“Despite declaring the objects of the proposed Act to be “allowing open competitive procurement of new generation capacity including renewable energy”, the body of this Act states the complete opposite,” the IESL said.

“The present practice of procuring renewable energy projects at higher prices through negotiated deals and at feed-in-tariffs that never decrease, has been further strengthened by incorporating it into the main electricity legislation in the country, when most countries have given up such practices long ago to make way for competition.

“The proposed Act does not have clauses that bring any relief to Sri Lanka’s electricity customer, burdened with prices almost double that of competitor countries in the region.

“Similarly, procurement of transmission capacity can be non-competitive…”

Privately owned transmission can also be procured without competition, the IESL said.

India’s Adani is expected to build a transmission line apparently without competitive tender.

It is also building the largest renewable plant in the island so far without competitive tender.

Related India’s Adani to build Sri Lanka transmission line with wind plants

The IESL said the powers of the Public Utilities Commission would also be watered down through the new law.

“This Council and the Minister have been bestowed with powers to decide on electricity tariff policy and approval of the long-term power generation and transmission plans, too, making a mockery of these highly technical functions so far handled by the PUCSL,” the IESL said.

“Instead of strengthening the existing regulatory functions and capacity of PUCSL, this Act makes PUCSL an agency that merely implements what the Minister and his Council decides.

“The worldwide best practice is otherwise: a stronger, highly professional and fiercely independent regulator implements the law and the policy, through licensing.”

The full statement is reproduced below:

The Proposed Sri Lanka Electricity Act 2024

The Institution of Engineers Sri Lanka (IESL) is the apex body representing over 25,000 professional engineers. IESL has closely followed the developments in the electricity supply industry, making constructive recommendations to ensure customers receive a reliable electricity supply at a regionally competitive price. Sadly, both the above conditions have not been fulfilled owing to actions or inaction of governments and sector institutions. The electricity sector has been moving from one crisis to another. In the ongoing efforts to reform the sector, IESL made several representations to the government since 2022. Sadly, the proposed Act tabled in Parliament in April 2024 does not reflect most necessary recommendations of IESL and other stakeholders who value meaningful reforms, thus failing to bring solutions to several serious shortcomings in the sector.

Instead of making the sector governance simpler and the government intervention smaller, the proposed Act creates a new institution called an Advisory Council. It duplicates some functions or transfers some functions of the Public Utilities Commission of Sri Lanka (PUCSL) – the regulator, to the Council.

The proposed Act hands over the role of the government as the policy maker to the Advisory Council appointed solely by the Minister of Power and Energy. This Council and the Minister have been bestowed with powers to decide on electricity tariff policy and approval of the long-term power generation and transmission plans, too, making a mockery of these highly technical functions so far handled by the PUCSL. Instead of strengthening the existing regulatory functions and capacity of PUCSL, this Act makes PUCSL an agency that merely implements what the Minister and his Council decides. The worldwide best practice is otherwise: a stronger, highly professional and fiercely independent regulator implements the law and the policy, through licensing.

Despite declaring the objects of the proposed Act to be “allowing open competitive procurement of new generation capacity including renewable energy”, the body of this Act states the complete opposite. The present practice of procuring renewable energy projects at higher prices through negotiated deals and at feed-in-tariffs that never decrease, has been further strengthened by incorporating it into the main electricity legislation in the country, when most countries have given up such practices long ago to make way for competition. The proposed Act does not have clauses that bring any relief to Sri Lanka’s electricity customer, burdened with prices almost double that of competitor countries in the region. Similarly, procurement of transmission capacity can be non-competitive, and in addition this Act allows private transmission lines.

The proposed Act allows private investments in generation, transmission, and distribution. However, the authority to grant a license to conduct such a business, presently with PUCSL (which is the worldwide practice in power sector reforms), will now be transferred to the Minister by this Act. Such “political” approval of licenses for a commercial business, at a time when Sri Lanka embarks on the next phase of reforms by inviting private investments to transmission and distribution, will make the reforms meaningless.

