into a joint venture with China with 50:50 share and the CEB may obtain a loan from a local bank to meet its obligation. In any case, financing the project will include additional costs.

According to a report released by the Public Utilities Commission of Sri Lanka, the cost of generation of existing coal power plant is LKR 18.60 based on Bulk Supply Tariff submission by the CEB for the period Oct-Dec 2017, including finance cost, and excluding cost of externalities and transmission. In November 2019, Cabinet approval was granted for the CEB to hire Chinese technicians for maintaining the existing coal power plants. It is very likely that the CEB will have to depend on Chinese technicians to manage the new plant as well, in which case its maintenance costs will escalate.

The Chairman, therefore without misleading the Cabinet and the people saying that coal power is the cheapest with the exception of hydro power, should divulge the entire costs incurred in operating the new coal power plant. These costs should include the amortized annual capital cost, fuel cost, operation and maintenance cost, externality costs as well as cost of financing.

Though the building of the fourth unit of 300 MW was approved at a Cabinet meeting held on 03.06.2020 with the objective of meeting the power deficit anticipated in 2021, it is obvious that this objective cannot be achieved by the proposed coal power plant simply because it will take a minimum of five years to complete.

The Chairman, being a professional, owes an explanation to the Cabinet as well as to the public why he recommended building a coal power plant knowing very well that the expected objective of meeting the 2021 deficit claimed in the Cabinet decision cannot be achieved with the proposed plant.

With the high costs associated with a coal power plant and its inability to meet the 2021 deficit as announced, the government should seriously consider building a plant operating with an alternative source such as gas or a renewable source which is cleaner, costing much less and taking shorter time to build than a coal power plant.

Dr. Janaka Ratnasiri



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Need for best relations with China



(This letter was sent in before the announcement of the government decision to allow the Chinese survey vessel to dock at Hambantota – Ed.)

I once met Pieter Keuneman sometime after he had lost the Colombo Central at the general election of 1977. We met at the SSC swimming pool, where he had retreated since his favourite haunt at the Otters was under repair. Without the cares of ministerial office and constituency worries he was in a jovial mood, and in the course of a chat in reference to a derogatory remark by one of our leaders about the prime minister of a neighbouring country, he said, “You know, Ananda, we can talk loosely about people in our country, but in international relations care is needed in commenting on other leaders”.

Pieter, the scion of an illustrious Dutch burgher family, the son of Supreme Court judge A. E Keuneman, after winning several prizes at Royal College, went to Cambridge in 1935. There he became a part of the Communist circle, which included the famous spies Anthony Blunt, later keeper of the Queen’s paintings Kim Philby, and Guy Burgess. Eric Hobsbawm, the renowned historian commenting on this circle, wrote of the very handsome Pieter Keuneman from Ceylon who was greatly envied, since he won the affections of the prettiest girl in the university, the Austrian Hedi Stadlen, whom he later married. Representing the Communist Party in parliament from 1947 to 1977, soft-spoken in the manner of an English academic, Pieter belonged to a galaxy of leaders, whose likes we sorely need now.

I was thinking of Pieter’s comments considering the current imbroglio that we have created with China. Our relations with China in the modern era began in 1953, when in the world recession we were unable to sell rubber, and short of foreign exchange to purchase rice for the nation. The Durdley Senanayake government turned to China, with which we had no diplomatic ties. He sent R G Senanayake, the trade minister, to Peking, where he signed the Rice for Rubber Pact, much to the chagrin of the United States, which withdrew economic aid from Ceylon for trading with a Communist nation at the height of the Cold War.

Diplomatic relations with China were established in 1956 by S W R D Bandaranaike, and relations have prospered under different Sri Lankan leaders and governments, without a hint of discord. In fact, in addition to the vast amount of aid given, China has been a source of strength to Sri Lanka during many crises. In 1974, when the rice ration was on the verge of breaking due to lack of supplies, it was China, to which we turned, and who assisted us when they themselves were short of stocks. In the battle against the LTTE, when armaments from other countries dried up, it was China that supported us with arms, armoured vehicles, trucks, ships and aircraft.

