Bouquets & Brickbats!

By Rusiripala Tennakoon –JANUARY 15, 2022

Rusiripala Tennakoon

At a time when we are so much engrossed only in accusations and criticisms, deliberating on something with praise in place of criticism and complimentary instead of an-uncomplimentary feedback, may sound extraordinary and surprising. Nevertheless, a deserving commend should not be left to die down unsung due to flimsy considerations, particularly when the centered issue is of National Importance.

A directive issued by President Gotabaya Rajapaksa at a meeting recently held under his chairmanship to review the progress of the Energy Sector is the subject for this discourse. Addressing the difficulties faced by the Mini Hydro Power Developers, President’s attention was drawn to the problems faced by the MHP developers in achieving the targets and the objectives as set in the ‘Vistas of Prosperity and splendor’ program to fulfills 70% of the requirements in renewable energy production in the country. Following a discussion on the representations made, President instructed to stop the charging of 6% from the generation revenue by the Mahaweli Authority, and also to do away with the charging of a lease rental of Rs. 5000/= per perch of land to be allocated for the projects by the Forest Department. The instructions regarding this directive on 16th November 2021 have been communicated already for implementation to the Secretary of the Ministry of Energy (Electrical), by the Secretary to the President.

This no doubt is a big relief to the MHP developers and also a deserving belated concession, which dragged on for over a decade without a proper decision. The importance of this directive is not only the financial benefit that accrues to the investors, but several other aspects which required urgent attention related to the issue. Both these measures provide a scientific, prudent and a rational resolution of the two issues. I wish to elaborate those for the information of the sector and also those involved decision makers, government agencies & authorities. I think it is necessary to elaborate these points in the context of several other highly redundant and obsolete considerations and conditions imposed on the MHP developers.

1. In addition to the fee of 6% of the generation revenue that was charged, it had to be supported by a bank guarantee to be provided by the developers well in advance to the Mahaweli Authority starting from the time of obtaining preliminary approvals for the project. In other-words from the project proposal stage. To do this the developers have to block an equal amount in the form of a cash deposit with the commercial bank issuing such a guarantee. Banks charge a commission (ranging from 1 to 2% of the value of the guarantee) as a fee for issuing such a bank guarantee. Now all these expenses are to be incurred by the investor over a long period of time before he comes to the generation stage of the project, even before starting construction work. Another hurdle that affected the developer to accomplish this requirement is the time wasted furnishing all sorts of details, discussions and negotiations preceding the Mahaweli Board approval.

i.a. This 6% fee/charge continues throughout the period of validity of the project (entire generation income period) with no change while the rate paid by the CEB to the developers fluctuates on a reducing basis periodically ( shown below) according to the price formula applied under the Power Purchase agreement! What a farcical application of an absurd condition! The authorities who arbitrarily decide on such payment conditions only discourage and impose unnecessary impediments to genuine investors who come forward to participate in projects of such National Priority.

i.a. This improper and lop- sided financial consideration apart, the sordid history behind this decision is an episode filled with rotten, dirty smelling events. There are instances where the rates charged as fees by the Mahaweli Authority ranged between 16% and 22%. Some developers have succumbed to other pressures coming as demands from high sources who fix rates at their convenience and consideration. There was a time of applying as pre-conditions for granting the approval, unofficially fixed rates said to be donated to political authorities in charge to woo them.

This is why we feel that the decision of the President is great and should not go Unsung.

ii. The amount to be paid as land value to the forest department too was a bone of contention of the MHP developers due to the harassment they were subjected to by the Forest Department Officials from top to bottom. It continued as a huge menace with ever increasing demands for gratifications without which the MHP developers sometimes had to waste a few years before they obtain the required approval. The barriers they impose are so rusty and unsurmountable which cannot be moved without costly lubrications. Many developers have withdrawn half way due to these.

ii.a. The untold lore about the imposed hardships remains a legend. One day someone doing a research publication in the National Interest will have many chapters full of humorous & despicable things to be divulged. My personal experience in dealing with one Dept.to get them to remove a few harmful pine trees bordering a power-line going out from a small MHP in operation experiencing frequent transmission disturbances due to damages from these pine trees, is still pending over last 5 years, may be for the only reason that I do not wish to offer any gratifications.

All MHP developers should highly appreciate and be grateful to the President for this great relief to them going very much beyond the financial commitment to put an end to a hazardous deal. It is a virtual freedom offered to grant a solace from the MHP developers being held to ransom by unscrupulous authorities.

President’s approach appears to be based on his long- term perspective in tackling the bigger issue associated with the Energy Sector. We are all experiencing hardships caused due to a mountain of issues amassed over a period of time running through several regimes of governance. Whose sins are we expiating for today? Alas! We are made innocent victims of circumstances beyond our control, for we placed the problem of solving of our grievances in the hands of those whom we elected. But now when there is an opening, a visible intelligent approach to address the long stagnating issues, moving forward slow but steady, developers engaged in this priority sector have to act responsibly to invite the attention to areas of various other difficulties encountered by them not only to get financial benefits but other factors like the delays caused to them preventing their early conclusion of the projects to contribute to the supplement of power to the National Grid. Therefore, taking this as the key to a fulfillments of expectations, the industry should cooperate with those elements of the government genuinely inclined to bring about a positive change while at the same time not hesitating to expose and help in the elimination of obstacles willfully created by self-interested parties who abuse and misuse their authority at a great risk to the national progress.

In that regard I thought of highlighting a few worrying factors continuing to hangout causing equally unnecessary hardships and more than anything else delays in finalizing the projects, where attention and focus is required to boost the sector.

a. The aberration that exists in the applying of fees and rates to the MHP

i. The charges levied as lease rental for lands allocated to power projects requires a careful review. Any reasonable levy should have some bearing to the expected revenue from the project. Today MHPs are paid by the CEB for the power they supply to the Grid according to the terms of the Power Purchase agreement they enter into with the CEB. This rate is fixed according to a formula. The current rate applicable is under a 3 Tier tariff formula operating approx. as follows;

1st 8 years             @ Rs.17.39 – Rs.19.00 per unit

2nd 7years            @ Rs.10.00 per unit to be further reduced @ of about 50 Cts. per unit annually

3rd15 years           @ Rs.9.00 per unit with about 50cts less annually

Now in Financial terms this reflects an increase in the royalty charged by the CEB (state) from the power producers escalating over a period of time. Because they keep on paying less for the same power as time goes on. But strangely, the cost of the land lease rental paid to state organizations continues annually at a fixed rate. So in effect, on the one hand the state charges a higher royalty on the power generated with time while the producer’s revenue is throttled by other State bodies by continuing a fixed rate OR a rate that periodically increase. It is a known factor that any business continues taking into account its ROR while they are also expected to maintain labour standards and payment rates, (which never go down), in keeping with the state determined wage policies.

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