A More Rational Energy Policy Needed 


Water, food and energy are three critical poles on which to centre our socio-economic development. We have been going through a precarious condition as regards our water supply as the general situation since past months has been amply illustrating. Internal food security on its part is increasingly being forsaken as cultivable lands keep going out for real estate development. We even have to import sugar now for our local consumption in view of shrinking production and insufficient improvement of land productivity. With regard to energy, last December saw a major hike in the price of electricity, indicating that strains have been building up on the energy front as well. Further price hikes cannot be ruled out in view of the volatility of upward moving price of fuel oil. We are facing increasing risk therefore in terms of our energy security. As the adequate supply of energy at a competitive and affordable price has a consequence for all other lines of domestic production, one cannot emphasize enough the utmost attention the energy factor should be receiving at the policy and implementation levels.

Replying to a useful question from the Leader of the Opposition, Paul Bérenger, on Tuesday last about our capacity to meet demand for energy in the immediate, the Deputy Prime Minister (DPM) and Minister for Energy, Dr Rashid Beebeejaun, stated that action had either been taken already or was in the process of implementation in order to forestall any serious mismatch between demand and supply. According to him, forecasts of energy requirement have been scaled down for coming years on account of falling demand associated with deceleration of development project implementation. The Central Electricity Board (CEB), a state-owned enterprise which owns the national grid, has accordingly forecast an annual average demand of 427 MW over the period 2010-2014 with a low of 404 MW in 2010, a peak of 454 MW in 2013 and a median demand of 430 MW in 2012. The DPM added that installed capacity in 2012 is expected to produce 432 MW in that year against the expected demand of 430 MW.

The situation appears to be tenuous. One has to bear in mind that variation in the level of daily demand during peak and off-peak times can cause the limits of installed capacity to be breached, with the attendant risk of important power shortages.

Paul Bérenger appeared to have his own doubts about the adequacy of the arrangements in place, as described by the DPM, to meet demand for electricity, especially during the first half of 2012. He therefore recommended that two additional coal/bagasse power plants of 50 MW each needed to be installed to meet likely immediate shortfalls in electrical energy supply, particularly in 2012. The suggested coal/bagasse power plants should remind us that the Independent Power Producers (IPPs) came into being and multiplied on the assumption that they will produce energy using a clean renewable source of energy, notably bagasse, over which they had control by virtue of their ownership of the large sugar estates, combined with imported coal. It was believed that use of the local input of bagasse in the IPP mix would keep cost of electricity production down compared with the high cost of producing thermal electricity by the CEB based uniquely on imported fuel oil.

In principle, no risk need be taken by the country as regards installing sufficient production capacity to avoid the serious inconveniences of frequent power shedding. This is necessary the more so as, according to the contracts tendered to the IPPs, the CEB has to make good all cases when the now main source of electrical production for the country from existing IPPs proves inadequate to meet demand. IPPs have been authorised since the late 1990s to virtually take over the production of electricity from the CEB. They are owned by the few historical owners of the large sugar estates who thus found an opportunity to step into energy production, a lucrative new line of business, by displacing the CEB.

In fact, the bulk of the electricity supplied to consumers since several years now is obtained under cast-iron contracts binding the CEB to a few private sector IPPs taking virtually no entrepreneurial risk under those contracts. Accordingly, the CEB is also obliged to take upon itself all risks of price fluctuations of inputs of IPPs, exchange and interest rate variations, price inflation in import source countries, etc., while making its own production of electricity subordinate to whatever is supplied by the IPPs by becoming a residual provider to consumers of whatever the IPPs cannot supply. As things stand today, those IPPs have no spare bagasse to follow up on the recommendation made by the Leader of the Opposition for authorising two additional coal/bagasse units of 50 MW each. Moreover, they are actually substantial users of imported coal in the production of energy when they are not running their plants exclusively on coal.

In the circumstances, electricity production can only be increased via units using a mix of imported coal/biomass or diesel oil. This does not fit into the model of existing IPPs which are supposed to be operating on a coal/bagasse mix to optimise renewable energy production. Besides, those IPPs are currently operating with a production efficiency ratio of 26% compared with a higher efficiency ratio of 32% for the proposed CT Power project that failed to satisfy the EIA criteria in January last and that has appealed against this decision.

It should therefore be open to government to grant the authorisation to more efficient developers in the direction of making it less onerous for both the CEB and consumers than it is actually the case with the IPPs. If the information is verified that IPPs are currently producing electricity (which they sell over to the CEB for distribution to the public) at a unit price higher than the CEB itself, which has a dominant thermal production base, the argument that was employed to have IPPs produce electricity instead of the CEB is stood upon its head. We should not drag on with a situation that is becoming increasingly inefficient. Inefficiencies need to be identified and redressed so that the public does not keep paying up higher bills than justified for the next twenty years, i.e. the duration of the IPP contracts. Since all the IPPs are operating on almost identically secured contracts, there is the further risk that we might have fallen into a cartelised production and sale structure for electricity for quite some time. This kind of structure dictates indirect price collusions among the producers to the detriment of consumers. To remedy this situation: either CEB is given back the autonomy it lost to the IPPs or newer more technologically advanced enterprises in the field are brought in to force the IPPs to produce cleaner energy at lower prices in competition.

Electricity is a strategically important source of energy in a country that has failed to lean more fully on alternative ocean wave, hydro and Aeolian sources of energy so far. A wider encompassing strategy is thus needed. This strategy has to be developed not only from a commercially viable angle (that means costing the electricity input so as to enable the country’s economic activities to be undertaken cost-competitively compared with other countries) but equally as well by keeping aside space for employing alternative renewable supplements as and when available. We should not be dictated by the extent to which existing IPPs happen to use their installed capacity howsoever inefficiently and at whatever high costs. The public interest should be uppermost in all such decisions. This does not appear to have been the case.

Seen from a broader angle, politics is also about ensuring a more equitable distribution of wealth and resources in a country. Development projects see the light of the day under this process which includes roads, electricity, water, schools, primary health care centres, law and order, etc. In this context, the further question arises: development for whom? Sheer development is not all. Development should bring into the fold different social groups by creating a wider constituency distinct from self-seeking narrow private interests. Let us increase our energy production capacity – and other projects as well – bearing in mind this wider and more inclusive dimension of true economic development. Development in the true sense of the word will be taking place the more we reduce the risk of being held hostage by a handful of producers more interested in pure legalities than in a fairer distribution of opportunities to a wider spectrum of the population.

* Published in print edition on 22 April 2011

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