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ECONOMYNEXT – Procurement of renewable energy and transmission lines without competitive bidding will be legalized as part of planned electricity reform, warns the Institution of Engineers of Sri Lanka.

“Despite the declaration that the subject of the proposed act is to ‘enable open, competitive purchase of new generation capacity, including renewable energy,’ the content of this act is quite the opposite,” IESL said.

“The current practice of procuring renewable energy projects at higher prices through negotiated contracts and at feed-in rates that never decline has been further strengthened by its inclusion in the country’s main electricity legislation, while most countries have abandoned such practices long ago to make room for competition.

“The proposed law does not contain any clauses that would provide relief to electricity consumers in Sri Lanka, who are burdened with prices almost twice as high as in competing countries in the region.

“Similarly, the purchase of transmission capacity may be non-competitive…”

IESL says privately owned gears can also be purchased without competition.

Indian company Adani is expected to build the transmission line apparently without competitive bidding.

It is also building the largest-ever renewable energy plant on the island without competitive bidding.

Related The Indian company Adani will build a transmission line in Sri Lanka along with wind farms

IESL said the new law would also limit the powers of the Public Utilities Commission.

“This Council and the Minister have been given the power to decide electricity tariff policy as well as approve long-term power generation and transmission plans, which makes a mockery of the highly technical functions that the PUCSL has hitherto handled,” IESL said.

“Rather than strengthening the existing regulatory functions and capabilities of the PUCSL, this Bill makes the PUCSL an agency that merely implements the decisions of the Minister and his Council.

“Global best practice is different: a stronger, highly professional and highly independent regulator implements law and policy through licensing.”

The full statement is published below:

Proposed Sri Lanka Electricity Act, 2024

The Institution of Engineers of Sri Lanka (IESL) is the apex body representing over 25,000 professional engineers. IESL closely monitors developments in the electricity supply industry, making constructive recommendations to ensure customers receive reliable electricity supply at a competitive price in the region. Unfortunately, both of the above conditions have not been met due to the actions or omissions of governments and sector institutions. The electricity sector is moving from one crisis to another. As part of ongoing efforts to reform the IESL sector from 2022, he has made several submissions to the government. Unfortunately, the proposed law tabled in Parliament in April 2024 does not reflect the most necessary recommendations from IESL and other stakeholders who value meaningful reforms, and therefore fails to address several serious shortcomings in the sector.

Instead of simplifying the management of the sector and limiting government intervention, the proposed law creates a new institution called the Advisory Council. Duplicates or delegates certain functions of the Public Utilities Commission of Sri Lanka (PUCSL), the regulatory body, to the Council.

The proposed law transfers the government’s decision-making role to an Advisory Council appointed solely by the Minister of Power and Energy. This council and the Minister have been given the power to decide on electricity tariff policy as well as approve long-term plans for electricity generation and transmission, making a mockery of the highly technical functions that the PUCSL has hitherto handled. Rather than strengthening the existing regulatory functions and capabilities of the PUCSL, this Act makes the PUCSL an agency that merely implements the decisions of the Minister and his Council. Global best practice is different: a stronger, highly professional and extremely independent regulator implements law and policy through licensing.

Despite the declaration that the subject of the proposed act is to “enable open, competitive purchase of new generation capacity, including renewable energy”, the content of this act is quite the opposite. The current practice of procuring renewable energy projects at higher prices through negotiated contracts and never-reduced feed-in tariffs has been further strengthened by its inclusion in the country’s main electricity legislation, while most countries have long abandoned such practices in order to competition place. The proposed law does not contain any clauses that would provide relief to electricity consumers in Sri Lanka, who are burdened with prices almost twice as high as in competing countries in the region. Similarly, the acquisition of transmission capacity may be non-competitive, and the Act additionally allows for the use of private transmission lines.

The proposed law enables private investments in the areas of generation, transmission and distribution. However, the power to issue permits for such activities, currently vested in the PUCSL (as is global practice in energy reforms), will now be transferred to the Minister under this Act. Such “political” approval of commercial licenses at a time when Sri Lanka is embarking on the next phase of reforms, inviting private investment in transmission and distribution, will render the reforms pointless.

By allowing private ownership of 100% of every generating and distribution entity, safeguards against the creation of monopolies are grossly insufficient.

Technical issues were also not adequately addressed. The grid and its technical regulations were defined as “above 33 kV,” ignoring the need for a distribution code in an era where distributed generation is on the rise and will eventually become the primary generation provider. This not only results in an unregulated block of energy generation and transmission in distribution networks, without appropriate technical security and economic regulations. Serious control problems leading to power outages or blackouts are unavoidable.

IESL calls on the government to seriously review these glaring shortcomings and amend the proposed law to ensure that the above and other serious shortcomings identified in our detailed report are addressed. Without changes, this bill will further exacerbate the management problems, unreliability and high costs that have plagued the electricity sector for decades. The proposed law, if implemented without these amendments, will fail technically and economically, causing excessive political interference at every step.