Who's Fault Is It That Sri Lanka (Almost) Ran out of Electricity?

Finger-pointing: Who's Fault is it that Sri Lanka (Almost) Ran Out of Electricity?

COLOMBO, Sri Lanka May, 1996

By Cynthia M. Caron

Where is the tolerance, patience and understanding? Consumers are calling the Ceylon Electricity Board (CEB) outright incompetent. They are challenging the newly-appointed chairperson's character. The country wants its thirst for electronic entertainment and kitchen appliances quenched. As one Colombo resident wrote, "Today our people, many of whom have worked abroad and tasted prosperity, demand a better lifestyle with a few electrical labor-saving devices thrown in. But with the present shortages and power cuts will we ever taste the good life over here?"

During a televised speech in April President Chandrika Kumaratunge told the nation that the current drought has nothing to do with the power crisis. Today's crisis, she said, is due to mismanagement by the past regime. Not many seem to buy this explanation. The average electricity consumer thinks that the government and the opposition party are much more interested in looking into past assassinations (like the assassination of the President's husband) and disappearances (under international pressure for human rights abuses) than they are in a contemporary crisis. Even if Kumaratunge's People's Alliance government has been negligent in monitoring and developing the power-generation sector, over her past 18 months in power Kumaratunge has improved Sri Lanka's reputation and human rights record fundamental for attracting foreign investment and bringing the things or the good life. Why can't the voters understand?

Fourteen years after Thomas Edison started the world's first electric-power company in New York Rs. 80,000 was allocated by the Ceylon Legislative Council for the electrification of the Queen's House and the General Post Office in the Colombo Fort. The year was 1894. Over the past century the Colombo Electric Tramways and Lighting Company (later the Ceylon Electricity Board) has had the responsibility of supplying reliable power for national comfort and development. From the first hydro-plant installation in 1912, to the 1988 Thermal Options Study, power-sector planners have had to juggle government priorities, respond to global market prices for fossil fuel and react to schizophrenic political decision-making. All this, to run lap-tops, reading lamps and power the televisions of suburbia.

While there is not one cause for the power shortage of 1996, there is one group taking most of the blame: the planners of the Ceylon Electricity Board (CEB). Even though I subconsciously grumbled about them, did feel sympathetic. My sympa- thy grew once got deeper and deeper into power-sector planning. I am not sur- prised that there are multiple actors, agencies and agendas in power-sector planning; these exist in nature-conservation planning and management as well. What took me by surprise was the amount of financial investment in power sector development and the planning horizon for capacity and energy-systems generation.

Imperfect information and changing political-economic scenarios fifteen years ago partially account for today's predicament. Power-sector planners are truly the people who cannot satisfy all of the people all of the time, Colombo when downpours flood the streets, causing even when all the nation's lights are lit. If the ruling roadside sewers to overflow and cars to stall while party is happy, then the opposition party is not. If the no rain falls in the catchment areas. Chamber of Commerce is pleased, then the Central En- vironmental Authority is irritated. As for the environ- Did the CEB know before, much before, March 22 mentalists, do not think they are ever happy even that the country was facing a severe power shortage when they get their own way. for April and May? Rain patterns for the third quarter of '95 gave every indication that there would be a se- The CEB has its own scapegoats for the power short- vere drought, which, among other things, would lead age: the political appointees at the Ministry of Irriga- to power shortages. Yet the CEB claims to have be- tion, Power and Energy and the environmental came aware of the problem only in mid-January. Engi- movement. Both groups, according to CEB officials, do neers told CEB officials about the impending crisis, but not understand power generation and object to CEB the engineers' union refused to talk to the manage- proposals for completely opposite reasons. The gen- ment because of an internal political matter. The fol- eral public does not escape ridicule. The CEB blames lowing month the Ministry of Power refused to us for power-cut extensions and the need to imple- implement a CEB special-task-force recommendation ment unannounced power cuts. package that included repairing existing power plants, the purchase of generators to reduce pressure on the The electricity consumers of Ceylon all thought the national grid and procurement of new machinery. The power crisis started on March 22; when the CEB and the CEB recommended slowly phased-in power cuts in government scheduled three four-hour, rotating power early March, but the Ministry did not take their advice. cuts throughout the island. On this first day electricity Planners blame the Ministry for not taking measures consumption fell by 2.5 million units. It was believed to avert the crisis. The Ministry has been extraordinar- that a savings of 2.5 million units a day, coupled with ily silent. intermonsoonal rainfall in the hydro-power catchment areas would support the country's electricity needs un- In late April, the CEB appointed a ten-member til the southwest monsoon arrived in late May. "Think Tank" to prepare background reports for the Ex- ecutive Team, the CEB's most senior officials. Think However, on the second and third days, the savings Tank members have specializations in civil, electrical reached only one million units because consumers and mechanical engineering, and finance. Dr. Herath, worked their schedules around power cuts. One mil- CEB chairman, thinks that through this new process the lion units conserved was unsatisfactory. The CEB in- CEB will be able to react better to new developments. In troduced unannounced power cuts lasting 30 to 45 his opinion the Board spends too much time on day-to- minutes in the early evening. One week later the CEB day operations and cannot pay attention to aspects of sponsored newspaper advertisements declaring, industry development. "The Think Tank will naturally "Power- it's in your hands now" and scheduled discuss their thinking and ideas with their fellow pro- power cuts extensions to five hours with a scolding fessionals," he says. According to newspaper reports from the CEB, chairperson Dr. Lesile Herath: "Consu- this should create a more participatory atmosphere for mers have to choose between the lesser of two evils- professionals who will be asked to consult with the CEB reduce production, or face a total blackout." Common in the future. (Daily News 26/4/96). responses were, "How dare the CEB blame the people for its shortcomings and lack of foresight!" And, "The Quite often the inauguration of a power plant goes CEB has failed to provide for this steady growth. Its unnoticed. Not this year. The opening of the Dick Oya impractical planners urge the people only to conserve Hydro-power project was celebrated even though it power to switch off the couple of lights each house- contributes only 1.2 megawatts to the national grid. hold burns at night." "Electricity is a basic need of the people today. Provid- ing electricity to all those in the dark is a prime duty of According to CEB Vice President Neil Perera, the to- the People's Alliance Government," the Deputy Minis- tal daily demand for electricity is 14 million units. ter of Cooperatives stated as he inaugurated an elec- Thermal power (Power generation fueled by diesel tricity scheme for 150 rural households on March 29. oil, gas or coal) generates about 3.5 million units. The following month a rural electrification project in Hydro-power resources supply the remainder. In or- Kurunegala was commissioned on the same day that der to put an end to power cuts, the catchment areas Prime Minister Sirimavo Bandaranaike celebrated her would have to receive inflow of 10 million units daily 80th birthday. Will the electorate remember to thank over the course of three weeks, an occurrence unlikely the present government for securing the project's Rs. to happen in April. Dr. C.R. Panabokke, an expert on 4.5 million loan from the Asian Development Bank in rainfall, says that Sri Lanka does not have a surplus of the next election? Since power is a political tool, the water, as most people believe. "There was a water sur- savvy politician seeking re-election will pick a party- plus before 1948 and large-scale industrial growth," he significant date just to make sure. says, period. Overnight rainfall in the catchment areas is front-page news. Every millimeter is recorded and In the final quarter of 1995 the CEB embarked on an published. It is a great disappointment to all of us in expensive propaganda campaign: "Watt's in it for 2 CMC-22 you?" It sought public cooperation to reduce power ing industries are expected to disconnect themselves consumption. Consumers would receive a rebate on from the national grid. Many in the business commu- units saved in October, November and December. nity feel that instead of offering concessions the CEB "For every unit that you have saved you will be given should have turned to the private sector for generator a cash credit on your bill to the value of the units capacity. saved" the CEB chairman promised on national television. When the CEB did not make good on its promise Globally, the utility industry is plagued by rising (it granted a 10% rebate, irrespective of the number of costs, angry consumers and environmental problems. units saved) consumers flinched. The power industry is facing a period of restructuring to become decentralized, service-oriented and market- Would this mismanagement have happened if the driven and, with the right policies and commitment, power and energy industry in Sri Lanka were priva- perhaps even a bit more environmentally friendly. Na- tized? Industrialists say that in a private-sector organi- tional utilities in the United Kingdom and France are zation there is accountability along the way at every restructuring. Sri Lankan officials are looking to the level of decision making. When the government runs UK as an example. The Ceylon Electricity Board is not the show no one is responsible for anything. The CEB alone among developing-country utilities facing blames its own engineers. "It seems to be well-known power sector problems. According to a 1993 World in business circles that the Engineers Union of the'CEB Bank report, "opaque command and control manage- had recommended power cuts somewhere in Novem- ment of the sector, poorly defined objectives, govern- ber last year," says one reporter. No top-level action ment interference in daily affairs and a lack of financial followed. For this, politicians and senior directors of autonomy have affected productive efficiency and in- CEB are to blame. stitutional performance" (Flavin and Lenssen, 1994) Political manipulation and corruption make these The Overseas Development Administration of the problems even worse. Despite the finger-pointing, all United Kingdom (ODA) granted Rs. 152 million (1.95 interest groups agree on one thing: a decision must be million pounds) to the Mahaweli Authority to imple- made and followed through. Politicians stay out. Let ment technical cooperation projects, "Environmental the professionals do their job. Management and Sustained Development in the Upper Mahaweli Catchment," funds to improve land- Forecasting: electricity and peak demand use planning and environmental monitoring of up- country activities such as assessments of reservoir sed- Dr. Mohan Munasinghe was special advisor to Sri imentation and river flow and a receiving station to Lankan President J.R. Jayawardene in the 1980's and is collect Advanced Very High Resolution Radiometry a member of the Intergovernmental Panel on Climate for daily monitoring of soil moisture, forest- fire and Change. He is on sabbatical this year from the World cloud cover. All sedimentation reports conflict. Many Bank and teaching at the University of Colombo. Over say that fifty percent of the reservoirs are full of silt. the drone of the generator powering the office fan he Foreign engineers and irrigation experts estimate that told me, "The rain is not to blame for our current we could have had another 45 days of uninterrupted power crisis. These power cuts are not nearly as bad as power supply if the CEB water reservoirs had been the ones we had in 1982- power was cut for half a dredged and filled prior to the drought. Drain pipes day. By 1985 our situation had improved but only be- are blocked. Cleaning operations such as dredging and cause new plants such as the one at Victoria had be- mud removal have never been done. come operational. We need correct planning and policy analysis in energy demand." To reduce pressure on the national grid the CEB granted a number of concessions to private industry to Planners use gross domestic product (GDP) to produce its own power. These incentives include project electricity demand. The current elasticity of duty-free concessions for generator purchases and a demand for electricity is 1.5.2 This means that for rebate of Rs. 5.80 (US$0.11) per unit for power gener- every 1% increase in GDP there will be a corre- ated through generator sets of 50 KVA or more.1 sponding increase in electricity demand of 1.5%. "In Board- of Investment-approved enterprises are paid 1994 the GDP grew at a rate of 5.5%, therefore we Rs. 3 million if they install one-megawatt generating calculate an increase in GDP growth by 0.5% annu- capacity to relieve pressure on the national grid. The ally- 6.5% in 1995, 7% in 1997 and so on. From the Chairnan of BOI expects that industrialists will install projected GDP we forecast electricity demand," says 80 megawatts of power under this scheme. Participat- Mr. Gnanalingam, a CEB project director.3

