CEB Chief told to renegotiate IPP contracts

electricitymeter     The Ceylon Electricity Board (CEB) would have saved Rs. 48 billion by today if it had implemented the 2007 Cabinet decision to renegotiate the Independent Power Purchase (IPP) contracts, a top official said.

Treasury Secretary Dr. P. B. Jayasundera, in a letter to Power and Energy Ministry Secretary M. M. C. Ferdinando, pointed out that if renegotiation of the existing IPPs, in terms of Cabinet decision dated November 14, 2007 and other technical measures had been adopted to reduce average cost per unit, the possible savings from such a measure could be estimated at Rs. 12 billion on an annual basis.

Meanwhile, Power and Energy Ministry Secretary M. M. C. Ferdinando last week has urged CEB Chairman W. B. Ganegala to renegotiate the terms and conditions with IPPs, which he termed as a matter of concern for the ministry since the early part of 2008.

Ferdinando, in his letter to the Chairman, pointed out that all previous CEB Chairmen had been advised to attend to the matter without further delay.

However, according to the Secretary, who had worked with four ministers, the situation was regrettable as no tangible result has been achieved by the Board to date.

The Island learns the Secretary has instructed the CEB Chief to take immediate action, in consultation with the senior management and the Chief Legal Officer of the CEB, to adopt a meaningful mechanism to renegotiate the terms and conditions of the Power Purchasing Agreements (PPAs) of thermal power plants that are currently in operation and to report the progress to the ministry.

The Secretary has also recommended a set of guidelines to commence the renegotiation process.

According to the guidelines in regard to the extension of the PPAs, whose validity have already expired, no capacity payment for debt servicing is permissible and those IPPs are entitled to receive only return on equity as capacity charge.

In the event there is a request from IPPs to meet expenditure for overhauling the plant for its smooth operation during the extended period, if satisfied by CEB Generation Engineers, that such overhaul is essential for maintaining the reliability during the extended period, only reasonable overhaul expenditure is permissible.

The guideline also says the interest rate shall be the market interest rate prevailing today on either floating or fixed interest rate. The insurance charge should be based on the declining asset value of the plant and not on the original value.

It further says there would be no charges for working capital for extended period as the working capital had already been paid by the CEB and such amount had not been returned to the CEB by IPPs at the end of the project. The percentage of the asset value that was to be owned by the IPPs should be limited to maximum of the IPPs equity share as the loan component had been serviced by CEB through capacity charge

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