Kanchana Wijesekera and necessary restructuring

A few weeks ago, the Ceylon Electricity Board (CEB) posted a ‘wanted’ advertisement for a Financial Consultant ‘to provide guidance on investment decisions, cash management and dy-to-day organisational expenses. The expanded responsibilities include, ‘forecasting costs and revenues, conducting risk analysis for financial plans, evaluating capital expansion options and to provide guidance and recommendations to the Chairman and the Board on all finance related matters.'

On the face of it, this is a good move. In fact all state owned enterprises, statutory bodies, state institutions including ministries ought to be regularly monitored and evaluated, inefficiency and incompetence determined and action taken against those responsible if that be the case. The flip side — and we say this taking into consideration the history of such exercises — is to place an agent or set of agents in such positions with an informal but specific brief: deliver ‘findings’ that can justify policy directions already envisaged.

In any event, Minister Kanchana Wijesekera has been saying a lot about cost-reflective pricing, amending legislation and restructuring. All good, except that there’s more than one way to skin the cost reflecting pricing cat and he’s opted to kick the poor and cushion the rich, ensuring that Sri Lanka adds to dollar-expenses for oil and coal to keep the latter satisfied. Except that he seems to believe that restructuring is about kicking non-engineering unions in the teeth and turning a blind eye to inefficiencies, over-staffing and the shady schemes related to the engineers.  Except that we are yet to hear him talk specifics in relation to legislative enactment in relation to doing away with archaic clauses which in the name of energy security ensure continued dependence on dollar draining imports.

Sri Lanka, not too long ago, was ahead of India in terms of national coverage. India at the time was heavily dependent on coal and thermal energy. Power cuts were normal. In 2015 Prime Minister Modi essentially told the Indian counterparts of CEB officials that India will go for solar power. They were required to fall in line or else.

Today most of India’s state grids are completely self-sufficient and that country is even exporting electricity to Bangladesh. Modi’s drive in fact had a significantly positive impact on the global solar scenario. India believes that a KWH of electricity could be generated at a cost of just 4 US cents!  

What’s Sri Lanka’s story? Given the relative total generating potential, scale, population and demand, Sri Lanka could have produced a surplus. Had the CEB got its act together (a tough ask given entrenched personal interests of high-ranking officials and the complicity of politicians), looked at global trends and technological development, Sri Lanka wouldn’t have ended up in this pathetic dollar-deficient, import-dependent situation.

Numbers. Sri Lanka needs 4,000-4,500 MW of installed capacity to meet currebt peak demand. Now Bangladesh’s current requirement is 20,000 MW, projected to at least  double by 2050. They don’t have major renewable resources and will have to look to fossil fuel  thermal and nuclear energy well into the future. The CEB? To put it bluntly, it’s a matter of monkey-sees, monkey does. No working or innovative expertise, no vision, no compulsion; not since Wimalasurendra.

The CEB, Wijesekera must know, cannot be ignorant of the fact that Sri Lanka has tremendous renewable generation potential well in access of even projected increase in local demand. Today countries such as Indonesia, Singapore and Malaysia are talking of importing solar based electrical energy from Australia via an undersea cable almost 4,200 km in length called the 'Sun Cable.' Sri Lanka is just 1,800 km away from Bangladesh, a fact that can only become significant if Sri Lanka aggressively pursued the eminently logical option of developing the renewable sector inclusive for export purposes.

It seems logical because even today, the general rule of thumb for the CEB to meet peak demand is to depend on thermal energy. ‘Emergency power,’ when required all the time,  year on year for over a decade, makes the adjective meaningless. The CEB has no plan to reduce reliance on emergency power which translates in practical terms to that which a preferred supplier can deliver upon a quick call. Greasing of palms then? Kanchana’s Financial Consultant (FC), if appointed and if possessing any integrity, may find out.

The CEB, it is well known, fought hard to scuttle plans for enhancing the contribution of renewables which, theoretically could satisfy the entire demand for electricity and even double it for export. The CEB grudgingly agreed to a plan to bump the slice to 70% but this hasn’t moved from policy to implementation. Another question that the FC could address. Interestingly, no other country in the world has quibbled over numbers related to targets.