1. Diesel fuel is already heavily subsidized by the state for the energy, agriculture and transport sectors. 2. In developed countries such as Japan the ratio of electrical energy demand growth rate to gross domestic product (GDP) is closer to 1:1 due to energy-efficient techniques. 3. The gestation period for a coal-powered plant is 5-6 years. For a hydro-power project 7-8 years; 2-3 years for the initial surveying and planning and 4-5 years for construction. The construction time for gas and diesel plants is two years. Genera- tion stations have a long life span: 15-20 for small thermal (gas and diesel), 20-30 years for coal and 40-50 years for hydro- power. Institute of Current World Affairs 3 Figure 1" General Procedure in Energy Planning

DEMOGRAPHIC MACROECONOMIC MOOEL,:S/SCENARIOS MODELS/SCENARIOS

ECONOMIC SUBSTITUTION T ECHNOLOGICAL O(VELOPMEHT:S ANAI..Y$15 TRENDS --eOP ---PHYS. OUTPUT

NERGY OEMANO REF. UNITS SPECIFIC ENEROY OOMESTIC R ELIOIOU P. DOMESTIC INOUSTRY BTR(ET LIQHT IHOUSTRY OkeaERC( CONSUMP,

FINAL ENERGY DEMAND

AVAILABILITY TECHNOLOGICAL PRICE OF THE TRENDS RESOURC($

(NEROY SUPPLY SYSTEM

He continued explaining demand forecasting to me. 1995 and 1996. Gnanalingam believes that there will "The variables for electricity-demand analysis are all power cuts next year and the year after but the extent based on well-educated guesses: the growth of GDP of the cuts will be heavily dependent on rainfall. "We over the next 25 years, population growth rates, growth know to expect rain shortfalls once every four years. of the manufacturing sector and value-added, the pro- We factor this into our forecasting model. Electricity is jected growth in the household sector and finally the a versatile form of energy. If we achieve newly indus- appliances used in the household (Figure 1). We decide trialized country (NIC) status with a gross national on a planning horizon, normally beyond ten years to ac- product of $2,000 per capita, what will the demand for count for a new project's gestation period, differentiate electricity be?" he asks rhetorically. "In the early 1980's prediction from projection, and choose from different our energy demand was so low we had to promote forecasting techniques. Based on a certain set of as- electricity consumption by lowering the tariff. It was sumptions a prediction is a specific estimate made for popularly believed that the country would have a some future time period. A projection makes many esti- power surplus after the construction of the Mahaweli mates of the bature based upon various sets of assump- System. We had discussions about exporting power to tions. For instance, 'Given alternate sets of business southern India." developments how much power will be required under each set of conditions?' The on-going ethnic conflict The CEB prepares an annual forecast and financial creates an enormous amount of uncertainty for plan- and market plans. Under the old forecast the CEB ex- ning. How much will the demand for power increase if pected to electrify 80% of the nation's households by there is peace? All our techniques have run a high, me- the year 2000. Today in Colombo 60% of the house- dium and low-use scenario." holds are electrified. "In developing countries there is always this debate over rural to urban migration. This Since 1992 there has been talk about power cuts in is a myth in the Sri Lankan context. In 1990 82.4% of 4 CMC-22 households were rural. We expect that to decrease to of the CEB, is that "the long lead time and the long pe- only 82% by 2020. Rural users tend to consume less riod of utilization of electric power facilities make it than urban residents. If NIC status is achieved then necessary to select projects to be studied some six to 12 consumers will have more money to spend on labo- years before commissioning and to evaluate at least saving devices. It could be decades before every some 15 to 20 years of project operation. Hence, plan- household acquires every gadget it wants." (Figure 2). ning studies must look ahead some 20 to 30 years." With environmental-concern key words being acid Figure 2: Percent of rural and urban rain, carbon dioxide and greenhouse effect, Nanthak- household owning popular electrical umar believes that we may be forced in the future to in 2020 discard options for the supply of power that are appliances techno-economically attractive but environmentally Appliance % Rural HH % Urban HH unacceptable. "Local national and international environmental problems are starting to influence the de- Television 80 100 velopment of the power sector. Planning for the long Radio 95 100 term allows for the evaluation of the effects of the in- Iron 85 95 troduction of such restriction policies, assessing how Fans 50 85 rapid environmental improvements can be achieved Refrigerator 40 75 and at what cost," he says. Hot water heater 0 75 Generation-systems planners follow a least-cost planning methodology and use an analytical tool "Power generation in 1994 was 4,365 gigawatts called WASP III: the Wein Automatic Systems Plan- (GWh),4 an increase of 9.7% over 1993 generation ning Package. This software package finds the eco- rates. In 1975 electricity sales totalled 965 GWh. Be- nomically optimal generation expansion policy for an tween 1975 and 1994 domestic consumption has risen electric-generating system within user-specified con- from 86.65 GWh (9% of total electricity consumption) straints. However, environmental constraints are not to 909 GWh (25.5%). Today at peak demand we need included in the model because environmental damage the capacity to supply 980 megawatts (Mw) of power is often difficult to quantify, especially effects of partic- and with the drought we have not been able to achieve ulate matter emitted from thermal plants on human close to that. Therefore the power cuts," said health and the loss of biodiversity inundated by Gnanalingam. hydro-power projects. The WASP III package consid- ers 12 types of thermal- and hydro-plants and bases "According to our demand forecast the peak de- optimization on discounted costs for total system mand will increase to 1,481 Mw in 2000, 3,365 Mw in expansion. The optimization exercise is fruitless if en- 2010 and 5,177 Mw in 2015.5 To meet this demand we vironmental externalities, many of which can be quan- will need more stations, but we must also reduce sys- tified, are not included in the model. Least-cost models tem losses. This year 17.9% of the power produced was that do not include environmental studies risk becom- lost in the system [in transmission and distribution] ing "more-cost" projects as citizen and environmental before it reached the consumer. We hope to reduce sys- groups launch attacks that compound the interest on tem losses to 12% by the year 2004. There have been no loans because of construction delays. new power additions to the national grid in the past five years. Projects on line for 2002 include a coal- With the 1996 crisis, capacity expansion is inevita- power plant in Trincomalee and the Kukule hydro ble. The planning process must now answer the ques- project. The refurbishing of the diesel plants shall be tion: What are the relative environmental costs and complete by 1997. In 2020 we expect 89.54 million giga benefits of alternative generation mixes at alternative joules (Gj) of energy to be supplied by diesel compared power plant locations? "We know it is imperative to to 23.85 million Gj in 1990. "6 incorporate environmental goals at the investment- planning phase. Many externalities are difficult to Power systems and energy planning quantify or have not been studied in many developing countries. For instance, there are health affects asso- The primary reason for long-term power planning ciated with byproducts of fossil-fuel combustion (par- at the national level according to Mr. Nanthakumar ticulate matter and sulfur dioxide), if Sri Lanka the chief engineer for the generation planning branch continues with a fossil-fuel dominated generation sys-

