The CEB-Terragen Tussle
The issues related to the use of biomass, and in particular, cane bagasse, towards electricity generation are at several levels: from the use of a renewable energy source in our generation mix, through return on investment for millers to set up such generation units, to the adequate revenue sharing of electricity sales proceeds with cane planters and the price paid by CEB and ultimately consumers to such Independent Power Producers (IPPs). The generational trust deficit between planters, millers and large establishment planters has meant that all of the above could be and indeed have been contentious since the first IPP contract was signed and the Compagnie Thermique de Belle Vue, now known as Terragen, started operations in the north. Several in other regions followed suit in the early 2000s under the impulsion of the World Bank, although we are given to understand that their contracts, though still controversial, were not of the “take or pay” early model adopted for Terragen.
A further vexed question remained the necessary use of coal as complementary fuel when bagasse would not be available i.e., in the intercrop season and the rising green energy concerns both for cane millers/owners and, for instance, the proposed large all-coal CT Power project in Albion by a foreign investor which drew heavy flak and was ultimately abandoned. Unhappiness with either the precursor IPP contract model or later variants, made necessary a general review and a new cane sugar framework when the Labour Party-Alliance Sociale partners came back to power in 2005 followed by a report on a new greener energy strategy.
The situation has now come to a head with the announcement, this week, that Terragen Ltd was suspending its production of electricity due to the rise in prices of coal – from USD 206 end February to USD 430 on 2 March, according to l’express (its spot price was USD 308.20 on 4 May 22, according to Markets Insider). It is worth mentioning, as Hon Patrick Asirvaden, former Labour Party spokesperson on energy and chairman of ceb, pointed out on air yesterday, that the initial Terragen contract for twenty years has been renewed in 2020 (with or without renegotiation), while demanding that those terms be made public.
Although this unilateral Terragen decision, taken it seems after all high-level discussions for a compromise failed, has the CEB scampering to use its reserve capacities and reschedule its normal maintenance activities, the contract would have expired anyway towards December this year, something we reckon that the CEB would have planned for. All other IPP contracts signed in the early 2000s will also soon come up for renewal at the end of their 20-year initial periods and therefore the time is appropriate for a fundamental review both of our energy strategies, safeguarding and protecting the interests of all stakeholders, particularly those whose voices fail to reach higher abodes, while aiming for a greener, more sustainable Mauritius with greater food and energy security.
Energy minister Joe Lesjongard’s response to the current CEB-Terragen tussle, which has now reached the courts, is that Terragen Ltd would have accumulated profits to the tune of Rs1.5 bn from 2012 to 2021. In other words, what he is hinting at is that Terragen was also not doing its bit for the country in these difficult times ushered in by the Ukraine war, which is affecting the global economy via financial sanctions, commodities prices and supply-chain disruptions.
It bears repeating that it was in the mid-1990s that experts of the World Bank and the IMF recommended that the CEB, which had for most of its existence been both the producer and distributor of electrical energy in the country, should give up its role as producer of electricity to the big sugar producers (which had then started diversifying into real estate and energy production), and to restrict itself to being its distribution and marketing agency. That recommendation was adopted by the then government, possibly because the CEB could not then afford the huge capital outlays necessary to step up its production capacity, but it resulted in the CEB losing its key role in the production of electricity. Up to 60% of the electricity the CEB distributes to the public comes today from the IPPs of the sugar producers.
According to the precursor “take or pay” Terragen contract then signed by the CEB, the latter had to buy up all the electricity produced by the IPP in the first place and only then make good any residual shortage in the demand through its own production. This means that the CEB has to install spare capacity (thermal and hydro-electric) and keep it aside so as to activate it to make good any shortfalls in supply from the IPPs. But if IPPs are increasing their supply, the CEB should cut down its own production to take up the IPP supply, no matter if its own installed capacity has to remain idle.
This and the other contracts between the CEB and the IPPs also provide that any fluctuations in cost due to higher cost of inputs (including coal), any external or internal price inflation, changes in freight rates, any adverse effect of exchange rate changes on the cost of production of the IPPs, any taxes will be factored into the price of electricity charged by the IPPs. In other words, the IPPs are passing on all risks to the CEB and, by extension, to the public.
The contracts between the CEB and the IPPs, which thus operate as a quasi-collective monopoly, speak for themselves. Under existing arrangements, the public sector has no say in the price at which electricity is delivered by the IPPs to the CEB. Earlier attempts by the government to bring the IPPs to review the price charged and other conditionalities in their contracts with the CEB have failed despite the recourse to an independent foreign mediator.
Moreover, attempts to bring in other competitors in this market have met with all manner of restrictive market practices and misinformation. Lobbies might have been at work with the objective of preventing “intruders” from occupying an area of production which seemed to be reserved to some exclusive group of IPP promoters. So strong has this lobby been that the promoters of CT Power 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.
The present government is surely also aware of all the issues flagged above, including that of the powerful vested interests and their lobbies. The question is whether we can look forward to the government acting as the true custodians of the public interest, and spare consumers from having to continue sustaining a heavy burden or will it urgently look into ways to mitigate the unhealthy hold of the IPPs over the energy sector?
Mauritius Times ePaper Friday 6 May 2022
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