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Business


Ensuring energy security with high oil prices

Newly formed Sri Lanka Sustainable Energy Authority has a challenge

By Indika Sakalasooriya
Fulfilling a long felt national need the Sri Lanka Sustainable Energy Authority (SLSEA) was established recently through a new Act of Parliament. The institution is aimed at correcting some of the anomalies in the energy sector that have been causing immense loss to the economy.

When it was time for coal power plants and at a time when the entire world was going for coal power plants, Sri Lanka liberalized its energy sector and paved the way for the private sector to build up mini diesel power plants. Then the government agreed to buy their production to the national grid over a fixed rate which is way beyond what the CEB charge for a unit from a user.
However, it is very encouraging to see that the present government is going ahead with the proposed coal power plants. Further it is even encouraging to see that they have understood the value of a national energy policy.

Renewable energy is a concept that is literally beyond coal power plants and the fruits of it can only be plucked in the next 50 to 60 years with the developments in the technology. Therefore the energy experts believe that setting up of the SLSEA is correct decision at the correct time which will benefit the country immensely.
The Nation Economist had the occasion to meet with the Chairman of the SLESA, Ananda Gunasekera and following are the excerpts of the interview.

Q: What are the main responsibilities of this newly formed Sri Lanka Sustainable Energy Authority (SLSEA)?
A:
The main responsibility is that we have to see that energy security is well established in Sri Lanka. In fact our vision is energy secure Sri Lanka. The present energy supply system is not sustainable. We depend heavily on imported energy and that is fossil fuels. In a situation of very high oil prices the energy security can not be insured. In fact this is a global crisis and also it is a threat to human civilization as the human civilization is based on fossil fuels that are petroleum and coal.

After the industrial revolution, the entire economic system in the world was based on these two fuels. But these fuels are gradually diminishing and they will last only, may be petroleum in another 15 years and coal in another hundred or two hundred years. So the foundation of the entire modern way of life is threatened due to the low supply of theses oils. So the ultimate solution to this situation is we must look for the development of sustainable energy sources. That might take a long time, sometimes end of this century or may be the next century. What we have to do right now is we must join hands with the other nations in this effort of transforming the present unsustainable energy system to a sustainable energy system. In the short run we have to see that the current difficulties caused by the recent oil shock should be addressed. To minimize that, we have to take some short term actions like developing our renewable energy sources and enhancing energy efficiency. So the main responsibilities of the organization are to facilitate renewable energy developers by creating and enabling environment and also to improve the energy efficiency. Both these things are now constrained by various barriers. There are various barriers like financial, regulatory, technological etc. This authority will have to see that these barriers are removed and pave way for the rapid development of renewable energy on one hand and on the other hand improve energy efficiency. Both these areas have huge potential.

Q: You said that one of the responsibilities of the SEA is facilitating renewable energy developers. But as far as we know, the production cost of renewable energy is very high? How is your authority going to handle this situation?
A:
Well, the capital cost is very high in some of these renewable energies. That is why we recently introduced a cost and technology based tariff system for grid connected renewable energy sources. There we are setting the tariff based on the actual cost that the developers have to incur. So that it is a sort of a front loaded system and during the first seven years we are paying a higher tariff for them to cover the capital expenses. This will perform like a subsidy.

Q: What are the immediate priorities of SLSEA?
A:
The immediate issues that we have to address are that there are around hundred mini hydro power developers who are prepared to develop their sites. And CEB has already issued them letters of intent. But they cannot develop their projects because of various problems. Therefore our immediate priority in the renewable energy development area is to resolve this problem for them. Under the new sustainable energy Act we have some powers to handle their problems. And also there is a main potential is developing dendro power. But again there are some problems and we will be resolving them as soon as possible.
Q: Experts in the sector say that there is an absence of a national policy in the Sri Lankan energy sector and they point out that as the key reason for the present tragic situation of the energy sector. What is your response to that claim?
A:
Now there is a national policy. Recently the Cabinet has approved a national policy for energy sector and that is a very comprehensive policy. The next step will be presenting the draft to the Parliament in the near future.

Q: Have you already contacted the renewable energy developers and what is their response?
A:
Continuously we are having very good dialog with the developers. Even when we were preparing the new tariff we consulted all the stake holders including the developers. And also when we were drafting the new Act for the SEA we accommodated their views. In fact in the management board of the SEA, these developers are represented. Therefore we can say that we have a close interaction with the developers and we take actions in consultation with them.

Q: Regarding energy efficiency, the usage of CFL bulbs is minimum. Will you be addressing the issue?
A:
Yes we are addressing the issue. We are going to have a big promotion campaign very soon. There are several reasons for this situation. One reason is that the bulbs are too expensive than the normal bulbs. This is the main reason why CFL has not penetrated into the rural areas. And the other reason is the electricity bills of the people in these areas are very low because up to 90 units CEB charges are very low. So they are not very keen on investing on CFL bulbs. Therefore we want to introduce some sort of a subsidy scheme. Apart from that we will propose the government to give at least one bulb to each household who are using less than 90 units and that is around 1/3 of he consumers. Anyway it will cost something around Rs.500 million but it will not be a waste.