4. One gigawatt is 1000 megawatts. 5. Peak electricity demand in Sri Lanka starts between 7:00 and 7:30 p.m. Everyone turns on their lights, the evening TV news and starts to prepare dinner. The capacity of every generating system plan aims to meet this peak demand. Peak use of lighting at this time has an unusually high impact on system demand and hence system expansion. Florescent lighting is both an attractive economic and environmental demand-side management (DSM) measure. 6. The system loss factor in Korea is 6%. Institute of Current World Affairs 5 tem. Pollution-control technology might depend a sumer. I was told that at a recent Chamber of Com- great deal on how much citizens or the state are will- merce, meeting business leaders were complaining ing to pay to avoid sickness. Such detailed information about the high cost of electricity. If this is true and they is not available for analysis. From here we must go for- are having difficulty competing in the export market, ward," Nanthakumar stated. then the government should give them other subsidies. At any rate, the price of electricity should be Planners can manipulate a long list of options to- raised across the board," says Wijeratna. But the CEB ward sustainable energy-sector development: pricing, already runs at a loss. Additional power subsidies are institutional efficiency, end-use efficiency, supply effi- only going to make a very bad and complicated prob- ciency [including new technology], fuel switching and lem worse. reducing losses in transmission and distribution (T&D), and demand-side management (DSM). The The pricing system is often ill-designed to promote CEB and the government must maintain a proper mix conservation. The common technique of average-cost of energy sources and diversified ownership patterns, pricing does not reflect the true cost of supplying otherwise the threat of monopolistic situations and power. Consumers save less and have less conserva- over-dependency on fuel sources may result. "Irre- tion impact when they implement conservation prac- spective of ownership the CEB is forced to supply elec- tices based on the average cost. If the tariff reflected tricity at the least cost," says D.C. Wijeratna who is in the true cost of supplying power, then the consumer charge of setting the electricity tariff. "The country has would be given the option of saving herself more yet to develop a methodology for [establishing] pur- money by conserving at high-rate times. This would chase price that is acceptable to all parties. The pur- also reduce overall demand on the grid at the high- chasing power agreement is the most difficult to production-rate, high-energy-demand period known negotiate." as the peak-demand period. Pricing Engineers and planners must insure that their power generation system has a high enough capacity "Pricing policies that send the right message to the to meet peak demand, even though the rest of the time consumer are just as important as choosing the correct much of a system's capacity remains underutilized. mix of base-load thermals and pollution-abatement Peak demand poses two specific problems to utilities. technology," claims Wijeratna. "The rural consumer is First, many generation units are fired up only to meet my biggest burden. Rural electrification is not econom- peak demand, therefore running on a higher marginal ically viable. There are no recovery costs in rural areas cost than base-load plants.7 Plants built to meet peak because there is no economy of scale. Electricity prices demand have lower construction costs but higher op- must go up, but that is neither socially nor politically erating costs. Second, growth in peak demand often acceptable, Increasing prices in rural areas has serious necessitates expensive capacity expansion. One eco- political implications for the ruling party. The CEB is nomic tool to reduce growth of peak demand, which in not free to do tariff increases. The Minister of Power turn delays capacity expansion, is peak-load pricing. and Energy, a political appointee, decides whether or Peak-load pricing imposes the higher marginal cost of not the price increases and we recover our costs. In supplying power during peak periods to the consumer 1994 the tariff increased to Rs. 1.20 (U.S.$0.02). Previ- through a tariff increase. If utilities can help consu- ous to 1994 the domestic consumer was paying 60 mers conserve power, especially during the peak pe- cents for the first 10 units of electricity when the actu- riod, the consumers' rates will not increase. The utility ally cost was Rs. 8. There was no justification for keep- can delay investment in expanding the generating sys- ing the price at 60 cents. The Asian Development Bank tem. Peak-load pricing works. A California study wants us to restructure prices for industry. I have no found that business and residential consumers saved economic argument for industry on why their prices up to an average of $1,000 per year by shifting some are so high. Price should equal marginal cost. How- their power demand (use of appliances) to less expen- ever, in Sri Lanka price has to include social equity. sive time periods. In Sri Lanka domestic consumers When we experience capacity constraint during the are not affected by peak-load pricing, they are subsi- peak hours those who use that power should pay extra dized. Industry is not (Figure 3). for the capacity component. But the users are the domestic consumers: the voters. They have the lowest Industry demand is measured in KVA. Factories de- price to pay." In other words, households are subsi- manding less than 50 KVA per month have propor- dized to keep the voters happy. tionally lower tariffs than factories demanding greater than 50 KVA. Within these two categories monthly Energy is approximately five percent of the total fixed charges range between Rs. 205.00 (U.S.$3.80) and cost structure in industry. "If we raise electricity prices Rs. 435.00 (U.S.$8.05). Off-peak prices range between for industries they will pass that increase on to the con- Rs. 3.20 (U.S.$0.06) and Rs. 3.80 (U.S.$0.07) per unit.

7. Marginal cost refers to the increase in total cost resulting from raising the rate of production by one unit. Marginal cost is sometimes referred to as incremental cost. Base-load plants are those fired up virtually all the time.

6 CMC-22 CEB was paying industries to produce their Figure 3: Ceylon Electricity Board Tariffs own power throughout the day to reduce Effective January 1,1996 pressure on the grid. These industries produce an excess of power. If CEB had a spe- Domestic (plus a monthly fixed charge of Rs. 15 (U.S.$0.27) cific policy for purchase agreements, CEB First 30 units @ Rs. 1.20 per unit (U.S.$0.02/unit) could purchase power from these generators. 31st to 90th unit @ Rs. 2.40 per unit (U.S.$0.04/unit) Most industries practice peak-clipping be- 91st to 180th unit @ Rs. 4.50 per unit (U.S.$0.08/unit) cause private operation is cheaper than pay- Above 180 units @ Rs. 5.60 per unit (U.S.$0.10/unit) ing the CEB tariff during peak hours. Other ways that industry can reduce their energy Religious institutions pay Rs. 1.20 per unit for the first 90 units consumption are to increase the power factor consumed per month in their electrical load, install tinted windows and insulation."