Engineers simply say ‘more expensive, it’s not worth it.’ And they point to archaic related to unwarranted concern about energy security which, interestingly, goes against the economic thinking of this government, namely the limitation on maximum installed capacity by a private sector power producer, 50MW. So, ‘Mega Solar’ is out of the question.  

The CEB sites ‘inertia,’ as an inhibiting factor. In other words, thermal energy is generated more or less at a constant, whereas solar is dependent on factors that cannot be controlled, bad weather days, cloud cover etc. Inconsistency plugged into the grid is harder to balance and could trigger it to trip, this is correct. However the concern of instability is easily addressed and indeed has been addressed in countries with worse an ‘inhibiting factor’ not just those that are developed, but by countries in Latin America as well. Maybe the CEB is ignorant, lack sector working expertise or, worryingly, know very well that such transformation could trip cutbacks.

Perhaps this is why the CEB seems to be so averse to digitising the grid. The know-how and technology exists, however, to put in place a highly digitised oversight and dispatch control system based on predictive artificial intelligence on both the generation and demand side, capable of even a 15 minute dispatch interval. Instead, someone has to make a manual intervention to a power generator, is able to fiddle with choice of who and numbers, scaremonger governments to submission and make a sweet deal with a supplier cutting into Sri Lanka’s exchange reserves. Digitisation would make things algorithm driven. transparent. Accountable. Good for all except whoever is making bucks by blocking the move towards renewables. Maybe Kanchana could hire an FC who is well versed in technologies used in other countries. Indeed there are probably many Sri Lankan expatriates who would fit the bill. Would the CEB embrace such an option and if not, why not? Would Kanchana ask his buddies in the World Bank and IMF to facilitate digitisation? Would they say ‘no’? Unlikely.

The CEB has also talked of the problem posed by grid infrastructure or lack thereof, e.g. ‘we need to build more high tension transmission lines.’ This is a barefaced lie. To put it crudely, no transformer on the planet will argue about the source of generation. Doesn’t know, doesn’t care. As long as you feed the electricity to the specification the transformer is built to receive.

For example, if floating solar panels were installed in all the reservoirs currently producing hydropower, ensuring that less than 15% of the relevant surfaces are used in order not to infringe upon environmental concerns, the very same transformers could be used. The same high tension grid as it is for hydro. The hydropower could be used as back up or to address inertia issues, again based on a system of AI-based generation governance and balance that is transparent and accountable and greasing-free.

The truth is that we would not be needing any backup or ‘emergency power generation’ if we utilised the existing hydro-generation reservoirs, Negombo, Kalpitiya, Batticaloa, Trincomalee and Jaffna lagoons, all locations there are currently touched by transmission lines. No additional infrastructure expenditure, but enabling massive solar generation even at using just 15% of the surface so that there are no environmental concerns.

And that’s just solar. There’ also wind. The CEB, it must be mentioned, has never spent mega bucks on developing the sector to any degree of success. Failure perhaps, success no.  The Treasury provides the money, the CEB operates and maintains, spending only for these functions.

Back to numbers. The current peak demand is projected to double by 2030, requiring an additional 15,000 GWhrs annually (4,000-4,500 MW installed capacity) to be provided to the grid. As is, the lagoons and the Mahaweli reservoirs could generate 8,000 MW, meaning that at any given time there’s at least 4,000-4,500 MWs for export, provided of course that there is investment for installation of under sea cables. Do not restrict ones self to existing transformer capacity/ grid connectivity network and more can be exported. 

Currently peak demand is 4000-4500 MW or around 15,000 GWhrs a year. By 2030, demand is projected to rise 30,000 GWhrs and therefore an additional 15,000 needs to be provided to the grid. The lagoons and the Mahaweli System at minimum can generate 8,000 MW (as is). At any given time we can export 4000-4500 MW for export. MINIMUM. If we exploit the full solar potential only on floating solar capacities, we can be a dominant net energy exporter in the region. CEB will never be a bankrupt institution, never be a dollar-demanding institute but actually a dollar-earning institute.  

Yes, there are costs. Floating solar panels don’t fall from the sky or drip along with sunbeams. If, say, the installation cost is 1.5 million USD per MW, the total cost would be in the region of 6 billion USD. Obviously, it should be opened to private investors. If Kanchana and this government is truly ok with that kind of economic policies, then, why not? We would not be needing a single dollar on imports to produce coal or thermal power. Bad idea? What would the FC say? It can't be done by limiting maximum generation to 10MW by the private sector. Mega solar is the answer.

