Of Principles and Energy Blackout

Ever since Mr Bérenger raised the question about a possible blackout of electricity in 2016, as mentioned in a recent World Bank report, there has been a lot of talk about past decisions and indecisions.

It is in the habit of politicians to cast the blame for failure (present and future) on acts and omissions of previous politicians. That may be good rhetoric but it doesn’t help when it comes to day-to-day realities. Should there be an electricity blackout, people may be influenced politically to blame those who didn’t take decisions or chose not to act in any particular direction recommended in any report. But when they actually face the blackout, it is politicians currently in power who will have to grapple with the problem of generalized discontent.

The basic question is how we may have been led into a condition of not being able to meet normal demand by producing electricity at full installed capacity in both the private and public sectors, with the result that any technical failing of one installed capacity or other results in a blackout. Elementary common sense dictates that there should be and have been enough idle spare capacity in place so that any shortfall occasioned by disruption of supply due to one over-aged plant or supply contract coming to term does not lead to entire swathes of the country being in the blackout. It appears that we have not paid heed – deliberately? — to that kind of a fall-back position in the immediately foreseeable future.

Why? Obviously, there has been failure to wake up to the reality of the situation. Given the consequences, one would have thought that everything would have been done to accelerate the installation of new capacity when time was on our side so that we do not fall in a situation of ceasing to operate for having fallen on the brink of disaster.

We are told that one past bid for the supply of additional capacity by a Scandinavian firm was rejected presumably because it would not have complied with the specifications of the bid requirements. If that is the true reason the bid was rejected, well and good. If not so, then this begs the question: have we gambled and headed towards a disastrous situation due to some questionable motive which is not clearly visible at present?

Another example is the resistance shown by the new government to the coal-fired CT Power project that has been long waiting to materialize. One was under the impression that this was meant to pacify an anti-coal lobby. Several administrative handicaps appear to have been created, even during the previous government’s term of office, for this project involving the production of 110 MW of electricity not to come to life.

Lobbies might have been at work with the twin objectives to prevent “intruders” from occupying an area of production which seemed to be reserved to some privileged and exclusive group of IPP promoters and to obscure from public sight the real cost of production of electricity based on coal so that the CEB keeps paying the former producers an inflated price for electricity supplied. So strong has this lobby been that the promoters of CT Power have had to go to court to get the necessary clearance, even after they had already been issued the Environmental Impact Assessment (EIA) certificate, implying that the environmental risks posed by the project had been assessed and found to be compatible with laid-down standards. They have again been sent into the jungle despite this.

Be that as it may, while CT Power still has had to go to court to remove some latest additional conditionalities put before it, the new government/CEB appears to have taken the decision to give a new contract to an existing IPP, ALTEO, allegedly to proceed as from 1st August to produce and sell to the CEB 2×45 MW electricity for the coming three years. The fact is that ALTEO’s contract to supply electricity lapsed on 31st July 2015, following an extension of contract given to it in 2014 for up to 31st July 2015 to produce its electricity based solely on coal while it was charging the higher price based on the more costly bagasse-coal mix of resources to the CEB and, hence, to consumers.

One would have expected the government/CEB to have invited fresh bids from all potential bidders to fill the gap in electricity supply in anticipation of the expiry of ALTEO’s contract on 31st July 2015. No such invitation for bids was seen. Why? No one knows, unless the assumption is that shares of the electricity market should be carved out among the existing IPPs, now and in the future.

Clearly, the element of fairness in the allocation of public contracts and giving consumers a chance to pay less through competition for their electricity supply — at a time oil prices, and hence the cost of producing thermal electricity has gone down — was missed in the process. Who has been speaking of productivity gains of our enterprises in this era of global competition by, for example reducing input – such as electricity — prices? Renegotiating through renewed invitation for bids the iron-cast one-sided IPP contracts at their expiry for renewal on terms and conditions more favourable to the public interest would have made more sense, including in financial terms. But this aspect does not appear to have even been considered.

Another impact of the decision to allocate the three-year not-bid-for contract to ALTEO is to be seen by what happens to CT Power. Coal being coal, if there was no objection to ALTEO getting on with its new contract based on coal as input, why was the CT Power project which is equally based on coal not considered on the same footing as ALTEO? There was no notice published by the Ministry of Environment at the time or before the new contract was granted to ALTEO that the latter had been asked to meet EIA requirements or that it had satisfied all the criteria to have been awarded the EIA certificate in respect of its new coal-fired project. Yet, it sailed through.

Unlike CT Power which had to satisfy the court that it will abide by all the conditions laid down in the matter of respecting the terms of its EIA, it would appear ALTEO was not subjected to the same process before the new three-year coal-based contract was awarded to it without going through a bidding process. One would want to know the reason(s) why all power producers, including new ones, are not treated on a par with each other.

CT Power would legitimately have a serious concern with the additional supply (2× 45 MW) of electricity to the CEB by ALTEO, apparently allocated to it without following the necessary bid procedure, if that was effectively the case. Being a potential supplier of coal-based electricity to the CEB, CT Power would feel prejudiced inasmuch as the supply allocated to ALTEO might impact on the CEB demand from the very source CT Power was earmarked to meet. In the worst case, given the series of administrative tracasseries CT Power has been facing all these years, it would appear the plan would be to rid the place of anyone not forming part of the existing club of IPPs.

The entire process, from working our electricity supply at the edge of installed capacity as if to have no choice left than to renew the contracts of existing IPPs at the risk of facing serial power blackouts, appears to be going against the interests of the country. It is well known that precipitous decisions taken in the face of wilful or unintended emergency situations created in as sensitive an area as the country’s electricity supply carry a cost – a heavy cost.

Were we to keep playing in the hands of the historical producers, we would have nobody to blame but ourselves. We would also have to admit, by the same token, that the reality is that we could push the sector to its extreme limits each time at the risk of blackouts to suit the pursuits of a handful of producers making the difference between whether we get our light or remain in the darkness they confine us to from time to time.

For a government which claimed to tread solidly on principles, there is a big public disappointment from the deeds it has been doing or not doing.

  • Published in print edition on 14 August 2015

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