Peak prices range between Rs. 8.60 (U.S.$0.16) and Rs. Maintaining the proper mix 9 (U.S.$0.17) per unit. Peak-load pricing is a demand- side management technique. Pricing is an effective Eighty-two percent of the total electricity system ca- means to jolt the consumer into adopting conservation pacity (1135 MW) is installed in 15 hydro-power sta- practices, which often involves forcing a change in tions. In 1994 93.7% of the system energy demand was behavior. met by these stations. The Mahaweli Complex has six power stations with an installed capacity of 660 mega- Demand-side management watts. The Laxapana Complex in southwestern Sri Lanka has five hydro plants with an installed capacity Demand-side management (DSM) is based on the of 335 megawatts. It is hard to judge whether or not premise that utilities and consumers are better off if Mr. Nanthakumar thinks there is an overreliance on they invest in ways to reduce power consumption. It hydro-power regardless of the statistic. But in his own often is the case that improving electricity efficiency is words, "What is the probability that there will be a less costly than building and operating new plants. De- drought in all the catchment areas all at the same mand-side management, or negawatts, is an approach time?" The Mahaweli System receives rain in the completely opposite to the one power companies are Maha season; the northeastern monsoon falling from accustomed to promoting; slashing prices of those October through February. The southern system re- who use more electricity. Since the early 1980's, power ceives rainfall from April through August during the companies have adopted the negawatt approach, elim- Yala season. Water allocation is a primary concern. inating discounts for big power users and offering During the Yala season the Mahaweli Resettlement cash rebates to individuals who purchase solar water Systems A through H are totally dependent on diver- heaters or low-energy appliances. Demand-side man- sions from the Mahaweli Project for agricultural agement challenges the assumption held by utilities: production. more electricity is always better than less, especially if you are in the business of selling it. However, utilities "We conducted a hydro-thermal hypothetical oper- are not typical business enterprises. Government regu- ation study to look at a seasonal-switching policy. En- lation balances the inherent counterintuitiveness of tering past data into the present system, we try to DSM by rewarding utilities with high-return profit on answer the question, "How much energy can you de- power saved. Many companies earn higher rates of re- pend on?" Take the Mahaweli Kotmale Plant. During turn on investments by conservation than in building any month in a dry year, we can expect 25 gigawatts. new plants. Sri Lanka intends to incorporate DSM In a wet year that reaches 80 gigawatts annually. Now principles pioneered in the U.S. into national power we are receiving 22.5 gigawatts a month. In addition to sector planning. seasonal and annual variations in power generation, flexibility in water management is also an issue. In the Mr. B.A. Gunaratne specializes in demand-side Mahaweli System water is diverted for agriculture. management. He is an engineer and managing direc- When the water reaches the Polgolla diversion, we tor of Dimo Limited Power Management Department, make the decisions on how much water needs to or an outfit that assists factories and high-tech industries can be diverted to the Mahaweli System H. The bal- to cut costs through reducing their KVA. "The CEB ance of the water from Polgolla is sent to Victoria Dam monitors electricity through two meters: one measur- for power generation. As the water flows through the ing energy in kilowatt hours, and one measuring de- system at each dam a diversion decision to one of the mand in KVA, a measure of the powerhouse capacity eight Mahaweli Systems is made. Because of the diver- to supply demand. The price is charged in 100 KVA sions there is no flexibility in water management. We units. This is normally done by "peak clipping:" run- cannot divert water from growing food to generating ning a private generator to supply one's own power power," the CEB systems engineer declared. needs during peak hours when the CEB raises industry's price per unit. Generator sizes range between 100 How much is rainfall responsible for the power KVA and 2000 KVA. During this last power crisis the shortage? Using the standard 10% annual increase in Institute of Current World Affairs 7 demand, forecast estimates show that even under very matically enough to make oil a cheaper fuel source. wet hydrological conditions there will be a worse elec- Furthermore, electricity demand plummeted from an tricity shortfall in 1997 than in 1996. The 1997 deficits annual 10% increase to a mere 3% per annum after the as well will be treated as those in 1996 with demand- 1983 and 1989 Tamil insurgencies. Shifting and uncer- side management and power cuts. The outlook for tain boundaries of territory controlled by the Libera- 1998 is slightly better. There will be deficits only under tion Tigers of Tamil Eelam (L.T.T.E.) made the area very dry and dry hydrological conditions, assuming around Trincomalee too unsafe for electric power that the planned additions of a 90 Mw diesel plant and transmission to the nearest central grid. The date that 140 Mw of gas turbines are commissioned. To avert a the coal-fired plant was expected to go on line was crisis in 1998 the CEB needs to implement its T&D loss pushed back past 2000. Today we have a power crisis. reduction program and expedite DSM techniques such as energy-efficient lighting. Beyond 1998 the Ministry Restructuring shifts the traditional model of large- must commission engineering studies to expand gen- scale, central generation to a "distributed" power sys- eration capacity. Due to lengthy gestation periods and tem that relies on a broad mix of large and small gener- feasibility studies, decisions about siting and con- ating plants. Intermittent generators (hydro or solar), structing coal-fired plants must be made within the combined with "peaking" turbines used to supple- next year. ment base-load plants for periodic increase in demand can supply up to 30% of a typical utility's demand for Coal gas, diesel and oil-fired power plants fall into less than the cost of new centralized generating and the category of thermal generation. The total installed transmission equipment. Distributed power systems thermal capacity is 250 MW or 17% of total power- may be an important strategy for developing countries system capacity. None of the thermal-powered plants with unreliable and incomplete central grids to follow. operate at their expected full capacity and few opera- Diversified electricity-generating sources that focus on tional years remain. The Kelanitissa Oil Steam plant providing services (truly reflecting "least cost"), and that delivers 44 megawatts is to be retired at the end of not on achieving lowest electricity prices may emerge 2000. The Sapugaskanda Diesel plant that supplies 72 in the future that introduce long-term benefits of less Mw will be rehabilitated in 1996/97 and retired in two expensive and more-reliable electricity, more efficient phases: 2003 and 2007. Fossil-fuel thermal options to use of energy and a reduction in environmental counter plant closings and increasing demand include problems. coal, medium-speed diesel, low-speed diesel gas and combined-cycle. No one knows the limitations of government in- volvement in and the shortsightedness of power- Thermal option studies commissioned by the CEB sector planning better than Mr. D.C. Wijeratna, who met with antagonism from both environmentalists and has worked for the CEB planning section for over 25 politicians alike. The CEB chose four location along the years. "The lack of a regulatory framework to govern west coast to site a coal-powered plant. Thermal op- the bid-evaluation process, lack of trained manpower tions have different environmental consequences from in the preparation of power-purchase agreements and those of hydro-power projects. All of the sites were un- implementation agreements, policy constraints, a non- suitable to someone. The only site that the politicians competitive market and lack of transparency have vehemently opposed was one too close to prawn caused public concern and anxiety in the investment farms. "It is too bad we could not get to the environ- community." The result: proposals become implemen- mentalists to help us on that one. The plant's cooling tation without proper feasibility studies and run into water [which is hot] would probably do less damage unforeseen barriers. Submitted proposals contain no environmentally than the expansion of prawn farm- provision for the average amount of normal commer- ing," a CEB engineer half-jokingly told me. "The truth cial risk. Lengthy negotiations and delayed acquisi- is, the longer we wait to build these plants the more tions add unnecessary construction costs that trouble and unforeseen costs will accrue." ultimately cause the investor to question government commitment. "Decision-makers who are politicians do Coal-fired generation was selected as Sri Lanka's not understand the gravity of these matters nor the future base-load generation option in the late 1970's af- complexity of project financing. The need for [an envi- ter the second global oil-price increase. In the early ronmental] regulatory body to oversee procedures in- 1980's the government approached the Australian gov- creases costs, as has been the case in the United States. ernment for assistance. Trincomalee was chosen as an But the Sri Lankan government must do something to appropriate site. Its naturally deep harbor would al- boost investor and public confidence," says Wijeratna. low the import of coal in 150,000-ton vessels, thereby saving freight costs. The Asian Development Bank According to Mr. Wijeratna one of the major prob- funded a full feasibility study for four locations in the lems confronting planners is that they are not the deci- area in 1984. The National Aquatic Resources Agency sion makers. Electricity systems planners analyze (NARA) and the Coast Conservation Department re- social political and financial criteria and present op- jected all the proposals in their presented form. By late tions that combine the best combinations among the 1987 the CEB had little interest in expanding coal-fired different technologies at hand to the decision makers. power generation since oil prices had dropped dra- "The point is," Wijeratna states, "if decision-makers do 8 CMC-22 not make a decision then there is no planning, only and managerial resources, provide training and analysis. Unfortunately these decision-makers are technology transfer. politicians. Their priority is to be re-elected, so they rarely exercise the political will necessary to generate Private Sector investments have a beneficial im- and expand power generation capacity. There are re- pact on the balance of payments. source constraints in systems planning: technology performance, finances, and fuel availability and cost. Bandula Tilakasena is Deputy General Manager for In Sri Lanka we also lack trained professional human private power projects at the Ceylon Electricity Board. beings in government service." He cites changes in conventional infrastructure development financing in power-sector development for ""The biggest problem with power generation in necessitating private-sector participation. In the past, this country is no additions to the grid for the past five developing countries could count on loans with very years and an environmental authority that is too strict. concessionary terms from international, bilateral and The situation will improve only if there is less indeci- multi-lateral agencies. With investment opportunities siveness in the Ministry, lower restrictions on envi- opening up in other sectors, these traditional sources ronmental impact and if CEB proposals are are drying up. International lenders have pressured implemented," says Gunaratne, a consulting engineer developing countries to allow private participation in in power management. "I do not think that the CEB state-run utilities. "In many ways, States and their should be privatized, but it should be made separate agencies are viewed as "non-creditworthy" borrowers from the Ministry. The Minister and politicians in gen- by those who seek capital and those who supply capi- eral are indecisive, so they prolong decision-making. tal. The State is no longer able to mobilize money for Instead of privatizing we should be given modern infrastructure building. This is another reason why technology and loans. For those who say privatization the private sector is necessary to develop new power- is inevitable, distribution should come first and then generation projects. The CEB must also look for in- only through local entrepreneurs. Perhaps even pri- vestments in electricity generation through non- vate generation could be allowed in the future, but for conventional and innovative financing mechanisms. that there must be a clear policy." The BOO (Build, Own, Operate) approach is one of these.8 Governments are almost forced to accept this What are the implications of six percent growth? situation." "We need a U.S.$1.9 billion-dollar investment over the next ten years to meet the growing electricity de- The first attempt to involve the private sector in mand," says Mr. Nanthakumar. "Now the pundits power supply was a 1992/93 newspaper advertise- start theorizing about how we are going to come up ment titled, "Expressions of interest for private sector with all of this money to fund power generation." participation in development of the power sector." There was a large response despite the fact that the Increasing private sector participation CEB announcement published neither project param- eters nor conditions for power purchase. The truth Creating a business-friendly environment for pri- was, the CEB was unprepared for the response. "We vate-sector participation requires: political stability, asked for participation without a defined objective or political consensus, a legal framework a regulatory any sort of framework to follow. It caused a lot of framework, and sector organization. Sri Lanka is not work for us," says Tilakasena. alone in the privatization experiment. The Philippines has been most successful with private-sector partici- Difficulty raising finances for infrastructure devel- pation. But they also have the highest tariff rate in opment already has led to restructuring in the power Asia. Turkey gave up its privatization program after sector. To redress the State's problem of granting a 15 years. It took six years for Pakistan's to get up and counter-guarantee to a private-party loan (a guaran- running. Does Sri Lanka provide a competitive mar- tee the Government hesitates to give), the government ket environment for private power generation? established the Private Sector Infrastructure Develop- ment Company, a government-owned company de- According to Mr. Thilan Wijesinghe, Chairman of signed to overcome the critical shortage of long-term the Board of Investment (BOI), private sector invest- debt for infrastructure projects by providing a long- ments have three advantages: term subordinated debt facility with a lending capacity of U.S.$65 million. This government-managed The private sector offers more timely and efficient fund for private-sector infrastructure development is service, and in many cases, greater capability to through the World Bank and Asian Development manage. Bank. Considering the total investment necessary for power sector-development, this is a small account, ac- The private sector can tap new financial, technical cording to Tilakasena. Therefore the CEB is formaliz-