As of now, neither Kanchana nor anyone in the CEB seem interested. If no one is, it means that rank idiocy and corruption could be the main reasons. Or rank incompetence. The FC could tell us, of course. And maybe we will have meaningful change which of course requires the necessary restructuring of thinking-ways, frames of reference and of course overall, long-term objectives of energy security and insulation against dollar-dependency.

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The CPC: 'oil' leaks and greasy palms?



If the head of any organisation is a crook, it amounts to a licence for theft down the line, all the way to the bottom. If there’s a crook at any level of an organisation, it implies that the head of that institution is either a crook or is incompetent. 

Organization, here, could mean all kinds of collectives, for example teams, schools, state institutions, companies, clubs, societies, ministries, councils, judicial apparatuses and even countries.  Hold on to this thought for a while.  



We are talking here about the energy sector. We are talking about petroleum. About crude oil. Refined petroleum fuels and products. Refineries.. Supply side issues. Demand side issues. Margins. Contracts. Hidden costs that are eventually reflected in the Consumer Price Index. Domestic fuel-need security or rather insecurity. Dollar costs. Tender procedures. Foot dragging. Tripartite agreements sat upon. We are talking of the Ministry of Power and Energy. The Ceylon Petroleum Corporation (CPC). The Bank of Ceylon (BoC). Relevant officials. Tier One traders who produce oil, have their own wells and extracting and refining equipment and run their own trading operations. Tier Two traders are, well, just traders.



First, let’s consider how the CPC does and does not do business. The CPC has always shown a preference to purchase from relatively small-time, second-tier players who in reality procure from the top-tier and markup in an ungodly manner. Whether or not there are hidden costs, pocket-lining etc. included in the markup, the high-ups in the Ministry of Power and Energy and the CPC would know. Suffice to say, this is typical. Of course such deals would include politicians, officials and of course such second-tier suppliers. In cahoots. Who picks up the bill though? The consumer!



The mismanagement and corruption (yes!) is perhaps best evidenced by the options that the CPC does not consider, despite cogent proposals with terms far more favourable not just to the CPC but the country economy, the industries and the general public as a whole.  



Let’s consider an alternative scenario. Suppose there is a top Middle-Eastern oil producing company that is owned by that particular government, with trading offices in the UK, Singapore and Dubai.  Suppose this company proposes to supply the entire crude oil requirement of the Sapugaskanda Refinery with a, say, six month credit period, and pledges to off-take all refined products leftover after providing for domestic demand. It would not only sort out the country’s energy issues and provide domestic fuel-need security but also turn Sri Lanka into a regional petroleum, oils and fuel export hub. At zero-dollar cost to the nation.



Consider capacities. As of now the full rated capacity of the Refinery is 55,000 barrels per day. Historically, the facility processes just 22-25,000 barrels per day due to technical, maintenance, procurement, and other “management” issues. The reason is well known.  The output of heavy refined products like the various grades of furnace oils and marine fuels even from high grade light crude oil is around 50-60% and Sri Lanka just doesn’t have sufficient domestic capacity to absorb anything more above a 22-25,000 barrels per day refining operation. Now, considering that a top tier player who is a producer, refiner and trader can off-take anything and everything produced, the Refinery can operate close to capacity without having to worry about shipping out the excess products once domestic demand is satisfied. Sri Lanka would get at least the processing margin and, if the banking system is stable, it is not inconceivable that the entire transaction be channeled through it. It would obviously make the banking system dollar-rich and infuse much needed dollars into the float

.

Such an arrangement would earn Sri Lanka between 10-20% of its GDP in dollars and remove the cost of crude oil procurement altogether. Now suppose this top-tier player has a market capitalisation approximate to 2 trillion US dollars which is greater than the sum of the next three players, and doesn’t demand upfront payment? Does it even make sense to play with relatively two-bit traders? If it does, does it not mean that either there’s corruption or absolute incompetence?

