Power problems

The spectre of scheduled power interruptions is upon Sri Lanka again. Interruptions to electricity in the year 2022 smack of 20 years of failed policies, exacerbated by the horrendous handling of external finances which has brought the country to its knees. 

Even though the Ceylon Electricity Board (CEB) announced earlier that it might be able to avoid scheduled power interruptions in the month of January, the shortage of fuel to power thermal power plants has brought this promise to naught. Across the island, consumers are being subjected to regular and often unscheduled power interruptions.

At the last Cabinet meeting, President Gotabaya Rajapaksa had instructed officials to resolve the energy issue “without inconveniencing the public.”

Despite the president’s concerns for the public and his instincts to be populist in all issues, there is no magic wand to be waived that will make the power crisis go away, especially since it is rooted in a more fundamental malaise affecting all sectors in the country – namely the foreign exchange crisis. Only visionary leadership and well-thought-out policy can bring Sri Lanka back from the brink. Playing for the gallery certainly will not cut it.

The immediate crisis in the energy sector is a direct result of the mishandling of the country’s foreign reserves by the Central Bank. This newspaper has continuously pointed out the detrimental effects of maintaining an artificial exchange rate that has manifestly reduced the inflows of remittances, export earnings and investments in foreign currency. As a result, there is barely enough foreign currency to pay Sri Lanka’s external debt, let alone import essential commodities. Among these essentials needed to keep the economy functioning and a minimum standard of living for the people, are oil and gas required for the energy sector.  The economic impact of energy shortages, which will directly affect the manufacturing and services sectors across the board will outweigh any short-term benefit of artificially propping up the rupee. Ignoring the actual cost of ill-informed policies such as defending an unrealistic exchange rate, purely for political reasons, will devastate the economy in the long run.

To prevent a catastrophic energy crisis that would debilitate the economy, the Central Bank needs to immediately rectify its disastrous policies that would allow for remittances to flow back in, and with some luck, foreign investments as well. It is ironic that at a time when Sri Lanka’s exports have increased there may be a situation where those earnings are not returning to the country simply because of the Central Bank’s bad monetary policy.  Another aspect that will be crucial to effective handling of the nation’s power crisis is addressing fundamental weaknesses in the utility sector. Years of state run monopolies in the electricity generation and distribution sectors have curtailed competition, innovation, efficiency, and profitability. It is time to address these anomalies and take a serious look at reforming the CEB, with greater participation from the private sector. 

However, the entry of private sector entities should not be in the form of lop-sided power purchase agreements entered into by the Government based on political patronage and influence. This kind of eyewash in the place of credible reform in the power sector will only make Sri Lanka’s power problems worse and further burden the State with financial commitments it cannot bear. Agreements reached with private entities must be transparent, and must not be shadowed by corruption and deal-making.  The Yugandhavani Kerawalapitiya power plant agreement with a US-based company is a fine example of good policy carried out badly. What might have been a most welcome investment in the energy sector has now been mired in controversy simply because of how it was finalised – through a rushed cabinet paper and without transparency. Even Cabinet ministers have told the Supreme Court they were in the dark about the agreement ratified by the Cabinet itself.

The key to a highly efficient energy sector is in competition with transparent regulation offered by the state. The investments that need to be made in the renewable energy sector, be it in wind, solar, hydro, dendro or others, need capital infused from the private sector, which cannot be afforded by the State. Hoping for quick fixes or giving meaningless instructions to officials will not solve the problem. President Gotabaya Rajapaksa has continuously said that he is ready to make tough decisions. Resolving the energy crisis – to keep the home fires burning for his citizens might be a good place to start.