With private ownership allowed into 100% of each generation and distribution entity, safeguards to prevent formation of monopolies are grossly inadequate.

Technical matters too, have not been addressed adequately. The grid and technical codes thereof have been defined to be “above 33 kV”, ignoring the need for a distribution code, in an era where distributed generation is growing and would eventually be the main supplier of generation. This not only brings an unregulated block of generation and power wheeling across distribution networks, without adequate technical safety and economic regulation. Serious control problems leading to brownouts or blackouts cannot be avoided.

IESL calls upon the government to seriously review these glaring shortcomings and amend the proposed Act to ensure the above and other serious deficiencies pointed out by our detailed report are rectified. Without revisions, this Act will further aggravate problems of governance, unreliability, and high costs, that have plagued the electricity sector for decades. The proposed Act, if implemented without these amendments, is designed to fail technically and economically, with excessive political interference at every turn.

The price of a 12.5 kilogram cylinder would be cut to 3,940 rupees from 4,115 rupees by 175 rupees.

The 5 kg cylinder would be cut to 1,582 rupees from 1,652 rupees.

The 2.3 kg cylinder would be cut to 740 rupees from 772.

World LP gas prices have moved up and down in recent months, Pieris said.

“The rupee has appreciated somewhat also, but not as much as in the previous month,” Pieris said. “We have passed the benefit fully to customers. (Colombo/May03/2024)

President Ranil Wickremesinghe’s government reduced the price of widely used Octane 92 by three rupees to 368 and Lanka Auto diesel by 20 rupees to 333, the official data showed.

However, the government has raised the profit margin on Octane 92 and white diesel to 4 percent in its latest price revision.

An estimation with the reduced profit margin show the government could have further reduced the price of Octane 92 by at least 7 rupees and Lanka Auto diesel by another 2 rupees.

The profit margin for Octane 92 was reduced to 1.5 percent in the previous month revision for April prices while for Lanka Auto diesel, it was slashed to 3 percent.

D V Chanaka, the State Minister for Power and Energy last week said the fuel price formula was changed and instead of 4% fixed profit margin, the government allowed flexibility for fuel retailers to chose their profit margin from 0-4 percent.

He said the government reduced the profit margin to maintain the prices of Octane 92 and Lanka Auto diesel.

Private fuel retailers Lanka Indian Oil Corporation (LIOC) and Sinopec also have followed the prices fixed by the government.

Maintaining stable fuel prices is considered as a gauge to measure a ruling government’s achievement and failure to maintain the prices at lower level had led to government change in the past.

Successive governments in Sri Lanka have mostly sold fuel at a subsidized price by absorbing the losses to petroleum companies due to fear of becoming unpopulour among the voters and losing elections.

The government’s move to reduce the profit margin last month and reduce the prices of fuel despite an increase in the profit margin come ahead of a presidential poll later this year in which President Wickremesinghe is expected to contest under an independent coalition. (Colombo/May 1/2024)

The move comes ahead of a presidential poll later this year in which President Ranil Wickremesinghe is expected to contest under an independent coalition.

Unprecedented fuel price hike in 2022 amid long queues due to shortage compelled nationalist Sri Lanka Podujana Peramuna-led government to switch to fuel price formula which it cancelled in 2019 citing that government should have the control over fuel prices.

“We have changed the formula. Instead of 4% fixed profit margin, we have now allowed flexibility and fuel retailers can chose their profit margin from 0-4 percent,” Chanaka told reporters at a media briefing on Friday (26) in Colombo.

“Had we gone with the same formula, we should have increased the fuel prices this month. But we reduced the profit margin from 4% to 1% and maintained the prices at the same level.”

Sri Lanka maintained prices of widely used Octane 92 and white diesel at the same prices when it revised the prices last time on March 31.

Private fuel retailers Lanka Indian Oil Corporation (LIOC) and Sinopec usually follow the prices fixed by the government.

Maintaining stable fuel prices is considered as a gauge to measure a ruling government’s achievement and failure to maintain the prices at lower level had led to government change in the past.