Just for context, consider that countries like Bangladesh, Cambodia, Malaysia, Singapore, South Korea, Thailand, Vietnam and Indonesia prefer such arrangements, i.e. agreements with the top player who is reliable, reputed and don’t have to impose markups simply because oil need not be purchased. As is, even India, which has its own oil reserves, does good business with this company which operates as co-owner of refining facilities.



Let’s talk numbers. Let’s for simplicity assume a barrel of crude oil costs 100 US dollars. Considering yield margins of 30-35% on refined products, a barrel of crude refined will produce 130-135 dollars of refined products. That would amount to at minimum a processing margin yield of 7-10 dollars per barrel of refined products. If the banking system is stable, the balance 20-25 (or 23-27) dollars can be routed through it. That’s 153 million dollars at the margin and 655 million dollars at the yield margin.



Now what if another refinery is added using the free space at Sapugaskanda, as has been proposed? It would mean 110,000 barrels of additional capacity. Per day.  What if someone proposes that this asset, worth around 1.2 billion US dollars will be built by a top-tier player but will be fully owned by Sri Lanka?



Consider also that the Ministry of Energy has solicited an expression of interest to set up a refining complex in BoI controlled land in Hambantota. Apparently 400 acres with the possibility of adding another 190 acres. Of course this doesn’t necessarily translate into a capacity to refine 650,000 barrels per day overnight considering technical requirements which, one assumes, the experts of the CPC, BoI and the Ministry are aware of. While it does pose the issue of creating unnecessary inbred competition (with Sapugaskanda), if a technically sound and experienced partner who does not fear the market is involved, it does make sense. As long as the CPC moves out of what appears to be a lining-pockets culture of dealing with suppliers.



There’s more on that. An example would make things clear. In July 2022 a tender was called for the supply of JetA1 fuel. Although it could have been supplied at 10 USD per barrel, the suggested price was 13.95. It was eventually awarded at 21.95 dollars per barrel after delaying the awardee's ability to supply at 13.95. That’s for 40,000 metric tonnes per month, roughly 250,000 barrels. That’s some 35 million dollars lost a year. Why was this done, does Kanchana Wijesekera know? Can the MD of CPC provide an answer? Do they believe that Sri Lanka can be turned into a jet aviation fuel hub? At that price? Is it not true that the CPC came up with bizarre technical objections which the industry would guffaw at in order to ensure that the supplier quoting the higher price would be awarded the tender? Was there pocket-lining?



In June 2022, when Sri Lanka was unable to pay in dollar upfront and wanted credit for the supply of crude oil, one supplier was ready to give six months credit. However, the mechanism that exists requires a tripartite Non Resident Rupee Account agreement between the CPC, the supplier and the Bank of Ceylon. The BoC is required to do the dollar conversion and send the money to the supplier. In this instance, the BoC signed two NRRA agreements with two parties offering less favourable terms. The BoC not only refused to sign the NRRA with the supplier offering the best terms, but refused to communicate with this party which, mind you, is a BoC account holder, as to what their specific grievance was. Who at the BoC is responsible for this? Is he or she in cahoots with some CPC and Ministry officials? The Minister could investigate.



As mentioned there is a possibility of an arrangement where the CPC does not have to pay any money upfront. In fact no money would be required. There would be investment in a new refinery at no cost to CPC or Sri Lanka, no NRRA accounts, no markups, no corruption. The supplier takes on the conversion risks, provides the crude oil and off-takes the excess refined products. Sri Lanka gets dollars into the banking system and the CPC gets both Rupee and Dollar profits from the Sapugaskada Refinery. No energy security issues. The CPC can supply to the CEB without interruption. And yet, Sri Lanka refuses to buy into this. Add to refining capacity by setting up refineries in Hambantota and it’s all simple arithmetic. Is the CPC incapable of doing simple addition and subtraction? Is Kanchana arithmetically challenged?  



There seems to be hanky-panky in all this. Where, is the question. Somewhere down the line? If so, the buck floats up to the Minister and the Government, Head of State included, and on it is written the following words: ‘incompetent and/or corrupt’, noting that incompetence at this level amounts to corruption as per Carlson M.M. etal  (2018): “corruption signifies a failure to conform to some standard, the inducement to wrong by improper and unlawful means, or a departure from what is pure or correct.”

