This has nothing to do with Sri Lanka, I just have a fetish for Chinese Propaganda Posters. I am unclear whether the hand in this image is Communist or just burnt.
This is on the Ceylon Electricity Board, A.K.A. ‘mamma’s boys with blank checkbooks’, A.K.A. ‘JVP’s drool-soaked dog toy‘, A.K.A. ‘Money Toilet’. My main experience with the CEB is not having electricity. They are also 13 billion plus in debt, so obviously not well run. I was watching Queen B on the TV and she blamed the CEB for strangling the whole economy. I wouldna go that far, but reforms are definitely in order. My grasp of economics is both offensive and largely irrelevant, so herein is a post by Ruwani. The JVP hissy fit seems to have shelved any reforms for now, but it’s still worth looking at. If your lights are on.
Before the article, I would like to pose a few additional questions that I think future reforms should address:
*Why are there 3 plug points in this country?*
There’s the 3 round, then the 3 square, and the 2 round. Sometimes I have to put an adaptor on an adaptor. Why can’t I just charge my phone without solving puzzles?
*Since when is it normal to stick pens in electrical sockets?*
My whole life people have being telling me not to do this. Jeremy did something similar with his stove and got knocked right on his ass. I have seen fully respectable adults shoving objects into plug-points and it confuses me.
*What is this tingling sensation?*
I had a monitor plugged into this one plug in the office. Everytime I touched the monitor or the PC it would shock the shit out of me. It was painful, but I kept doing it. Is my sperm count OK?
Uh, here is an article by Ms. Ruwani Hettiarachchi. There is also a table you lucky bastards. I reframed them as a FAQ cause it feels like talking to myself.
How Does Electricity Provision Work?
Electricity Generation is what is known as a “natural monopoly” – it works best when there only one or two firms in the business of generation. Distribution and Transmission, however, have the potential for unlimited competition. In the UK, for example, thousands of distributors compete via an auction mechanism every half-hour, every day. The central system is called The Grid – worth looking up if you’re turned on by perfect competition. It’s an economist’s dream come true, as situations like this can never be simulated (sometimes there’s drool).
Utilities like electricity, water and telecommunications are such that the consumer is not the only person who benefits from it. Social benefits greatly surpass private benefits and costs. Network utilities are special, for example the Internet, or a particular operating system. The more people that use it, the more benefit there is to each individual user.
Electricity provision in a developing country is a costly affair. In a debt-laden country like Sri Lanka, further debt in utilities causes some serious macroeconomic issues. It’s full of potholes currently because of the enormous initial capital outlay required. These costs ease over time but only if widespread demand for electricity does not outpace economic growth like it has been in our part of the world (Munasinghe & Mayer, 1993).
Widespread electricity diffusion has a direct impact on health and welfare. Refrigeration is directly related to an increased life expectancy. Electric lights have been proven to be better for eyesight than kerosene lamps. Though data is low, I’d imagine that kerosene fire accidents are a major hazard as well in Sri Lanka, or at least I’ve heard.
How Does The CEB Work?
The industry is 56% Dependent on Hydro power generation – highly fluctuating as can be expected and is fully dependent on weather. The rest is thermal energy and wind power – both on the rise. Only 73.9% of houses are electrified. How are we doing so far?
The CEB monolith has also scared away private investors from joining in the fun and frolic of the power game. *Hired private power for wind and thermal projects was down 13% in 2003, and will not pick up unless reforms are moved in faster*. Private power projects are not much to speak of, the largest being the 60MW barge mounted power plant (Colombo Power Pvt. Ltd). This means less for all of us; it’s the dog in the manger. The private sector can do better and will do better, but it just can’t compete against a mamma’s boy with a blank checkbook – with short term debt liabilities of more than Rs. 13 billion and counting.
Electricity Generating Capacity doesn’t have the impact on economic growth that would make it any worse off being a private concern. That is, if the Ceylon Electricity Board is sold off as is, fair and square, apart from short-term unemployment through lay-offs, growth will not slow down and private returns will not be so drastically high that it becomes lucrative. But there are other, more important problems at stake – like efficiency and financial stability that has turned the CEB into our favourite little monster.