8. The BOO (Build, Own, Operate) scheme is similar to the independent power producer scheme in the U.S., under which investors build plants and sell power under contract to a local utility. The three projects on-line under this agreement have a combined capacity of 250 Mw. Institute of Current World Affairs 9 ing a standardized procedure to encourage and ac- powerhouse is almost entirely underground, the chan- commodate the private sector. nel is only 800 meters wide, there is no submerged vegetation or resettlement scheme, only one squatter On April 10th the first BOO power project began op- was removed. The environmental-impact assessment eration. The Dick Oya Small Hydropower Project is [EIA] was a very straightforward analysis. This should the result of a 1993 CEB announcement that it would be the case for most micro-hydro plants as they do not buy privately-produced electrical energy. Vidya Silpa, have a water storage facility [catchment]. Since DFCC a Sri Lankan engineering firm, conceptualized and funds come from the World Bank and the Asian Devel- submitted proposals to develop five sites with attrac- opment Bank we must fall in line with their regula- tive hydropower potential. The 88 million-rupee Dick tions. DFCC has an in-house EIA unit that hires Oya project will supply approximately 8.6 million outside consultants for large projects," de Silva added. units of electricity annually at a rate of three rupees per "DFCC has a serious interest in developing the energy unit. Six 175-kilowatt (KWh) turbines are fueled by sector. Plants can be operational two to three years river water channeled through penstock pipes. Vidya from the approval date. Dick Oya was slower because Silpa relied on financial support from the Develop- the CEB had no formal power-purchase agreement ment Finance Corporation of Ceylon (DFCC) and tech- with the private sector. It took a long time to hammer nical support from Jiangxi Machinery and Equipment out an agreement. Now we can go ahead with funding Import and Export Corporation of China. This is the micro-hydro (plants up to 5 Mw). The CEB will con- country's first private plant solely dedicated to sup- nect projects to the main grid. Micro-hydro is supple- plying power to the national grid. mentary, but can give a meaningful contribution. There are about 100 potential micro- and mini-hydro Mr. Sumanasekara, chairman of Vidya Silpa's pro- sites in Sri Lanka. We are considering 14 more project, is a former meteorologist who had a great deal of jects." De Silva thinks that the CEB may not have as data about the flow of Dick Oya. In response to the ad much enthusiasm for diesel or gas-turbine projects for and after receiving CEB approval, he used his own which DFCC has received inquiries. The private sector money to put in the weir in March 1993. Construction has yet to show interest in coal. had to commence then, when the stream is seasonally at its lowest. "In May 1993 Sumanasekara asked us "In the future power supply might become more (DFCC) for a loan," said Sunil de Silva, a mechanical private, but transmission and maintenance will remain engineer and the DFCC credit manager who handled under state-controL" de Silva concluded. "We at the Dick Oya account. "DFCC put up 18 million rupees DFCC are willing to coordinate a consortium of banks in equity and 23.5 million rupees in loans. The collabo- and foreign collaborators to invest and develop the en- rating Chinese corporation invested 10 million rupees. ergy and water sector. We calculate high return on this The 1.2-Mw capacity plant can operate at 50% capacity Dick Oya project. We expect repayment in 4-5 years. in the dry season and average 80% capacity through- Start-up and capital costs are the most demanding. Af- out the year. We thought the project would take two ter completion operation and maintenance costs are years [and be] operational in May 1995. Instead the relatively low. The manpower requirement with oper- process took three years. ators and security does not exceed eight individuals."

"There was a great deal of stalling by the CEB. Their DFCC also managed the CEB fund for generator approvals were always late," de Silva said. "We concessions during this current power shortage. The [DFCC] told Vidya Silpa to keep the pressure on and CEB loaned 100 million rupees on a four-year, low- continue with construction plans. When things became interest repayment schedule channeled through too slow and a few of my colleagues at the bank got in- DFCC. "We are not making any money on this ar- volved personally. In general the CEB is skeptical of the rangement. We are doing it as a service to our clients," private firm. It is good to have a well-established, well- said de Silva. "The whole one-hundred million is gone respected banking institution such as DFCC involved in so we probably gave loans to 20-25 industries to pur- the project. The bank's reputation lent credibility to the chase generators during this power crisis." 9 project. Many of us working here [at DFCC] are engineers who have classmates ia the CEB. We used our per- Private-sector participation is not limited to elec- sonal contacts to push the paperwork through. The tricity generation projects. Another investment strat- procedure was difficult because it was the first one. egy is to allow the private sector to purchase 51% of Now that the groundwork has been laid there should be the shares of Lanka Electricity Company (PVT) Lim- fewer delays." However, even with the delays the hy- ited, a subsidiary of the CEB. The Board of Invest- dro plant had a shorter then normal gestation period. ment offers an attractive incentive package of duty- free imports on project-related machinery, raw mate- "The environmental impact of this project is low: the rials, etc., plus tax exemptions and concessions on

9. Business is booming for importers of electricity generators. Generator sales in February and March 1996 alone exceed sales from the past year. The government waived the usual 10% duty and will reimburse those who placed orders for generators over 100 KVA before March 31. The lowest price for an industrial generator (40 KVA and upwards) is Rs. 675,000 (U.S .$12, 616.00). 10 CMC-22 power-sector investments exceeding U.S. $50 million. cluding the turbines and electronic load-controllers are manufactured locally by twelve manufacturers, all Micro-hydro projects and resurrection of the planta- of whom have received training from ITDG. The own- tion sector ers of the village foundry, radio repair shop and other individuals who display technical knowledge are R.A. Bhatiya Ranatunga is project manager for the taught to maintain the turbine and fashion spare/ Intermediate Technology Development Group's repair parts out of locally-available material. Rana- (ITDG) micro-hydro scheme. The nonprofit group's tunga maintained that "Maintenance is not as difficult scheme has two divisions: village hydro-power and es- as most people would think. It usually runs around tate hydro-power, and technology development. In five percent of the start-up cost per year. Thus far 22 the early 1980's ITDG offered consultation services village-level projects are complete and ten more are in and technical advice to up-country estates producing progress." their own on-site power for processing and manufacturing. Of the 5000 tea and rubber estates producing In August ITDG is offering a Micro-Hydro Power their own power during the British colonial era, only Development Training Course to address Sri Lanka's 200 are in operation today. Most of the machinery has shortage of technical expertise. Micro-hydro plants been sold for scrap metal. In 1983 ITDG began to lobby (those that produce between one and 35 kilowatts) are the CEB to connect the estate sector to the national not scaled-down versions of macro hydro-power grid. schemes. Their construction, operation and maintenance is completely different. The workshop will "Estates have the potential to supply more power cover all procedures from feasibility studies, to design, than what is needed for their own operation," said to financing. The selling phrase for training course: Ranatunga. "Despite recent events brought about by "Escalating electricity prices and the possibility of ex- the crisis, the CEB has a general skepticism about porting self-generated electricity to the national grid hooking up individual generators to the grid. The gov- are two important developments that have made mi- ernment adopted international regulatory standards cro-hydro an attractive investment for the private sec- [the G59 code], but problems with formalizing power- tor." However, ITDG itself is doing an investigation of purchasing agreements remain. The tea estates receiv- the entire micro-hydro sector, including estates. After ing ITDG assistance are running at full capacity and surveying approximately 150 sites, it is tentatively esti- supply the grid at a rate of Rs. 2.90 per kilowatt hour. mated that the maximum this sector could supply for Purely for profit, more estates are interested in supply- the main grid is 50-60 megawatts. ing the national grid. The BPL Corporation, which manages between 20 and 30 tea estates, has formed its What does Ranatunga think about the power crisis own subsidiary business group to handle hydro- and micro-hydro's role in it? "Micro-hydro is supple- power generation. The World Bank Tea Estates Project mentary. Personally think we need to explore alterna- was approved this week to develop the plantation sec- tive sources and should not campaign against coal. tor's power-producing potential. These small-hydro The problem with nuclear power in a country like ours projects do not do much to alleviate pressure on the is there is too much corruption in the government so national grid. They can supply individuals or areas standards are not adhered to." that will not come within CEB purview for another 10- 15 years." "Micro-hydro has a history in Sri Lanka's plantation sector," says Gunaratne, another Sri Lankan engineer. Concurrent with the estate project, ITDG visited ru- "When the plantation sector was connected to the grid ral areas in the south to meet enterprising individuals in the late 1960's, they stopped producing their own who had started their own household hydro-power power because power from the grid was cheaper. In generation by fashioning crude generators using car addition to the plantation sector there is room for alter- batteries. "At this time we assessed the water re- native sources. In the late 1970's was part of a team sources of the south and searched for a way to electrify experimenting with wind, biogas and solar cells to villages, especially those that are far away from the supply power for a small village between Tangalle and grid hookup. The farther away the better," said Hambantota. Solar may be an option for Sri Lanka but Ranatunga. only on a small scale where it is too difficult economically and technically to connect an area to the grid. In cooperation with the Integrated Rural Develop- Solar power is expensive. Due to high capital costs ment Program (IRDP), the Rotary Club, the Environ- generation costs are roughly Rs. 25 [U.S.$0.50] per mental Conservation Fund of the CEA and other local unit." interest groups, ITDG provides initial technical support and yearly operation and maintenance followup Substitutes and alternative energy sources to villagers who are left off the CEB current operational plan and initiate a village-electrification process. Given the problems with electricity-systems plan- The local community must raise 40% of the cost of in- ning, will electricity be a reliable substitute for biomass stallation themselves. The remainder comes as grants (mainly fuelwood) energy? The Forestry Department from the organizations mentioned above. All parts in- Planning Unit relies partially on CEB planning and ac- Institute of Current World Affairs 11 including Tamil refugees from the north and Figure 4: Shares of energy consumption in east, suffer the greatest. Price, however, is not 1992 by supply source (%) (FSMP, p.260) the only- nor necessarily the best- indicator for the Forestry Department to use in predict- ing fuelwood substitution in the domestic sec- Electricity 12% tor. The effect of fuelwood on the taste of food and the versatility of switching between fuel Petroleum sources are among the reasons that many do- 22% mestic consumers will not switch solely to natural gas, kerosene or, if available, electricity.