It was China and Pakistan that stood by our armed services in this dire crisis. More recently, amidst the furore, created by Western nations about human rights violations, China was at the forefront of nations that defended us. A few weeks ago, it was reported that the UK was ready with documents to present to the UN Security Council to press for war crimes trials against the Sri Lankan military, but the presence of China and Russia with veto powers prevented it from going ahead with its plan.

It is in this context that we have to view the present troubles that have engulfed us.President Ranil Wickremesinghe, in the short period he has been in office, has won the sympathy of people by the speed with which he has brought some degree of normalcy, to what was a fast-disintegrating political environment. On the economic front, his quiet negotiations and decisions are arousing hopes.

A shadow has been cast over these achievements by the refusal to let in the Chinese ship to Hambantota, a decision made on the spur of the moment after first agreeing to allow it entry. The manner in which it was done is a humiliation for China, one administered by a friend. We must remember that these things matter greatly in Asia.

These are matters that can be rectified among friends, if action is taken immediately, recognising that a mistake has been made. The President should send a high-level representative to assure the Chinese leadership that these are aberrations that a small country suffers due to the threats of big powers, to smoothen ruffled feelings, and normalize relations between two old friends. The American-Indian effort to disrupt a 70-year old friendship, will only lead to its further strengthening in the immediate future


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A change of economic policies for Sri Lanka



Millions of Sri Lankans are anxiously waiting to see what actions will be taken to make life bearable again.If we follow the example of successful countries we see them exploit their opportunities, and use the wealth created, not to import cars and go on luxury trips abroad, but to re-invest the money proceeds in further projects to bring in even more money. They proceed in this way until their citizens have good standard of living. Probably, the best example of that compounding of wealth is Singapore.

Singapore exploited its geographic advantages. It provided cruise ships with bunkering services and repair, later they provided airlines with refueling and expanded that to one night free stop- overs for passengers to buy luxury goods at their glamorous, tax-free shopping malls. The Japanese were making wonderful new gadgets: cameras, music players, portable radio cassette players, binoculars, all available in the malls and sold tax free!! Lee Kuan Yu forbade the ladies to wear denim jeans, and to wear dresses with hem lines coming down two inches below the knee! He even instructed the ladies to smile! No man could have long hair for fear of arrest. Littering was prohibited, so was chewing gum and smoking butts on the roads and pavements. The place was kept clean!

They used the proceeds arising from all this commercial activity to build housing blocks, develop new roads and other beneficial projects. (Individuals were not allowed to walk away with the profits, just to fritter them away.) Sentosa Island had installed a communications dish antenna connecting it with New York and the financial markets. This was an example of intelligent seizing of opportunities. I account for this intelligent development as due to the high educational and knowledge of Singapore’s progressive management. The result is a firm currency, holding its value.

Something similar has happened to Russia. Russia is rich. It is under progressive intelligent management. Stalin had developed the railway network across the full eleven time zones. But many areas remained to be connected. Putin found the finances to develop coal mines, develop oil and gas deposits and build railway bridges and tunnels for better access to markets and their demand for Russian products. Even as you read this, trains of 70 plus trucks, each with 70 tons of coal are grinding their way to China, day and night. Gas is flowing through an extensive network of pipelines, both east to China and west to friendly countries in Southern Europe. Mr. Putin and his men have succeeded in getting Russia fully functional. And the more Russians there are to spend money, so the more demand for goods and services: shops, etc., providing multiplying employment in Russia.

Mr. Putin wants to build a road and rail link south through Iran to India. A design plan is in the works. It is being discussed with Iran and India. Putin is displaying initiative for the benefit of Russia and its citizens. Putin cares for the citizens of Russia and is creating both wealth and jobs too. Architects are designing attractive living spaces and buildings which provide a better environment for Russians and contractors are building it. Education of Russian citizens is playing a big part in Mr. Putin’s thinking, too. Russia needs a talented workforce.

