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CEB: Expectations and realities

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CEB: Expectations and realities
From a planned to an open economy
The crux of the economic challenge
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Background to the largest engineering enterprise in the country

The Ceylon Electricity Board is, I believe, the largest single engineering entity in the country in terms of professional engineers employed and asset capitalisation. It is the guardian of a vital public good, electricity, and one whose delivery involves the most sophisticated technological challenge of all of Lanka’s engineering and industrial activities. I had the honour to deliver the 2009 Wimalasurendra Memorial Lecture at the Institution of Engineers (Sri Lanka) on 17 September and I will devote my columns this week and the next to edited and collated extracts chosen to be of public interest. The theme of the material I have chosen for these two pieces (the lecture itself went beyond these themes to deal with environmental and social questions) is reform of the electricity supply industry in the light of the sector’s own problems and worldwide advances in this industry.

Why was the CEB formed?

The landmark event in the history of the electricity supply industry in Sri Lanka was the formation of the Ceylon Electricity Board in 1969. The assets and functions of the Department of Government Electrical Undertakings were transferred to the CEB which was charged with all the technical and commercial responsibilities of generation, transmission, distribution and supply. There were, however, more fundamental motives for setting up the CEB. First and most important was to establish an entity which could borrow monies and enter into contracts with the World Bank and other foreign organisations. This was crucial in order to finance the large hydro projects which were in the pipeline. Section 42 of the CEB Act No. 17 of 1969 provides watertight guarantees protecting the interests of the lender and grants exception from taxes and stamp duties. The legal authority to enter into contracts and to buy electricity in bulk has been a cornerstone of CEB activity in the last 40 years.

A second function devolved on the CEB was to fix charges and tariffs, and as stated in Section 38 of the Act, to ensure that revenue was equal to outgoings. In recent years this requirement has been openly violated in order to satisfy the populist aspirations of successive governments. A third most laudable objective was that it was imagined in the early days that the CEB would function independently of ministerial control and political interference, and would adhere to high professional standards of management free from the burdensome constraints of government administrative and financial regulations. Section 8 of the Act in fact strictly limits the powers of the Minister to three aspects - general and specific directives in the national interest, calling for information, accounts, returns and the like, and thirdly to take steps to investigate the affairs of the Board when the necessity arises.

There is no provision of the CEB Act which has been more flagrantly violated than this. I can speak from some personal experience since I was on its Board of Directors (at the tender age of 29) from 1970 to 1974. The Board simply had no independence whatever; it was a creature of the Ministry and I was thankful to escape from reappointment for a second term. And still, in those days, political interference was nowhere near as bad as it was to become in later decades. It can be asserted with little fear of contradiction that of the three basic objectives envisaged in the creation of the CEB, only the first has come to fruition.

We need to frankly address the question why the independence of the CEB from government and political control could not be ensured. To my mind, in order of priority there are four reasons. First, the CEB was too big, too much a centrepiece of national infrastructure policy, its funding too large and too heavily underwritten by government, that it was unrealistic to expect that it could escape the heavy hand of state intrusion. In all developing countries the state is the driver of infrastructure development and the big spender and its writ runs large in the formative years of any vital national infrastructure industry.

The second reason is that the Republican Constitution of 1972 decreed that the political establishment would oversee the public service, thus disabling the independence of the latter from politics; the CEB was caught up in this shift of culture. A third reason that has been suggested is that the simple love of graft and the opportunities for colossal enrichment that multi-billion rupee projects provided was simply too much of a temptation for the political establishment to keep its hands off. Finally it is suggested that the absence of an independent regulator allowed the CEB to be decision maker, regulator producer and seller and that this arrangement became self-destructive.

Political interference and graft have always been closely and inextricably entwined. The social challenge facing the sector is this questionable ethos. The last fifty or so years have been marked by some spectacular successes, the Kelani and Mahaveli projects and the extension of service to 83% of households, for example. But the failures have been of disastrous proportions too. It is not just that we are bleeding dollars into oil and gas wells, but also that a subculture of politicisation and corruption has taken hold.