Adani saga appears to have raised its head again

Sri Lanka should consider itself greatly relieved that the project did not go through and Messrs Adani have decided to withdraw from the project

The President deserves our accolade for his firm stand against the Shylock-style demand for a tariff of $ 0.0826 when the wind power tariffs paid in India are in the range of $ 0.04 per kWh only, for similar level of capital costs. Apparently, the average plant factor of wind energy in India is between 25-30% while Mannar yields over 40% resulting an additional 25% benefit. If we evaluate it under the plant factor in Mannar, ideally, we should get a tariff 25% lesser than what is paid in India meaning around $ 0.03

The Adani saga appears to have raised its head again. A recent headline news claimed that Sri Lanka has lost $ 1,000,000,000 foreign direct investment. This immediately raises the question, to what extent Sri Lanka is prepared to demean its sovereignty and national pride, for the so-called benefits of Foreign Direct Investment. 

No doubt, FDI is a recognised means of attracting capital for development and is touted as a way forward to achieve projects and growth trajectories. But is it as simple as that? What are the sectors for which such FDI should be promoted and on what terms? Are we to accept any unsolicited project simply because someone offers to bring FDI? Who has the responsibility with such proposals, before various ministers and state agencies throw their weight behind such proposals?

The FDIs and expectations thereof

We are aware that the BOI and its predecessors, bent over backwards, to grant concessions to foreign investors, including tax holidays. There was nothing of the sort to assist the local entrepreneurs, who were faced with crippling direct and indirect taxes, customs duties, and a plethora of other disincentives.

The expectation was that such FDI would result in increased export income to set off the bludgeoning import costs. No doubt there are a number of such projects in operation to justify the concessions granted. FDIs that brings in money to start businesses in Sri Lanka to sell goods and services to our population will only increase the forex repatriation and do very little to the economy, and this project is one such. What forex did they bring in? Hopefully the BOI has now revised their approval criteria and there are no more tax holidays. But even then is there any audit done on the cost benefit of these projects which have been granted many concessions? It is not too late for such an audit to help make the correct decisions for the future when FDIs have once more become the buzz word, perhaps being pushed along by the IMF strictures.

Attempts to camouflage dubious projects in the guise of FDI

But the danger now is, of a different nature as exemplified by the Adani saga. On honest analysis already done and published by several eminent and concerned individuals, Sri Lanka should consider itself greatly relieved that the project did not go through and Messrs Adani have decided to withdraw from the project. In this regard we should also be grateful to President Anura Kumara Disanayake for his firm stand on not accepting the most deceitful demand for a massive tariff of $ 0.0826/kWh, when their own projects in India are paid less than half that amount, which led them to withdraw from the project. The many court cases filed have been withdrawn, which on reflection is a hasty decision. 

The issues raised as the basis of their plaints, on both environmental and legal grounds, have not gone away simply by Messrs Adani’s withdrawal. However, we have seen in a number of press publications, the President mentioning that the AGEL will not be awarded the requested tariff. But, we should bear in mind, on this scale of a project the Government MUST employ a third party independent price discovery mechanism in order to get the best benefit to the country. Ad-hock tariff approvals will only bring long-term harm to the country and have massive negative impact on our economy.

The events that led to the near disaster of the continuation of the Adani project receiving final approval and being granted a generation license, need careful analysis, at least to prevent such unlawful behaviour of ministers, ministries and state agencies in the future.

Let us examine a few of these unlawful activities. The prevailing electricity act at the time viz.: Electricity Act No. 20 of 2009 (as amended), clearly stipulated no unsolicited projects can be entertained, outside of the proper competitive bidding process and a call for open internationally competitive tenders by the CEB, for any project of capacity over 25 MW. None of the later amendments of the Act, Act No. 31 of 2013 or the Amendment No. 16 of 2022 changed this stipulation. So, on what basis was the Adani project accepted in the first place? And the Ministry of Power and Energy and the SLSEA and the CEB proceeded to provide such support and facilitation to Adani Green Energy Ltd.? The local developers would testify to the total adverse and obstructive attitudes of some agencies they face in respect of their applications.

The former Minister of Energy who gave full support to this unlawful project, deceived the public and the parliament, by trying to portray this as a Government-to-Government Project, the only avenue that could be used to avoid the requirement for competitive tender procedure as per clause 43 subsection 4 (a) in the amended act No. 31 of 2013. However, this is a totally false claim as Messrs Adani is a private company.

As such the project should have been disqualified right at the outset as the CEB has done in case of several unsolicited projects in the past.

But overlooking this legal compliance, the Ministry and other line agencies proceeded to violate the existing laws and regulations with impunity. The activities of the SLSEA need particular attention. But the SLSEA proceeded not only to allow the project to proceed, but spent a significant amount of public funds to take up the role of facilitator for the project assigning their own staff and facilities, in violation of their own regulations and procedures published by Gazette No. 2261/18 of 4 January 2022 A guide to Accelerate NCRE Projects.