Successive governments in Sri Lanka have mostly sold fuel at a subsidized price by absorbing the losses to petroleum companies due to fear of becoming unpopulour among the voters and losing elections.

The move has led to losses in state-owned Ceylon Petroleum Company (CPC) and Ceylon Electricity Board (CEB), (Colombo/April 27/2024)

The Shell and RM Parks (Private) Limited have already signed retail brand license and product supply agreements. However, the start of fuel distribution through 150 local fuel stations has yet to be started.

“They have already brought diesel and petrol consignments to Sri Lanka,” Chanaka told reporters at a media briefing in Colombo.

“They (Shell) requested to allow them to start work after they brought those two products. We told them that we have no ability to grant such permission.”

“We can give that opportunity only when they bring all 4 main products diesel, petrol, Octane 95 and super diesel.”

The State Minister said the reason behind such move was to compel Shell to use its own dollars to import premium petrol and diesel instead of buying from the local market.

“Our expectation was they should use their own dollars to bring down the products. They can’t use dollars from Sri Lanka market and if they do they deviate from the agreement,” he said.

“Once they bring down all four products, they can start the distribution. The premium products are coming on May 6 and 7. So May 10^th they can start their distribution.

RM Parks (Private) Limited is a distributor of Shell fuels in the in North American fuel retailing market.

RM Parks (Private) Limited will rebrand to Shell an existing network of 150 retail fuel stations across Sri Lanka, which it was awarded a contract to operate for an initial period of 20 years by the Sri Lankan Ministry of Petroleum and Energy in 2023.

Shell company last month, however, has said the first Shell branded stations are expected to open in the third quarter of 2024. (Colombo/April 26/2024)

The regulator will cover liquified petroleum gas, petrol, diesel, kerosene, aviation fuel and lubricants.

The committee headed by the Secretary to the Energy Ministry will draw up the legal framework, Gunawardana told reporters on Friday.

“Cabinet of Ministers approved the proposal to establish a Regulator for the Energy Sector. PUCSL will remain as the Electricity sector Regulator and a new Regulator will be introduced for Petroleum, LPG, LNG, Lubricants, Oils & Energy Sectors,” Energy Minister Kanchana Wijesekera said on X.

“Accordingly a committee was appointed to propose the draft frame work for the Energy Sector Regulator in two months on Fair Pricing Mechanisms & Pricing Formulas, Quality Assurance, Compliance Monitoring, Safety in Unloading, Storage & Distribution, Environmental Standards, Industry Collaboration & Stakeholder Engagement, Dispute Resolution, Public Awareness & Education, Emergency Response and Risk Management.”

Several private establishments are engaged in import and distribution of petroleum products in the island.

The regulator will have wide powers to “address challenges in the sector, ensure quality of products, and protect the interests of the public and investors,” a government statement said. (Colombo/Apr26/2024)

The total fuel sales through state run Ceypetco, India’s LIOC, and China’s Sinopec are on the rise and have peaked monthly higher in March, signaling a possible recovery of the battered economy that saw an unprecedented economic crisis and contractions.

“Fuel supply and demand has normalized since the Covid Pandemic and the Economic crisis,” Minister Kanchana Wijesekera said in his X (formerly Twitter) platform.

The monthly sales of auto diesel recorded 137, 927 Metric Tonnes (MT) in March, its highest since August 2023 when it recorded 147,586 MT, the data released by the Minister showed.

The monthly sales of widely used Octane 92 recorded 112, 545 Metric Tonnes (MT) in March, its highest since December 2023 when it recorded 113,078 MT.

The minister’s comments and data come after Sri Lanka Petroleum Distributors Association earlier this week said fuel consumption in the country has decreased by 50 percent, citing the economic situation in the country.

The Sri Lanka Petroleum Distributors Association also claimed that all fuel types are available in the country without any shortage due to the reduced consumption. (Colombo/April 13/2024)

Many Sri Lankans have blamed the government for expensive commodity prices in the country amid an unprecedented rise in the poverty level after the 2022 economic crisis.