There are bids for coal power plants to the private sector. Everyone has something to say about this: it’s dirty, but it’s cheap, it’s an expensive outlay and we don’t have the kind of technology for it, but at the end of the day we’re poor and we’ll take what we can get until we can be choosy about it. Because with all this shilly-shallying on tenders and reforms all we’re doing is guaranteeing more power cuts in the future and there are no other immediate improvements in sight.
So, What Are These Reforms?
The new cabinet paper to be presented in June seems to be a more subtle Fuck You to the JVP and trade unions. I’ve no idea what it will encompass because it’s all Top Secret, but the last cabinet paper was a revision of the original Electricity Sector Reforms Act No. 28 of 2002. CEB was to be “unbundled” that is, break up the monolithic drool toy into seven companies: five distribution companies, one Generator and one Transmission company. This will be opened up to compete with the private sector and a regulator will be installed.
Who Will Regulate The Reforms?
The proposed regulator for the CEB, if reforms are ever pushed through will be the Public Utilities Commission of Sri Lanka. A regulator is usually an independent body assigned to watch out for you, the consumer. It’s like putting a leash on the dog in the manger. They have to ensure that this potentially monopolistic beast will not dupe you and undersupply and overcharge. Very basically, they are assigned to make sure that the once loss-making public utility does not turn into a heinously monopoly that steals your money outright. Issues here are: transparency and politics – regulators have to be able to discern and obtain good information whilst providing sensible incentives to keep the company working. They usually work on short-term contracts because the longer they hang about; basically the longer their own performance is dependent on the success or failure of the firm. Once corrupted and politicized the regulator can safely be called Project Good Money after Bad.
So, What Is The Impact of Privatization?
In the last two decades there has been a major global drive towards developing infrastructure through privatisation. In Sri Lanka “reforms” may be the rude word of the day. But you can’t deny the evidence of countries that have adopted market oriented targets for utilities
# Most studies find a sharp improvement in financial and operating performance
# Extensions in Investment and Service coverage.
# Significant cutbacks in employment (up to 60% of firm’s employees) but small with respect to the total workforce, and partial reversal in the medium / long term.
# Improvements in the fiscal position of governments.
# Prices decreased in about half of the cases.
# Distributive impacts look rather satisfying.
*Table: Electricity Privatisation and Impacts in selected developing countries*
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| – | Access | Price | Consumer Welfare | For Poor Consumers | Inequality |
| Argentina | 3.8% | -16.1% | Positive | Positive | Reduced |
| Bolivia | 2.9 | -8.3 | Highly Positive | Positive | Reduced |
| Nicaragua | 11.7 | 24.2 | mixed | Highly positive | Small increase |
(Adapted from McKenzie and Mookherjee, 2002)
Estache, Gomez-Lobo and Leipziger put out a paper a few years ago that examines the popular-press view that privatisation was viewed as hurtful to the poor, they documented the experiences of Latin-American countries that have adopted market-oriented goals in their utilities sector over the last 20 years and here’s a summary of what they found, I like to call them the ghost-busters, because they dispel myths:
# Utilities Privatisation is a part of wider group of reforms and the status of the poor is affected by more than one factor – weakness of the welfare state is one of them.
# In Columbia, 80% of public sector subsidies went to the electricity sector which benefited mostly middle-income households in 1992.
# If privatisation is designed properly, it has the potential to end the exclusion of the poor which is perpetuated by cash-strapped public utilities. In Santiago, Chile 29.4% of the lowest income decile did not have electricity, once privatisation was introduced this dropped to 7%.
# Higher effective tariffs may result as privatisation is introduced, but this is a necessary precondition to the entrance of competition, if the pricing formula is right, prices cave.