As it turned out the environmental issues became a major topic and on basis of which five court cases were filed by interested groups. But as Messrs Adani themselves admitted, they never commissioned or received a proper EIA, which is a prime requirement by the above-mentioned guidelines for the project approval process before an energy permit can be issued, which has been granted by SLSEA for the Adani project.

While thankfully with Messrs. Adani refusing to reduce the claim for $ 0.0826/kWh which the present Minister of Energy too has consistently claimed is under negotiation, it is also necessary to examine the highly publicised claim that Sri Lanka has lost a billion dollars in FDI by their withdrawal. This $ 1 billion is on the one hand a highly inflated number and whether this is true and is it a loss to the country must be evaluated.

Is Sri Lanka so desperate for forex to the level of wilfully violating laws and regulations by the ministers and state agencies, even to the extent of sacrificing the national energy security?

While such behaviour cannot be condoned under any circumstance, this is hardly the type of project that should even be contemplated, given that it will make our forex situation that much worse, and not improved as the following numbers would illustrate.

1. The relevant investment for the two wind power projects adding up to 484 MW is only $ 442 million and not a billion dollars

2. The expected generation based on the plant factor of 40% estimated is 1,695,936 MWh

3. The annual income to the project developer based on the tariff of $ 0.0826 is $ 140,084,313. Thus, the investment could be recovered in a mere 3.5 years.

4. However, Sri Lanka would be required to pay this tariff for 20 years.in US dollars, which we are in short supply. As such Sri Lanka would have to pay out $ 2,800,686,272 over the project period in return for a mere $ 442 million investment, which will mostly be repatriated for the purchase of the capital equipment and payments to the foreign employees.

This is roughly 3% of our national debt. What benefit to Sri Lanka are we getting here is a big question.

Hardly a return for which our Government and officials have tried to sacrifice our national energy security and more importantly our national pride, blatantly deceiving the general public.

Lessons to be learned

What is the lesson to be learned now that a new administration is in power? As mentioned, the President deserves our accolade for his firm stand against the Shylock-style demand for a tariff of $ 0.0826 when the wind power tariffs paid in India are in the range of $ 0.04 per kWh only, for similar level of capital costs. Apparently, the average plant factor of wind energy in India is between 25-30% while Mannar yields over 40% resulting an additional 25% benefit. If we evaluate it under the plant factor in Mannar, ideally, we should get a tariff 25% lesser than what is paid in India meaning around $ 0.03.

The step-motherly treatment of local developers

This is in stark contrast to the way the smaller project developers, who were grossly misled by a previous Minister of Power and Energy, only to the extent of a promise to obtain the grid concurrence from the CEB under the purview of his Ministry. Based on this assurance, the developers were quite ready to follow the laid down procedure for approval in NCRE project development. However, it transpired that the Minister did not have the control over the CEB under this ministerial purview, and the developers are still trying to recover the fees charged by the SLSEA, to the tune of some Rs. 600 million, which is denied unashamedly.

As such, this appeal is to the President to ensure that his ministers do not permit breaches or even to bend the laws at the behest of interested parties, absolutely ignoring the rights of the larger public.

We’d also like to appeal to those who blindly advocate FDI, particularly in the energy sector, without carefully verifying that there would be an acceptable net benefit to the country, by inviting such investment. Sri Lanka is now blessed with ample resources of renewable energy, such as wind, solar, and biomass, which resources are available free or at a price paid in Sri Lankan rupees, with benefits flowing to the most deserving rural economies.

There is absolutely no justification to pay a tariff in foreign exchange to a foreign or local investor. The system in place under the BOI are ample to provide adequate returns and protection of investment to a foreign investor to recover his investment and a reasonable profit which can be repatriated. But they must be ready to accept any currency risk as the energy produced, using our own natural resources is for use by Sri Lankans who pay for same in Sri Lankan rupees. If at all a US$ tagged tariff is granted, that should be limited to a maximum 10-year tenure until the debt payments are settled, no more.

If there are no investors ready to accept such terms, let us assist and facilitate the local investors by an attractive rupee tariff, as they have already demonstrated their interest and appetite having developed 2051 MW of NCRE projects including 1500 MW of roof top solar by over 100,000 “Prosumers” and small-scale businesses. The country is already saving over $ 670 million annually and continue to enhance such savings, which can make a substantial dent in the $ 5,000 million annual drain from our scarce forex earnings for import of fossil fuels.

Reducing the drain of dollars is easier and better than earning dollars

Isn’t saving dollars much easier than trying to earn dollars, with the attendant multiple spin off benefits to Sri Lanka by way of employment avenues for skilled staff and technology development?

It is hoped that the President will appreciate these undeniable circumstances and provide the necessary leadership to make use of the bounty of nature Sri Lanka is blessed with for the benefit of Sri Lankans. Thereby not only can we gain substantial economic and fiscal benefits, but ensure national energy security, by getting rid of the fossil fuel trap.

(The writer is Deputy Chairman – National Chamber of Commerce of Sri Lanka, and Chairman – Power and Energy standing committee NCCSL.)