President Ranil Wickremesinghe government has been in the process of reducing the prices of essential goods ahead of the festival season. Muslims will celebrate Eid and both Sinhalese and Tamils will celebrate their traditional new year this week.

Wickremesinghe government has been also trying to win people ahead of a presidential election between September 18 and October 18 this year.

An export ban on onions has hit the Sri Lankan consumers with the price of big onion rising as mush as 300 percent in local markets with the domestic onion production was hit by unusual heavy rains in the latter part of 2023.

China entered to big onion market early this month and will sell its big onion at 375 rupees per kilogram at the island nation’s state-owned wholesale and retail chain ‘Lanka Sathosa’ outlets.

Big onions imported from India and Pakistan will be sold at 445 rupees, 70 rupees or 18.7 percent higher than the Chinese, the latest price list announced by Lanka Sathosa showed.

Millions of Sri Lankans have hardly celebrated festivals since Easter Sunday suicide attacks that killed at least 269 people in April 2019 with Covid pandemic and the economic crisis hit the purchasing power of the people.

FAILED ATTEMPTS  

Sri Lanka’s  attempts to secure an exemption from Indian ban on big onion exports failed and that led importers to look into other markets for purchases at lower costs, government officials have said.

India’s onion export ban has led to price spikes in Sri Lanka. India, the world’s biggest exporter of onions, banned shipments on December 8, last year after domestic prices more than doubled in three months following a drop in production.

The move also came as Narendra Modi’s government is trying to woo voters with lower cost of living by making the commodity available in Indian markets at a lower price ahead of parliamentary polls later this month.

The retail price of big onions ranges between Rs. 400-500 a kilo at the moment in Sri Lanka.

Trade Minister Nalin Fernando on March 28 said Sri Lanka will import onions from China.

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Sri Lanka grows onions under import tax protection and domestic production is seasonal and imports supplement demand.

3,500 hectares of onions were planted in the 2023 yala (minor cultivation) season, but crops were destroyed by unusually heavy rains before harvesting, the Department of Agriculture said.

Demand remains high ahead of several religious and cultural festivals.

FIRST FUEL, NOW ONION

After fighting for strategic and key infrastructure projects, both China and India are now trying to compete on commodities like onion and fuel, economists say.

China’s state-owned Sinopec is in the process of building a $4.5 billion refinery in Sri Lanka’s deep southern port district of Hambantota, where China has control of the island nation’s largest port.

Sinopec also has been given license for fuel retailing in Sri Lanka. Before the arrival of Sinopec, state-owned Indian Oil Corporation has been enjoying an exorbitant profit in Sri Lanka, analysts say.

India has repeatedly complained to Sri Lankan government over Chinese vessels in Sri Lankan waters citing they were posing security threats to the Indian Ocean.

President Ranil Wickremesinghe’s government in January banned research ships while Beijing has sought approval for one such vessel for research purpose. (Colombo/April 9. 2024)

“If a full 4 percent profit margin is applied, a price increase was due on auto diesel and 92 petrol,” Wijesekera said on his social media page on X (twitter).

Fuel prices are revised on the first of each month. Wijesekera provided a CPC fuel cost break down after the price revision last night:

“1.Refinery cost has an impact on auto diesel, 92 petrol and kerosene. VAT is applicable for refinery products as well from the 1st of January. Refinery gains and losses are calculated on the above products. Refinery does not produce Super Diesel or 95 Petrol.

2. Formula allows for a maximum profit margin of 4% on all products.

3. Auto Diesel and 92 Petrol full profit margins are not applied to maintain prices. If a full 4% profit margin is applied a price increase was due on Auto diesel and 92 Petrol.

4. Profit margins are not applied for kerosene.

5. USD rates are calculated at the average monthly rate at which actual purchases were done during the month.

6. Another products gains or losses cannot be passed on to any other product. Cost reflective pricing formula applies individually to each product.”

Kerosene prices was also cut by 12 rupees to 245 rupees a litre

Petrol 92 Octane remains at 371 rupees a litre.