Inefficient. Losses. Wrong Decisions. Corruption. These are words associated with entities such as the CPC and CEB. They are used to prop proposals for privatisation. Does not follow. Houses need to be and can be put into order. There’s nothing to stop state-entities playing according to market rules and making profits. Except corrupt officials.  The CPC still can turn things around. Kanchana Wijesekera can step in if he wants to. Sri Lanka does not need to depend on the alleged largesse of the IMF. Good business sense and integrity. That’s what is needed. Does the CPC have these qualities? Does the Minister?

And now, scroll back to the first paragraph of this essay:

 '

If the head of any organisation is a crook, it amounts to a licence for theft down the line, all the way to the bottom. If there’s a crook at any level of an organisation, it implies that the head of that institution is either a crook or is incompetent.'

 

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White elephants in Kanchana's room

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White Elephants in Kanchana’s room

Kanchana Wijesekera, Minister of Power and Energy, was all but salivating in a tweet following trade union action launched by Ceylon Electricity Board (CEB) employees. Pointing out that despite the strike, operations continued, he did obtain some traction for the government’s plan to restructure the CEB.  

Arguments for restructuring are typically underscored by references to revenue. The recently implemented tariff revision was accompanied by heavy rhetoric on the need to increase the CEB’s revenue. Let’s deal with that first.

The unfairness and intellectual dishonesty has been widely discussed. In fact it has generated protests all over the country with low-end consumers taking to the streets insisting that they cannot afford to pay their bills and moreover will collectively resist any attempts to sever their connections. If it was about increasing revenue to meet (inflated, mind you) costs, the ‘mila sutraya’ adopted could easily be amended.

Kanchana takes refuge in averages. A simple example would easily refute the lunacy: per capita income. It averages out incomes so that the newborn baby and the nonagenarian are both assumed to be earning approximately 4,000 US dollars per annum. That’s around 1.3 million rupees at the current exchange rate or roughly a little over 100,000 rupees a month. The truth is that the average household income is around 1,500 US dollars a year, which translates into less than 40,000 rupees a month. That’s the average, which means that your typical low-end electricity consuming household would be earning much less. Kanchana has hit them hard. He cushioned the ‘average-raisers’ who, let us not forget, play an important role in forcing Sri Lanka to import coal, diesel etc.  

So, if X is the amount of revenue envisaged, that X could be made in many different ways and any CEB engineer ought to have the math skills required to come up with a more just tariff structure. Wasn’t done. What was done, in essence, was to punish the low-end categories of consumers for the ‘crime’ of those who for whatever reason escape the long arms Inland Revenue Department’s. Your typical vegetable vendor, the three-wheel driver, the domestic aides, masons, carpenters and other day-wage earners, none of whom are wallowing in wealth or have the knowledge or wherewithal to get away with delayed payments or waiving of relevant interest charges.

Yes, the bulk consumers. There are, in Colombo alone, thousands who never pay on time. They include government institutions, hospitals, the police, embassies, thriving businesses in the commercial part of the city and super luxury hotels. The last is an interesting category. They enjoyed Covid-19 breaks even though they didn’t lack business thanks to being equipped to provide quarantine facilities. Many didn’t pay the bills even after the grace period ended. Some paid only after the interest charges were waived. That’s hundreds of millions of rupee income that the CEB lost. Kanchana and his restructuring committee can commission a full audit and thereafter name and shame the shameless.  

Let’s take a look at the CEB itself. Doesn’t Kanchana know that all grades of employees from engineers upwards, with full complicity and endorsement of those who sat and sit on the CEB’s Board of Directors, have wrangled all manner of perks which, as allowances, amount to well over double their salaries? These include an engineering allowance (so, doctors should get a healing allowance, masons a bricklaying allowance etc?), an allowance for not leaving the country (!), vehicles with drivers and in practical terms unlimited fuel (they are required to pay for fuel consumed in personal use, but that’s only if someone points it out, and self-driving officials maintain their own running charts!), plush ‘quarters’ not too far from their own homes for which the CEB pays rent (sometimes Rs 100,000 per month or more!), a generation allowance, a ‘disturbance allowance (essentially a payment for being on-call; an audit might reveal how ‘essential’ this ‘service’ is!),’ other perks that come under ‘project allowances,’ and probably other such money-making mechanisms, carefully designed and jealously guarded.