The new World Bank program to assist the plantation sector in the development of its on- site hydropower generation capacity will affect industrial consumption of biomass resources. In 1993 the tea industry consumed over 455,000 tons of fuelwood in processing (withering and drying) leaves. The FSMP projects that the tea sector's future requirement for Bio-energy 2020. 66% fuelwood will decrease to 358,000 tons by The projection was made nearly one year before the World Bank announced its aid pro- tion to assess how expansion of power generation and gram. Overall, the Forest Department estimates that the national grid will affect the demand for biomass re- demand for bio-energy will begin stagnating in 2015 sources. The Forestry Department engages in its own and slowly decline after 2020. However, this predic- forecasting exercises to determine biomass yield and tion is based on declining population growth rates, al- to suggest appropriate land-use alternatives based on ternative energy sources and technological innovation projected needs of the domestic and industrial sector. in the power and energy sectors. The Forestry Sector Master Plan anticipates that the Ministry of Irrigation, During the last two decades annual energy con- Power and Energy will play an instrumental role in in- sumption has risen by an average of 1.7%. According creasing the institutional capacity of the bio-energy to the Forestry Sector Master Plan (FSMP), 66% of the sector through inter-ministerial coordination and pol- energy consumed in 1992 came from biomass: fire- icy studies and formulation. Given mess and manipu- wood and coconut and paddy husk. Electricity pro- lation within that particular Ministry, it does not seem vided only 12% of consumed energy (See Figure 4). that the Forestry Department has chosen a very effec- Planners for the Forestry Department combine such tive safety net. statistics with surveys of urban and rural fuelwood markets in order to forecast demand for firewood over Professor K.K.Y.W. Perera, chairman of the Arthur the next ten years. One FSMP findings is, "Household C. Clark Center, is a proponent of dendrothermal incomes are rising, as is the number of people who can power generation. He asks and answers the question, afford to buy gas or electric stoves. These trends will "Why should one reduce petroleum consumption at reduce the demand for fuelwood over the medium the expense of increased fuelwood consumption?" and long term, [but] the high cost of electricity and the While increased fuelwood consumption triggers con- cost of stoves make electricity an alternative only for cern about deforestation, Perera believes that Sri affluent families" (p.262). As we have learned, domes- Lanka's excellent climate for growing trees and large tic consumers pay only half the cost of generation per extent of marginal land create perfect conditions for unit of electricity. Planners at the CEB would enjoy in- growing forests to provide additional energy inputs creasing the domestic consumer's price. This would through fuelwood. "If trees are grown and then cut drastically alter the Forestry Sector's plan that electric- down and utilized as a fuel for burning, the net addi- ity could become a likely substitute for fuelwood. tion of carbon dioxide to the atmosphere is zero."

Planners in the Forestry Department are worried He makes no mention of constant and perhaps about the country's domestic sector's (particularly the costly reforestation efforts in his model. He further be- urban and rural poor's) reliance on biomass resources. lieves that there is a national biomass surplus that can In rural areas,fuelwood is perceived as a "free" good be maintained until 2020 with proper management of that discourages conservation and encourages ineffi- forest resources. Dr. Perera states that another advan- cient utilization. According to the 1990 national consu- tage of dendrothermal energy is a reduction in the bal- mer survey, 84% of fuelwood used by households was ance of payments, which escalates with devaluation of obtained free by users. On the other hand, the urban the rupee and dependance on foreign fuel sources. He poor have limited access to biomass resources and can- estimates that shifts from oil to fuelwood in the trans- not afford natural-gas and electric substitutes. As fire- port, power and industry sectors could save 251,400 wood prices increase in urban areas, the urban poor, tons of oil equivalents (plus foreign exchange) by the 12 CMC-22 year 2000. The transport sector's research and develop- capita energy consumption in the developed world ment group has been experimenting with vehicles pro- than in developing countries. There are global envi- pelled by fuelwood-burning gasifiers for the past five ronmental implications caused by increased energy years. Dendrothermal uses fairly low and proven tech- demand. "If we follow the same policy as today, I'll nology to generate electricity. Multiple small power call that the "business-as-usual-policy; there will be 10 stations in the order of a few megawatts, located near times more sulfur dioxide (SO2) and NOx by 2030," Dr. planned fuelwood plantations can be viable opera- Munasinghe exclaims. "If we introduce new prices tions to connect to the grid. According to Dr. Perera, and other measures these pollution rates will fall be- preliminary economic analysis shows that the costs as- cause energy use will fall. If we couple this with pollu- sociated with planting and harvesting fuelwood plan- tion-control devices, we will eliminate an increase in tations for electricity generation on marginal and these pollutants. This will take aggressive action be- unproductive land is lower than the cost of oil and cause the addition of pollution-control devices in- coal. creases the needed investment, as these technologies are expensive. Mr. Wijeratna of the CEB planning department holds another opinion. "Of all the renewable new tech- "All electricity-generating schemes have local im- nology wood [biomass], solar, geothermal and pacts," says Dr. Munasinghe. "Hydro-p6wer results in wind wind stands a chance in Sri Lanka. Globally, a loss of biodiversity, siltation, possession of land and biomass generates about 3500 Mw of power. Dendro- displaced populations. Gas and oil bring air and water thermal is all about land-use planning. Our govern- pollution and the risk of spills. Coal contributes to air ment is confused about this. First they say they want to pollution, water contamination and land reclamation. increase food production and look at improving and Even the technologies we consider the most enviroo using marginal lands. Then they say that these margi- mentally friendly solar and wind have extensive nal lands should be used for biomass plantations. We land requirenents11 and are not aesthetically cannot do both; [we can] only wait for the government pleasing." to define priorities." In 1990 the World Bank commissioned a study on Due to economics of scale, utilities experience diffi- acid rain in South and East Asia. The "Rains Asia" culty providing power in an environmentally sound model forecast acid rain and SO2 based on 1990 field matter. But Dr. Munasinghe's recent research hopes to studies of SO2 soil content. Dr. Munasinghe's Asian change that. He sees sweeping potential for wind en- map is a patchwork of green, yellow and red. Red is a ergy. The question the CEB needs to answer is, "How warning sign, indicating serious damage to economies are we going to proceed with power-sector develop- and health. Red areas already exceed the WHO/FAO ment?" The CEB must balance hundreds of options standards for the maximum amount of SO2 in the envi- and alternative power-generating systems with DSM ronment before crop cultivation and human health are techniques and pollution-abatement technologies. In greatly affected. In 1990 red dominated only small his economic models, Munasinghe combines wind en- parts of southeastern China. ergy, DSM and loss reductions in T&D and also advo- cates pressurized fluidized bed combustion coal "Look what happens to these same areas by 2020, (PFBC) combined-cycle plants. 10 Environmentally the based on the projections if we continue with business sophisticated technology of PFBC is more attractive as usuaL" he says as he places down an overlay. than installing flue-gas desulfurizers on the smoke "China is in a bad way. So is India." The east coasts of stacks Of conventional coal plants to reduce nitrous- both countries are completely red. Small parts of West- oxide and to lower carbon-dioxide emissions. The ern China are red too, but conventionally speaking this main consideration is commercial. The CEB must ex- is considered insignificant for few people live out on plore the availability of PFBC technology, the suitabil- the high-altitude plateaus of Tibet. Red is splashed ity of imported coal and operation costs. across Japan and Korea, all fallout from China. "I was in China last week on a special invitation by the En- Environmental considerations in power-sector ergy Department," Dr. Munasinghe continues. "The planning leaders say they want to continue using coal as it is their cheapest fuel source, but they recognize that in- Since 1979, electricity use in developing countries ternational pressure will increase." has outstripped gross domestic product (GDP) growth because of internal energy subsidies. Price never rose He changes map overlays again as he demonstrates commensurably. There is 20 to 30 times more per- his argument. "Now, look at the model's projection

