Infrastructure Development - Need for Energy Sector Reforms

The keynote address made by Power and Energy Minister WDJ Seneviratne at a seminar in Colombo yesterday

It is a great pleasure for me to be present at the inauguration of this very important seminar organised by the Chamber of Construction Industry, Sri Lanka. The subject selected for the deliberations in this seminar is very pertinent because at present we face enormous challenges in ensuring future energy security.

The Government has a duty to ensure that energy supplies are available, sufficient, affordable and sustainable.

The National Energy Policy of Sri Lanka which was published in June this year spells out the major policy elements adopted by the Government in order to fulfill its responsibility.

This document also spells out implementing strategies, specific targets and milestones through which the Government and the people to develop and manage the energy sector in coming years.

Providing future energy security is the prime objective of the Government. It is a concern not only for us. Over the last few years energy security concerns have moved up the global agenda due to unpredictable supply and rising demand for energy. In order to face this challenge we have taken a broad range of measures based on the National Energy Policy.

Since energy security is a very broad subject, I wish to focus my address only to the electricity sector. I would like to draw your attention to some of the significant measures taken by the Government to strengthen this sector.

Although the performance of the electricity sector is being criticised very often, we should also appreciate Sri Lanka has done better than some of its neighbours. Our level of electrification is 83 per cent.

The percentage of electrification in India is 56 per cent, Pakistan it is 40 per cent and in Bangladesh it is 33 per cent. We are in a position to supply the demand without resorting to regular power cuts whereas many South Asian Countries experience power shortages at least during the peak demand periods. We have also been able to provide a satisfactory standard of service.

In spite of very high generation costs we maintain electricity tariffs at an affordable level.

Although our achievements are significant in comparison with other countries in the region, we must not be complacent with our progress. The threat of a power shortage during a period of a severe drought is still there. The reliability of power supply needs to be improved. Standard of service provided to the customers has to be greatly improved. In short we need a more efficient and dynamic power sector to achieve a higher rate of socio-economic development.

Ensuring security in power supplies is not an easy task. Due to the global situation of unpredictable supply and rising demand for energy, this task has become even more difficult.

The foremost challenge we face is securing investments for the development of infrastructure to meet the increasing demand for power which has been 7 per cent a year. We need an annual investment of nearly four billion rupees. This scale of investment cannot be expected from traditional sources of funding.

The Official Development Assistance (ODA) can provide only a fraction of this requirement. In facing this challenge innovative funding solutions and greater private sector participation are required. In order to attract private capital to the sector, improved governance and greater transparency should be ensured through reforms.

Sustainability of the sector is another major concern that we have to address. The sustainability of energy supplies all over the world is threatened due to two main reasons. The first is unpredictable supply of primary energy used for electricity generation.

We have been faced with high and often volatile prices for energy, particularly oil, combined with supply disruptions caused by political instability in some main supply countries.

The second reason is rising demand from the emerging economies such as China and India. In Sri Lanka this problem is compounded due to the fact that we have no indigenous fossil fuel resources.

The other main concerns in ensuring energy security are providing service at affordable levels, rationalizing pricing systems and improving sector governance. These challenges are formidable. But we are confident that we can face them successfully. We have already take broad range of measures in order to ensure the future security of power supplies.

These measures include establishment of several new large scale power plants, development of renewable energy sources; improvement of energy efficiency and conservation.

In addition we have paid attention to sector reforms in order to improve governance and provide better service to the customers. As a long term measure we have accorded a high priority to the Regional Corporation in energy services.

Norochcholai coal power plant having capacity of 300 MW is expected to complete by year 2010. It will be expanded to 900 MW by the year 2013. Upper Kothmale Hydro Power plant with a capacity of 150 MW will be commissioned in 2011.

The proposed Sampur coal power plant will add 500 MW to the system by 2012. In order to overcome the short-term supply problem, Kerawalapitiya thermal power plant will be commissioned shortly.

While ensuring future power supplies with addition of these large plants the Government has given high priority to the development of non-conventional renewable energy sources.

Sri Lanka Sustainable Energy Authority was established for the promotion and facilitation of the development of renewable energy sources. IT is targeted in 2015, that 10 per cent of electricity will be supplied using these sources.

On the other hand we have launched a programme to promote energy efficiency and conservation through the Sustainable Energy Authority. Certain efficiency and conservation measures will be made mandatory by the SEA. Under this programme higher energy intensity will be achieved.

With the full implementation of the above measures it will be possible to rest the power sector on a firm foundation. It will not only assure the adequacy of supplies but also provide power at affordable costs.

However, if we fail to implement long overdue reforms in the energy sector we may not be able to enjoy full benefits of these measures. There is an urgent necessity to implement reforms in order to ensure sector governance, competitiveness and higher level of transparency and efficiency.

Without implementing reforms we may not be able to attract much needed investments to develop the infrastructure in future and we would also fail to provide services up to the satisfaction of the consumers. The electricity supply industry is dominated by state sector institutions.

The Ceylon Electricity Board has a near monopoly in the industry. The sector has to be regulated by an independent regulator. For this purpose Public Utilities Commission of Sri Lanka (PUCSL) is already in place.

However, unless the industry legislations are enacted, the PUCSL will not be effective. Realising the importance and urgency of reforms and empowering the Regulator the Government has decided to take early action to enact necessary legislations.

I am confident that these reforms along with the implementation of broad range of measures I have already explained would guarantee the sustainability of the electricity sector in the country.