The result is that the currency, the Ruble is strong and does not devalue. It keeps its value.Belarus, Russia’s neighbour, can also be praised for outstanding development. The population in the big towns is cossetted with amenities and facilities which provides a luxurious way of life for townspeople especially those with industrial jobs. However, it must be admitted, the standard of life for the minority 30% population living in the countryside has yet to catch up. The administration is strict and everyone is law abiding. For example, you can leave your hand phone at your seat while you visit the toilet conveniences and it will remain undisturbed until you return.

Belarus, being a mostly agricultural country has a big tractor manufacturing plant, it has a fertiliser mining and producing plant, it has a commercial vehicle plant, DK MAZ which produces industrial trucks such as fire extinguishing trucks and also produces the most comfortable, bright, low step buses and so on, and of course, Belarus makes its own industrial vehicle tyres. The towns are prosperous and clean and Minsk, the capital is a beautifully laid out city. Town apartment blocks are multi-storied living spaces, but are so well designed and fitted as to provide pleasant living spaces for its people. These reduce urban sprawl across the wooded countryside.

What are Sri Lanka’s strengths? It is a small island thus making communications short and sweet. Its location in the Indian Ocean is a plus, its scenic beauty is a plus allowing a thriving tourist trade for people from colder climates, and its soil and climate allows almost anything to be grown. Therefore its agriculture is a great strength. Its long coastline can provide fish if the fisherised. It has deposits of graphite and phosphates which can be exploited to produce profits for further investment in development projects. It has its illiminite sands which are an extremely valuable asset but need to be controlled and exploitation expanded. It has a whole gem mining industry which need to be managed in way beneficial to the government. It has several government owned businesses which need to be overhauled and modernized to convert losses to profits. The rupee in 1948 was equal to the English pound, now it is around 450 rupees to the Pound. That gives a good description of Sri Lankan past governance.

Profits from projects need to be ploughed back into further projects to bring about a higher standard of living for all its inhabitants. Then the Lankan reputation of being a paradise island with happy people will be restored.

Priyantha Hettige

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Sapugaskanda: A huge challenge for RW



It will be interesting to see if anything fruitful will come of the so-called “investigation” announced by the Minister-in-charge, about what seemed like an outrageous overtime payment to the petroleum refinery workers.While waiting for the outcome of that investigation, I thought of highlighting again the real and central issue that cuts across all loss-making government undertakings in Sri Lanka, such as the CPC, CEB, SriLankan Airlines, etc. that have been mercilessly sucking off tax-payer’s money into them like “blackholes”.

These organisations have been typically sustaining a mutual understanding with corrupt or inept politicians. “Sahana milata sewaya” (service at a concessionary price) was the catchphrase used by them to cover up all their numerous irregularities, wanton wastage, gravy trains, jobs for the boys and massive corruption, mostly with direct and indirect blessings of the politicians.

Here, I’d like to bring out just one example to help readers to get an idea of the enormity of this crisis built up over the past few decades. You’ll only have to look at what seemed like gross over-staffing levels of the CPC’s Sapugaskanda refinery, compared to international standards as shown below:

* Sapugaskanda Refinery – 50,000 Barrels Per Day (BPD); 1,100 employees Superior Refinery, Wisconsin, USA – 40,000 BPD; 180 employees

* Louisiana Refinery (including a fairly complex petrochemicals section), USA – 180,000 BPD; 600 employees

* Hovensa Refinery (now closed) – US Virgin Islands; 500,000 BPD; 2,100 employees.

These are hard facts available on the Internet for anyone to see, but I’m open to being corrected. I doubt if any sensible private investor would even dream of allowing such a level of gross over-staffing in their businesses.

As everyone knows, this is the position in all government business undertakings, as well as in most other government agencies in Sri Lanka. One can say that Sri Lankans have been willingly maintaining a crop of GOWUs (Govt Owned Welfare Undertakings), primarily for the benefit of the “hard-working” employees of these organisations, but at an unconscionably enormous cost to the rest. Obviously, this “party” couldn’t have gone forever!

Will Ranil be up to this challenge? I doubt very much.

UPULl P Auckland

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