10. A combined-cycle plant is an arrangement in which the excess heat from the gas turbine is used to power a steam turbine, increasing energy efficiency. Combined-cycle plants are inexpensive to build (a little more than half the price of a conventional coal-fired plant) and can be built in less than 21 /2 years. 11. Interesting fact: All U.S. power needs could be met with solar plants spread over 59,000 square kilometers, less than a third as much land as now occupied by U.S. military facilities (Flavin and Lenssen, 1994 p. 68) Institute of Current World Affairs 13 with the implementation of moderate SO2 controls like Ministry of Transport because, based on the model, low-sulfur fuels such as 1% sulfur-steam coal and the their sector is the root of the nation's current air- maximum use of natural gas in energy production. pollution problem. Scenarios such as this demon- Modeling shows that with imported Australian low- strate the need for painfully slow negotiations and sulfur coal [less than 1% by weight], the 900-Mw regional conventions. The government has to con- plant envisioned in Trincomalee can achieve ambient sider its position on global warming and tradeable .,SO standards similar to those met in industrialized carbon emission rights (internationally or regionally- nations." recognized rights to pollute) as well as its regional position on transnational acid rain, for it accepts India's This amounts to a greening of Asia almost to the pollution and may well be giving its own to Malaysia. 1990 levels, but with an eight-fold increase in energy But it also demonstrates why politics and politicians output: Protection without compromising produc- must get out of power production. tion. Dr. Munasinghe asserts, "This is what we have to strive for. If Sri Lanka is going to continue with its Incorporating environmental analysis, no matter emphasis on coal-fired power plants, it should start how expensive, at the onset of a project is often less with these stricter measures and construct all plants expensive than the costs associated with delays that to operate on PFBC coal. The material is in ready sup- inevitably follow public controversy over the ade- ply for the country to import." quacy or existence of environmental studies. To this day the CEB does not include the expense of resettle- From an environmental perspective, Sri Lanka has ment or the opportunity costs of losses in productiv- a distinct advantage. The nation can be a textbook ex- ity associated with hydro-dam inundation into least- ample of how a developing economy can develop its cost generation planning studies. When the German- power sector with environmental compliance in assistance agency GTZ submitted an Electricity Mas- mind. The decision-makers must decide whether to terplan, it figured an annual estimated loss of $10 opt for more expensive, low-sulfur fuels or cheaper per hectare for scrubland and $530 per hectare of tea fuels and pollution-abatement controls. Pollution- into the environmental cost of inundation for each control technology is expensive. Opting for higher- potential hydro site. While the increase in total cost cost, lower-sulfur coals is more economical when is marginal, what is important is the process; the fact compared to other pollution-abatement options. In that the externalities were considered. The public some cases almost 45% of the cost of constructing a does not like to feel it is being neglected or ignored. coal-fired power plant arises from environmental compliance, such as installing scrubbers and flue-gas "I understand the environmental issues," confesses desulfurization units on smoke stacks. Whatever the CEB's Wijeratna. "If we enforce our environmental decision, should the Sri Lankan government bear the laws, then there will be no more power. The CEB can- costs for cleaner production alone? Or should the not find a manufacturer that makes a gas turbine countries that will be affected by Sri Lankan fallout [that can] achieve our emissions standards. The prob- chip in? lem, is the environmental movement is controlled by freak groups, not professionals who will sit down to These are interesting ahd important questions, be- talk and to think about it." cause the data and options are being placed before decision-making politicians primarily concerned with Environmentalists' sabotage: Generating public the national context. At present the power sector con- interest tributes little to air pollution in Sri Lanka. To the politician there is room for pollution from the power As the 21st century unfolds, the private sector sector. Motor vehicles in Colombo, which have in- will be the engine of Sri Lanka's economic growth. creased fourteen-fold in twenty years, generate The State will be only a facilitator. As one econo- ninety-eight percent of the country's carbon dioxide, mist told me, "The State is coming around as it 79% of nitrous oxide and 46% of SO2 emissions. These slowly learns that there is nothing wrong with by-products of combustion contribute to transbouno profit maximization." dary pollution: acid rain and the greenhouse effect. Yet acid rain inside" Sri Lanka is more likely to be a In November attended a seminar on the envi- function of air pollution generated in India than from ronmental-impact assessment (EIA) process for in- thermal plants on the island. vestors and developers sponsored by the Ministry of Transport, Environment and Women's Affairs. Once the thermal options are added to Sri Lanka's The Central Environmental Authority (CEA) in- generation system, models show that by 2010 the vited 75 investors and developers to the Taj Hotel power sector is expected to contribute 80% of all SO2 for a one-day awareness workshop on the EIA pro- emissions and 70% of all nitrous oxide emissions gen- cess. Two weeks earlier the CEA held a similar erated in-country. The politician confronted with a workshop for the NGO (non-governmental organi- conflict over conservation and economic develop- zation) community because, according to Mr. G.K. ment might prolong decision-making by suggesting Amaratunga, CEA chairman, "they are always criti- that the debate be moved over to his colleagues in the cal of development." The NGO community is espe- 14 CMC-22 cially critical of the CEA's weak enforcement ergy because they all believed that the CEB did not record (CEA in NGO lingo stands for: Can't enforce explore possible environmentally- and technically- anything), but the CEA claims they must give in- sound alternatives. The CEB appealed to the Secre- dustrialists time. tary of the Ministry of the Environment. The Secre- tary rejected the proposal on the same grounds. Environmental Impact Assessments (EIAs) have Three days after the decision, the national news tele- four objectives: to analyze project impacts and to vised the sea of placards from Palihawadana's rally. mitigate them, to identify alternatives; to make col- Upper Kotmale is a sore spot for the CEB. Rumor lective decisions through public participation; and to has it that the EIA has been re-opened and new pres- make this information available to the public to en- entations are being given to the proper authoritative sure a transparent decision-making process. Accord- bodies. CEB officials deny the project is under re- ing to CEA officials, the sooner the EIA process is consideration. initiated, the easier it is for the developer to incorporate environmental controls into a project's engineer- Politicians and bureaucrats believe that environ- ing and design. If the EIA is commissioned before mentalists and their EIA process are meant to discou- the feasibility study, then any severe environmental rage the nation's development. Volunteers post impacts can be identified beforehand. The investor signboards in neighborhoods to be affected by new inevitably saves money on a potentially dead-end projects to inform residents about upcoming public feasibility study by investigating alternatives. Inves- hearings and instruct interested individuals on how tors should not think of the EIA process as an addi- to acquire EIA reports and make sense of them. The tional expense. average citizen has the right to protest any project and submit alternative ideas. The project proponent "The investment community's biggest misconcep- has the right of appeal to the Ministry Secretary if the tion is that an EIA is a guess. EIA is a predictive pro- project is rejected. cess. It is not based on imagination. It is scientific," says Amaratunga. "Through EIA we want to predict In the past two years the public has commented to environmental impacts of a project and suggest ways various degrees on 100 EIAs and IEEs (Initial Envi- of mitigation. The EIA is now legally required for all ronmental Examinations). "Environmental offenses new projects including those endorsed by the BOI. are criminal offenses," says Mr. M.K. Muthukuda- EIA concentrate on conflicts, problems and natural re- rachchi of the CEA's environmental protection unit. source constraints; those that harm people, their live- "Industry, and that includes fossil-fuel-fired plants, lihood or land or nearby developments. An EIA is not must obtain environmental pollution licenses (EPLs). a separate process but a system of continuous moni- Discharging wastes even at the standards is illegal toring. Developers always tend to leave the EIA to the without the EPL. Investors and developers have end and then their development is delayed by rights, but they also have obligations to comply with lengthy court battles. This is an avoidable situation if regulations. If an environmentally-related concern the EIA is done first. It is legally required to examine arises during a public hearing, it is not delaying or at least two or three alternatives to the preferred pro- stopping development. It is improving the process of ject site or design." sustainable development." The public, led by local environmental groups, Sustainable development, social justice and proce- played a large role in stopping the construction of the dure. The construction of the Hambantota Oil Refin- Ceylon Electricity Board's Upper Kotmale Power ery and 300-Mw thermal power plant is trapped Plant. In the Spring of 1995 Ajantha Palihawadana led under mountains of citizens'-groups paper work filed the campaign. According to Palihawadana, the siting after the corporation started construction without a was inappropriate. The proposal was based on inac- feasibility study and bypassed all stipulations of the curate biological information. The EIA report was full environmental regulatory framework. Hambantota of inaccuracies, including mention of several fish spe- was never considered as a possible site for a coal- cies that have not inhabited the waters for years. This powered plant in the early 1990's when the CEB con- conclusion caused opponents to question whether or ducted its own feasibility studies; the wind's direc- not the EIA team ever visited the site. The project tion would blow all the particulate matter inland. The would divert water from three major waterfalls and Electrical Engineers' Association of Ceylon believes cause a shortfall in four minor downstream water- the site is not suitable, since construction of a 150-kin- falls. The area is geologically unstable and prone to long transmission line is necessary to connect the high rates of soil erosion and land slips. Furthermore, plant to the grid. As of today only one major project the developers proposed no other alternative sites (the Upper Kotmale Hydro-Power Project) has been and failed to justify why Upper Kotmale is the only stopped by public appeal. possible site for the project. EIA reports are among the most open documents The CEB proposal was rejected by the CEA, the in Sri Lankan regulation, allowing public participa- government's Project Approving Agency, and the tion and transparency. Public participation may not EIA Cell of the Ministry of Irrigation, Power and En- be as popular or important as the government wants Institute of Current World Affairs 15 the public to think it is. Since 1995 officials of the De- evant authorities agreed to reduce the capacity of the partment of National Planning have tried to incorpo- reservoir. Authorities scaled the project back from a rate several changes to the National Environmental 144-Mw high-dam project to a smaller 70 Mw run-of- Act including: river project that involves the resettlement of only 27 families. Under the original plan an estimated 9,100 in- 1. denying the public the right to participate in dividuals would have been relocated. What were some policy formulation, of the trade-offs? Under the original plan, the Kukule 2. relaxing emissions standards for certain areas reservoir would have irrigated 68,000 hectares of land of the island, and in the southeastern dry zone, of which 95% was new 3. removing the EIA/IEE processes for project land, theoretically increasing agricultural production implementation. and perhaps easing the government's perceived problem of unemployed youth. Additional action against public participation came in mid-March, when the Cabinet passed a measure to Once relevant authorities incorporate measures to reduce the EIA public-grievance period from 30 to 14 reduce environmental impacts and protect surround- days. Thirty days allows just enough time to read EIA ing communities, the public often agrees. On April 12, reports, organize public meetings and submit written a Norwegian company carried out rock mechanical appeals, say lawyers at Environmental Foundation tests at an underground site in Kalutara, the location of Limited, a public advocacy group. the 12.5-billion rupee Kukule Ganga hydro-power project. The plant, funded by the Japanese, is expected to During EIA public hearings power generation falls generate 317 million units of electricity. The water of under just as intense public scrutiny as prawn farming the Kukule Ganga, a tributary of the Kalu Ganga, the and highway expansion. Two of Sri Lanka's largest hy- country's second largest river, will be diverted from dropower projects are plagued with problems that an the head pond and channeled to an underground exploratory EIA with public participation might have power station with two 35-Mw turbines. avoided. The Mahaweli Multi-Purpose Project made many of the new resettlernent regions of the dry zone The NGO movement claims it is not out to sabotage uninhabitable, since there was not enough water for ir- projects, only to fulfill its obligations and duties to so- rigation necessitating another resettlement exercise. ciety at large. The public is not against development. It Farmers who persevere at the original resettlement simply does not want to be hoodwinked by the gov- site are confronted by elephants that raid crops and oc- ernment and financiers. casionally take human life. What can we expect in 1997? The Minister of No public meetings were held and the feasibility Power and Energy said he has initiated an action to study was not made available for comment during the avert power cuts next year. The CEB, is working early phases of the Samanalawewa Hydropower pro- with BOI to obtain 80 Mw of standby generation ca- ject. Officials across many Ministries are facing long- pacity to meet any power shortage. The CEB, which term impacts, including the loss of rare- and interme- offered duty-free and soft loans for the import of diate-zone riparian forest, threats to at least five spe- generators, will grant similar incentives during the cies of endemic fish due to inundation, social impacts first six months of next year. The procurement a of due to resultant landlessness and failure on part of the 80- to 100-megawatt combined-cycle plant has been relevant authorities to provide back-up agricultural fast-tracked. A tender was awarded in early 1995 for services, inundated gem resources and the loss of the construction of an Asian Development Bank- stored water due to the presence of a concealed tunnel funded 40-Mw diesel plant. Lastly, the Ministry is fi- and leakage from the reservoir's right bank. Even be- nalizing a plan to bring a 150-Mw Combined Cycle fore the leakage started, people in the area said that Plant costing seven billion rupees on-line in 1999. they knew of the presence of a limestone layer and the existence of an ancient underground tunnel. This later "We need a commitment on behalf of the Govern- information might have been brought forth during the ment," Mr. Wijeratna stated over and over again. "The EIA or public hearing.12 Minister told me yesterday that have to get a gas turbine operating in one year so we do not have such a se- In a more recent case the public gave its full support vere problem next year. All can say to that is, "Let's to the Kukule Ganga Hydropower project once the rel- see how we do." GI