Standard diesel also remains unchanged at 363 rupees a litre, the CPC said.

The prices are effective from midnight March 31.

Sinopec Lanka said it also matched the price cuts. Sinopec is selling, premium and standard petrol and diesel 3 rupees below that if CPC.

(Colombo/Mar31/2024)

Officials of Sinopec Overseas Investment Holding Pvt Ltd (SOIHL) visited the Ministry of Power and Energy on Wednesday.

“The officials indicated that the management of Sinopec has decided to double the capacity of the Refinery form the original proposal and the Investment. They intend to sign the agreements for the project and commence work by June 2024,” Wijesekera said on social media platform X (twitter).

“The officials led by Vice President of SOIHL, updated on the progress of the negotiations with stakeholders for the construction of the Proposed New Refinery in Hambantota.”

Discussions regarding the water supply, power supply, land allocation and BOI facilities will take place today with the relevant authorities, the minister said. (Colombo/Mar28/2024)

The cabinet of ministers this week approved a proposal to spin off the refinery as a separate company to raise capital from local and foreign investors to modernize the 1969 structure.

“It was also decided to explore the option of relocating the Sapugaskanda Oil Refinery to Trincomalee in the future…,” Minister Wijesekera said in an x.com (twitter) message.

The move is considered in the light of the development of a tank farm in Trincomalee, he said.

The tank farm, dating back to World War II when Sri Lanka was under British rule, and is to be jointly developed with India. (Colombo/Mar19/2024)

It was felt that incorporating the refinery as a separate state-owned enterprise will allow local and foreign capital to be attracted to modernize and extend its life by another 25 years.

The refinery was set up in 1969, but it can only process more expensive light crudes.

About 25 percent of Sri Lanka’s fuel needs are supplied by the refinery, the statement said. (Colombo/Mar19/2024)

“Its group CFO, Nigel Simonsz visited the Ministry to update on their plans and schedule to begin retail operations through the 150 fuel stations allocated to them. They plan to sign the agreement with the BOI and obtain the license to operate by mid this year,” Wijesekera said on X (twitter).

Sri Lanka last year awarded retail fuel licenses to three foreign firms – China’s Sinopec, United Petroleum Australia and US-based RM Parks to reduce the state-owned Ceylon Petroleum Corporation’s (CPC) pressure on finding foreign currency for the country’s whole fuel import.

The government imposed conditions for all the three fuel retailers to use foreign currency from their parent company for imports while banning the repatriations of foreign currency from Sri Lanka.

United Petroleum Australia, the third new fuel retailer, faced delays after a request contrary to the earlier conditions.

“They requested permission to remit dollars outside Sri Lanka. We did not allow that because the main objective of this is to find a solution (of lack of dollars we had in the past,” State Minister of Power and Energy D V Chanaka said at the time. (Colombo/Mar14/2024)

The IMF team headed by Senior Mission Chief Peter Breuer had discussed a recent electricity tariff cut, and reviewed the progress on commitment on CEB and CPC, and their balance sheets, he said in an x.com post.

The current financial position of CEB, accounting principles and standards adopted, automation of bulk supply tariff filing, conducting a dispatch audit, outstanding payments and forecasts for 2024, were discussed, Minister Wijesekera said.

Sri Lanka cut electricity prices 21 percent, with steeper 33 percent cut for smaller users in what is to be an election year.

The Ceylon Petroleum Corporation pricing formula and its operations were also discussed, he said.

Sri Lanka has taken billions of dollars of debt accumulated during monetary instability triggered by so-called ‘flexible’ central bank policy, as forex shortages emerged from rate cuts enforced with printed money.

Energy utilities among the worst hit by dual anchor conflicts in monetary regimes in unstable countries which eventually end up in default.

A recent electricity tariff cut was made possible by currency appreciation, Minister Wijeskera said. (Colombo/Mar13/2024)

“This is a mandatory requirement, in compliance with international norms, that qualifies the refinery for safe and reliable operation for a further 03 years,” CPC said in a statement.