Projects. Interesting word there. Even a rural electrification assignment is labelled ‘a project’ so that the relevant allocations can be channeled to personal bank accounts.  

Why an allowance for not leaving the country, though? Is it that the General Manager, Additional General Managers (AGMs), Deputy General Managers (DGMs) and engineers under them will quit the CEB en masse if this allowance was withheld? Is it that there are no competent and qualified personnel in the ‘non-engineering’ categories below them who are willing to replace them or that engineers currently not employed by the CEB are not interested in taking up such positions? If the CEB is over-staffed (and it certainly seems to be), then pruning should start, logically, at the top. A VRS to deal with redundancy might be cost-effective, really. If there were just 400 instead of 950 engineers, for example, the savings on salary alone would be close to 300 million rupees per month.  Maybe they do need the 900 plus engineers. If so, the onus is on the CEB to explain why, supporting arguments with tasks, responsibilities, KPIs and relevant performance assessments.

Quarters. There’s more to it. The CEB has not been too interested in refurbishing quarters it owns or building new ones. It’s the same with vehicles. Arguments are made to the effect that renting vehicles is cost-effective considering payments to be made to drivers, routine repairs etc. Most of these officials don’t make use of drivers though. There have been instances where renovations and repairs to quarters and vehicles respectively have proved to be the more cost-effective option.

Procurement. That’s a cash cow. Only, purchased above a certain value require Board approval. Remedy: break it down to ‘pieces’ lower than this value. Bingo! Sure, the receipts will all be there. All the necessary approval. It’s called legal theft, robbing the tax-payer (and we are all taxed directly or indirectly, low-end consumers as well, who, as things stand, are being punished for the damage caused by CEB’s wildlife).

Then there’s sheer incompetence and mismanagement, best exemplified by the scandal associated with the  165 MW naphtha-fuelled combined cycle unit commissioned in August 2002, consisting of a 110 MW gas turbine and a 55 MW steam turbine, and one exhaust heat recovery boiler. Naphtha was obtained from the Sapugaskanda Oil Refinery at Rs 75 per litre (at a time when diesel was Rs 115 per litre), making it the cheapest fuel. The plant was idle for three years due to poor maintenance. India moved in to buy naphtha from Sapugaskanda at just Rs 30 per litre. The loss? Multiply Rs 45 by 36 by 80 million (the monthly output): almost 130 billion rupees!

A defective component was sent to India for repairs and, when it was returned, was erroneously installed. Meanwhile other components, ill-maintained, had to be replaced. Some 80 odd technical staff remained idle. Things that could have been attended to simultaneously were neglected. It cost the CEB. It cost the country. No inquiry. No punishment. Business as usual in the CEB. And now, Kanchana passes the buck to the low-end consumer. 

The CEB is notorious for creating positions, manufacturing additional divisions so that those who get promoted can get placements and the perks that go with these. Kanchana and his committee could review the CEB’s organisational structure and how it has evolved, exacerbating redundancy, eating into profits and so on. Why so many AGMs? Why so many DGMs? Why are they doubling up as project managers? Is the work so ‘extra’ that they deserve massive compensation of such massive proportions?

Kanchana has (deliberately?) latched on to the wrong end of the stick. The CEB is not a white elephant. No. It seems to be a massive kraal full of white elephants. Kanchana has the eyes to see all this. Why then is he looking the other way? Why then is he disproportionately burdening the low-end consumer? Is his restructuring exercise going to do something about the rampaging white elephants in the CEB? Is he deliberately pushing the ‘low-end’ employees of CEB into union action with termination and privatisation in mind?  

All this, ladies and gentlemen, is iceberg-tip. Space stops a consideration of the power generation-structure, renewables etc. Suffice to say that the white elephants have created an excellent business model, not for the CEB, the country or the consumers but themselves. Maybe, and one hopes, it is just a few white elephants for I am sure there are many engineers in the CEB, perhaps even hundreds, who are competent and have integrity. If that's the case, then these rogues are not white elephants, they are white mammoths! Is Kanchana going to ensure the ‘sustained development’ of this model and are the most dispossessed of Sri Lanka’s citizenry being forced to pay for it? Questions. Questions. Questions. 

malindadocs@gmail.com

[First published in the Daily Mirror, March 9, 2023]

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