12. Because of the leakage, the Samanalawewa station can be operated only at minimum capacity, which reduces the average energy expected from this plant from 357 GWh per year to 288 GWh per year. Since Samanalawewa is also part of an integrated-system operation, integrated hydro-thermal operation simulation studies find that the loss of storage reduces the integrated-system operation from the Kelani and the Mahaweli hydro stations from 3869 GWh per year to 3785 GWh per year, a reduction of 2.2%. 16 CMC-22 SOURCES

Letters to the Editor Daily News April 11, April 3, March 24. Get up and Get on with energy planning. The Sunday Times Business Section p. 1 April 7. CEB mismanagement blamed for power cuts. 1996. Weekend Express April 6. p.1.

Blunders behind the blackout: Power officials sit on plans. Sunday Times April 7. p.1. ODA gives Rs. 152 million to Mahaweli. 1996. The Sunday Observer March 3. p.4. Action to avoid complete black out: power cuts without notice from today. Daily News p.1.

Perera, K.K.Y.W. 1996. Introduction to the National Energy Situation. Paper presented at the Workshop on Nuclear Power and Energy Planning. 22 April. Biosphere: Quarterly Bulletin of Environmental Foundation Ltd. 1996. Vol. 2. Nos. 1,2&4. Forestry Sector Master Plan. 1995. Forestry Planning Unit. Ministly of Agriculture, Lands and Forestd, Sri Lanka. 511 pp. Tietenberg, T. 1988. Environmental and Natural Resource Economics. 2nd edition. Illi- nois: Scott, Foresman and Company. 529 pp. Flavin, C. and N. Lenssen. 1994. Reshaping the Power Industry. State of the World 1994. New York: W.W. Norton & Company. pp. 61-80. Meier, P. and M. Munasinghe. 1994. Incorporating Environmental Concerns into Power Sector Decisionmaking: A case study of Sri Lanka. Washington, D.C.: The World Bank. 150 pp.

Institute of Current World Affairs 17 INDIA

TAMILNADU

18 CMC-22 Institute of Current World Affairs Current Fellows and their Activities

Adam Smith Albion. A former research associate at the Institute for EastWest Studies at Prague in the Czech Republic, Adam is spending two years studying and writing about Turkey and Central Asia, and their importance as actors the Middle East and the former Soviet bloc. A Harvard graduate (1988; History), Adam has completed the first year of a two-year M. Litt. degree in Russian/East European history and languages at Oxford University. [EUROPE/RUSSIA] Christopher P. Ball. An economist, Chris Ball holds a B.A. from the University of Alabama in Hunts- ville and attended the 1992 International Summer School at the London School of Economics. He studied Hungarian for two years in Budapest while serving as Project Director for the Hungarian At- lantic Council. As an Institute Fellow, he is studying and writing about Hungarian minorities in the former Soviet-bloc nations of East and Central Europe. [EUROPE/RUSSIA] Cynthia Caron. With a Masters degree in Forest Science from the Yale School of Forestry and Envi- ronment, Cynthia is spending two years in South Asia as ICWA's first John Miller Musser Memorial Forest & Society Fellow. She is studying and writing about the impact of forest-preservation projects on the lives (and land-tenure) of indigenous peoples and local farmers who live on their fringes. Her fellowship includes stays in Bhutan, India and Sri Lanka. [SOUTH ASIA/Forest & Society] William F. Foote. Formerly a financial analyst with Lehman Brothers' Emerging Markets Group, Willy Foote is examining the economic substructure of Mexico and the impact of free-market reforms on Mexico's people, society and politics. Willy holds a Bachelor's degree from Yale University (history), a Master's from the London School of Economics (Development Economics; Latin America) and studied Basque history in San Sebastian, Spain. He carried out intensive Spanish-language studies in Guatemala in 1990 and then worked as a copy editor and Reporter for the Buenos Aires Herald from 1990 to 1992. [THE AMERICAS] Sharon Griffin. A feature writer and contributing columnist on African affairs at the San Diego Union- Tribune, Sharon is spending two years in southern Africa studying Zulu and the KwaZulu kingdom and writing about the role of nongovernmental organizations as fulfillment centers for national needs in developing countries where governments are still feeling their way toward effective administration. [sub-SAHARA] John Harris. A would-be lawyer with an undergraduate degree in History from the University of Chi- cago, John reverted to international studies after a year of internship in the product-liability department of a Chicago law firm and took two years of postgraduate Russian at the University of Washington in Seattle. Based in Moscow during his fellowship, John is studying and writing about Russia's nascent political parties as they begin the difficult transition from identities based on the per- sonalities of their leaders to positions based on national and international issues. [EUROPE/RUSSIA]

Pramila Jayapal. Born in India, Pramila left when she was four and went through primary and secon- dary education in Indonesia. She graduated from Georgetown University in 1986 and won an M.B.A. from the Kellogg School of Management in Evanston, Illinois in 1990. She has worked as a corporate analyst for PaineWebber and an accounts manager for the world's leading producer of cardiac defib- rillators, but most recently managed a $7 million developing-country revolving-loan fund for the Pro- gram for Appropriate Technology in Health (PATH) in Seattle. Pramila is spending two years in India tracing her roots and studying social issues involving religion, the status of women, population and AIDS. [SOUTH ASIA] John B. Robinson. A 1991 Harvard graduate with a certificate of proficiency from the Institute of KiSwahili in Zanzibar and a Master of Fine Arts in Creative Writing from Brown University, he and his wife Delphine, a French oceanographer, are spending two years in Madagascar with their two young sons, Nicolas and Rowland. He will be writing about varied aspects of the island-nation's struggle to survive industrial and natural-resource exploitation and the effects of a rapidly swelling population. [sub-SAHARA] Teresa C. Yates. A former member of the American Civil Liberties Union's national task force on the workplace, Teresa is spending two years in South Africa observing and reporting on the efforts of the Mandela government to reform the national land-tenure system. A Vassar graduate with a juris doctor from the University of Cincinnati College of Law, Teresa had an internship at the Centre for Applied Legal Studies in Johannesburg in 1991 and 1992, studying the feasibility of including social and economic rights in the new South African constitution. [sub-SAHARA]

Institute. nf C;=JrrP.nt Wnrld Affir. The Institute of Current World Affairs 4 WEST WHEELOCK STREET HANOVER, NEW HAMPSHIRE 03755

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Author: Caron, Cynthia M. Title: ICWA Letters South Asia ISSN: 1083-4257 Imprint: Institute of Current World Affairs Hanover, NH Material Type: Serial Language: English Frequency: Monthly Other Regions: East Asia; Mideast/North Africa; Europe/Russia; SubSaharan Africa; The Americas

Chosen on the basis of character, previous experience and promise, Institute Fellows are young professionals funded to spend a minimum of two years carrying out self-designed programs of study and writing outside the United States. The Fellows are required to report their findings and experiences from the field once a month. They can write on any subject, as formally or informally as they wish. The result is a unique form of reporting, analysis and periodical assessment of international events and issues.