# In Argentina, the effectiveness of the restructuring process and the success of the introduction of competition was such that the wholesale price of electricity in Argentina dropped from 48.76 US$/MWh in 1992 to 25.67 US$/MWh in 1997.
# Prices of substitute goods can be expected to plummet: for example firewood, Kerosene and lamp oil. This stimulates the advent of renewable energy.
# Poorer households will benefit from an increased quality of service, and are willing to pay substantially more for a reliable energy supply, where they spend a disproportionate amount on substitutes.
# It is a myth that there is no role for government once the private sector takes over utilities services. The way markets are restructured, the way competition is introduced and maintained and the way regulatory commitments are implemented determine whether privatization is beneficial to households.
What’s the Role of Politics?
The CEB’s current targets are heavily politicized; in cases past it’s often been that the government is faced with a trade union lobby with the muscle of the JVP behind them, which means protecting jobs becomes the goal of the parties concerned and not better quality services.
This is what I mean by myopic, yes we’ll lose some jobs, but “commanding heights” was the mentality of the Soviet Union during the cold war – the suffering of the CEB worker can’t go untouched in this discussion: appropriate safety nets should be designed with revenues and profits from privatisation where unemployment can be cleverly absorbed with a little creativity within the next business cycle.
Being violently denied access to more equitable, fairly priced services because of politics compromises the sustainability of any public investment. This sets a dangerous precedent for the negotiations of other enterprises of this scale. The word I’m looking for is cheap. It’s a cheap shot to gain some short-term political points in this issue. Yeah, in my little dreamland economics is apolitical.
Things To Piss You Off
“The private sector can do better and will do better, but it just can’t compete against a mamma’s boy with a blank checkbook – with short term debt liabilities of more than Rs. 13 billion and counting.”
“Electricity Generating Capacity doesn’t have the impact on economic growth that would make it any worse off being a private concern. That is, if the Ceylon Electricity Board is sold off as is, fair and square, apart from short-term unemployment through lay-offs, growth will not slow down and private returns will not be so drastically high that it becomes lucrative.”
“With all this shilly-shallying on tenders and reforms all we’re doing is guaranteeing more power cuts in the future and there are no other immediate improvements in sight.”
“Once corrupted and politicized the regulator can safely be called Project Good Money after Bad.”
“You can’t deny the evidence of countries that have adopted market oriented targets for utilities – most studies find a sharp improvement in financial and operating performance”
“Poorer households will benefit from an increased quality of service, and are willing to pay substantially more for a reliable energy supply, where they spend a disproportionate amount on substitutes.”
“Yes we’ll lose some jobs… appropriate safety nets should be designed with revenues and profits from privatisation”
This is some serious shit. :s Your country needs you, Ruwani. Get back here and apply for an advisor post in the Ministry of Power and Energy. No wait, don’t. That might mean an early suicide. Either way, I can’t comment on the content. It’s too early and I have class now. But will have a read later.
I read the article. I am not an economist. In fact for the purposes of this argument I will concede that I am daft bugger. Even despite that concession…how – and I repeat – HOW, can anyone, running anything, run up a debt of 13 billion rupees without hitting some sort of panic switch? WTF?
I understand how debt is accumulated. Yet, this is ridiculous. How are these things allowed to happen? Over to Ru.
Rs. 13 Billion+ is only short-term debt(like bank loans, where you have to repay them quickly). It doesn’t count long-term debt liken extensions from central bank and treasury, matured bonds etc. Here’s the closest I’ve come to their accounts: http://www.ceb.lk/generation/summary_statistics.htm – which doesn’t tell us anything. They made operating profits of Rs.940 million in 2003 compared to losses of Rs. 7 billion in 2002. They reserve the right to delay publishing their accounts till kingdom come. Thing is, I wish I knew things like how much of public sector subsidies go into financing them, and how much of tax revenue (e.g your mother’s salary) goes into making sure that these dudes can’t make our lights go on. I have a feeling that when it all comes out we’re going to be faced with a serious debt-hangover where someone’s gone on a spending spree with our credit card.