“Once the refinery is brought back on stream after the Turnaround, it will be subjected to upgrades designed to increase its contribution to Sri Lanka’s changing product requirements.”

CPC will maintain a buffer stock of double the demand of refined products during the shut down period.

Sri Lanka’s 50,000 barrels per day refinery produces a relatively large share of furnace oil and is more geared to refining light crudes. (Colombo/Mar02/2024)

A fuel management information system (FIMS) will track the distribution of the diesel stocks under the direct supervision of the Japanese government, a statement by the Department of Government Information said.

Distribution activities will be carried out in collaboration with the Ceylon Petroleum Corporation.

Japanese Ambassador to Sri Lanka Misukoshi Hideaki, officially presented the grant to Minister of Health and Industry Dr Ramesh Pathirana at the “Dolphin Jetty” terminal in the Colombo Port on Monday (19).

Sri Lanka’s health sector is beset with many problems including shortages of labour, medicine and equipment. Suwasariya, a free ambulance service, which was set up with a 22.5 million US dollar grant from India, faced a lack of resources when the Sri Lanka government took over after three years, amidst a foreign exchange crisis that brought on a fuel shortage. (Colombo/Feb19/2024)

The audit was done based on a complaint made by Sri Lanka’s Minister of Power and Energy to the Criminal Investigations Department in August 2022.

“The major findings of the forensic audit conducted by KPMG on the sales and distribution of petroleum products from Ceylon Petroleum Storage Terminals Ltd (CPSTL) was briefed to me this afternoon,” Energy Minister Kanchana Wijesekera said on X (twitter).

“KPMG and CPSTL audit investigation officials briefed me today that they have found that:

1. More than 1.3 Million entries on SAP data has been changed or deleted since 2010 and most has occurred in 2022 during the height of the fuel crisis

2. After the complaint was lodged in August 2022 the number has significantly reduced in 2023

3. Massive losses has been recorded from stock holding in 2022 amounting to Rs 28 Billion & after the complaint was lodged it has come down to Rs 4 billion in 2023

4. Use of outdated circulars & procedures and no adequate data available or kept to determine certain irregularities”

Wijesekera said the CID, after their initial investigations, advised the Ministry to conduct a full forensic audit to further investigate.

“The full report will be handed over next week by KPMG and I will handover the complete report to the CID for further investigations and to take appropriate legal steps. It will also be shared with the Cabinet of Ministers, Parliament, Audited General and Attorney Generals Department to pursue the next steps.” (Colombo/Feb15/2024)

The island nation had to pay millions of dollars with $30,000 per day demurrages when Sri Lanka’s currency crisis evaporated all the foreign currencies which led to failure of fuel unloading.

But President Ranil Wickremesinghe’s government imposed a penalty of $50,000 per day on fuel distributors when they are unable to unload the fuel on time.

Chanaka said the penalties from the furl distributors stood at $13 million as of the end of last year, while the penalties claimed from fuel distributors for delays were at $7 million in the last two year.

“Still the legal process is going on. We are looking into the possibilities of setting off these two. If that happens, we will be getting the next amount,” he told reporters in Colombo at a media briefing on Thursday.

Sri Lanka is maintaining a $200 million worth fuel stock enough for one week and another $200 million as foreign reserves.

The penalties were imposed last year as the country started to build up fuel stock and foreign exchange reserves. (Colombo/Feb 09/2024)

This signifies a significant step forward in stabilising the country’s energy finances, Chanaka told reporters on Thursday February 08.

The establishment of a USD 200 million buffer stock demonstrates proactive planning to mitigate future economic fluctuations and ensure energy security, he said.

According to the state minister, Sri Lanka currently holds the largest oil reserves in its recent history, which he said signifies a significant improvement in fuel security and preparedness.

The official said Sri Lanka could also reduce fuel prices after March if there is no unpredictable events or sharp depreciation in the rupee currency.

Related:

Sri Lanka minister hopes to reduce fuel prices after March with boosted energy security

(Colombo/Feb09/2024)