The electricity regulator, Public Utilities Commission of Sri Lanka (PUCSL), this week overstepped its mandate to negotiate prices with and approve a four-year extension of contracts for three independent power producers (IPPs)–even as a Cabinet sub-committee discusses whether to keep or take the furnace-oil fueled power plants off the national grid. “We have negotiated and [...]

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PUCSL oversteps mandate to negotiate prices

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The electricity regulator, Public Utilities Commission of Sri Lanka (PUCSL), this week overstepped its mandate to negotiate prices with and approve a four-year extension of contracts for three independent power producers (IPPs)–even as a Cabinet sub-committee discusses whether to keep or take the furnace-oil fueled power plants off the national grid.

“We have negotiated and given them [the IPPs] a cap on their capacity and energy charges, based on their prices, in order to achieve the least-cost target,” said Janaka Ratnayake, the PUCSL’s new Chairman, who took over last month.

Mr Ratnayake summoned a meeting on Thursday with the Ceylon Electricity Board (CEB) and the three IPPs: Ace Power Matara, Ace Power Embilipitiya and Asia Power. Neither party knew the other would be present, sources confirmed.

The three IPPs have been campaigning for extensions on the basis that, being furnace-oil-fired, they are cheaper for the CEB than auto-diesel-fired plants. Together, they produce 170 megawatts (mw) for the national grid but their contracts are due to end in days.

At the meeting, the Chairman proposed the pricing caps and bore on the IPPs to accept. He then issued a letter the same day saying the PUCSL was agreeable to extending the contracts for a further four years provided the conditions were adhered to.

The PUCSL has based its decision on a section of the Sri Lanka Electricity Act which ostensibly allows extension of the contracts “to meet any emergency situation as determined by the Cabinet of Ministers during a national calamity or a long term forced outage of a major generation plant, where protracted bid inviting process outweigh the potential benefit or procuring emergency capacity required to be provided by any person at least cost”.

But both industry and CEB sources agreed that negotiation of prices–which are part of power purchase agreements (PPA)–was “not the job of an independent regulator”. It was also in question whether the CEB faced an “emergency” under the terms of the Act.

Mr Ratnayake offered a different “interpretation”. “The regulator’s role is to make sure you purchase power at the least cost,” he said. “The regulator can from time-to-time use different tools to make sure that, at the end of the day, the customer, who is the main stakeholder, will get the right price.” Price negotiation was one of those tools.

In September last year, the CEB Board recommended the extension of the three IPPs on technical and financial grounds. But it did not ask for four more years.

“Energy costs of these plants as per latest fuel prices are Rs 19.41, Rs 19.81, and Rs 19.95 respectively per kilowatt hour (kWh),” the Board paper said. “This price is significantly lower than auto diesel power plants, for those the fuel cost is generally above Rs 25.00 per kWh.”

A Cabinet sub-committee comprising Ministers Vasudeva Nanayakkara, Bandula Gunawardena and Ramesh Pathirana is also deliberating the subject. This group, notwithstanding the PUCSL’s decision to grant four-year extensions, is considering six-month extensions for Ace Power Matara and Ace Power Embilipitiya. And it is exploring the possibility of allowing Asia Power to continue for a further year provided the CEB can acquire it for one US dollar at the end of this term.

The PUCSL rushed its recommendation on the request of the Power and Energy Ministry Secretary, informed sources said. Wasantha Perera contacted the Commission on Thursday morning and wanted a submission in time for the Cabinet sub-committee meeting the following day.

It was not immediately clear why the independent regulator did not maintain that a 24-hour deadline could not be met–or why it decided a recommendation was tantamount to negotiating prices.

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