Q: What are the renewable energy sources you are presently looking at?
A:
Mini hydros, wind, dendro power and solar power. Those are the four main areas we are looking at presently and we have identified Sri Lanka has a lot of potential in these areas.

Q: Will the SEA be looking at imposing legislations on energy efficiency? Does SEA have the power to do that?
A:
Under the new SEA Act we have power to enforce some measures. But our approach is not to go and impose law as the first step. So we want to educate and encourage people and various big companies who neglect energy efficiency. We will also facilitate businesses to obtain bank loans and credit facilities for them to implement energy efficiency projects. And also we are going to have a labeling system for electrical appliances. We are going to give stars to electrical appliances depending on their energy efficiency. The very efficient will be given five stars and then the consumer will know about the energy efficiency of the product before he purchases it. Presently we are going ahead with ceiling fan labeling system and gradually we are going to expand into mainly all household electric appliances.

Q: What s the response of the market forces for this new ‘star’ categorization?
A:
We don’t worry about their response. We have the powers and we will implement it. This will enable the customers buy good and efficient products and it will indirectly make the inefficient, cheap and malfunctioning appliances that have been flooded the Sri Lankan market to take their leave. And also we are thinking of proposing to the government to impose tax barriers to these type of products.

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Lanka’s debut sovereign bond oversubscribed

Sri Lanka’s debut International Sovereign Bond for US $ 500 million has been oversubscribed more thrice when bids closed on Wednesday. The bonds have a 5-year maturity at 8.25 % per annum.
The distribution of investors in the Bond Issue was 40% from the USA and 30% each from Europe and the Middle East, and Asia respectively.

This spread of investors indicates the positive outlook on Sri Lanka’s economy, and the country’s unblemished debt service record among international financial investors.
The oversubscription of the Sovereign Bond demonstrates that the international financial community has accepted the remarkable resilience the Sri Lankan economy has displayed despite many shocks, over a long period of time, sustaining negative growth only once in recent years, in 2001.

Leading establishments in international finance JP Morgan, HSBC and Barclay’s Capital were Lead Managers to the Sovereign Bond issue for the Government of Sri Lanka, and the Bank of Ceylon was Co-Manager.
Investors have noted that the Sri Lankan economy expanded at 7.4 per cent last year, its fastest rate for more than decades, despite the shocks of international fuel prices, terrorist violence, adverse weather conditions affecting agriculture production, floods, landslides and similar natural disasters affecting production. The expansion of the economy was underpinned by rising domestic and foreign investment and record inflows of remittances from abroad.
The net proceeds of the bond issue will be utilized by the Government to supplement available concessional funds to develop infrastructure projects that have been previously approved by the Government and included in the current 2007 Budget, including in areas such as electricity generation, water supply, roads, ports, roads and railways development, especially under the Mahinda Randora programme.

The oversubscription of the Bond Issue by more than three times the offer was possible despite many attempts by sections the Opposition to obstruct the issue; a vigorous publicity campaign against the issue and the nation both locally and abroad; with leading members of the Opposition even threatening HSBC, one of the managers of the issue, with having its banking license cancelled if it went ahead with the issue.
The success of Sri Lanka’s inaugural international sovereign bond issue will also help open the door for Sri Lankan corporate sector to tap the international markets.

A spokesman for the Presidential Secretariat said: “The oversubscription to the Sri Lanka Sovereign Bond indicates the confidence the international financial investors have in Sri Lanka and their willingness to be partners in our progress.
As the investors were informed, proceeds of the Sovereign Bond will enable the generation of additional growth and also sustain the momentum of growth of the economy.”

****

IFS Sri Lanka chosen as a solutions provider for Saudi ministry of defense and aviation

IFS Sri Lanka the pioneer in Enterprise Resource Program has been chosen as the application solution provider for Ministry of Defense and Aviation United Arabia through the introduction of Kerfi Arabia the Saudi branch of IFS Applications.

IFS provide Enterprise Resource Planning (ERP) solutions, which are a merger of global ERP best practices to Sri Lanka which facilitates resources to be used in a more agile way to accomplish Sri Lankan business performance and competitive advantage, which has been developed to suit all the business concern.
Thus IFS Sri Lanka was called upon to formulate a solutions for the Human Resource administration, pay roll management and distribution operation of MODA Kingdom of Saudi Arabia.

Speaking his thoughts on the success of being chosen as a solutions provider Vice President IFS Sri Lanka Jayantha de Silva said “It is indeed an honor for IFS Sri Lanka to tie with the Ministry of Defense and Aviation as its solutions provider in the region. The introduction through our network in Saudi Arabia staged the platform for this process. IFS Sri Lanka has always been at the forefront as application solutions provider for many countries worldwide which contributes to the continuous trust and reliance placed on us by our clients worldwide. The knowledge and skillful consultants and the relationship maintained both within and outside the organization has been the core contributor for such enormous achievement by IFS Sri Lanka. So whilst feeling honored by this new connection we also thank our network company based in Saudi Arabia for the confidence placed on us and our service delivery.”

IFS Human Resource solution will include skills and qualifications, employee development, recruitment, project reporting, time and attendance, expense reporting and pay roll administration; whilst IFS Distribution will compose of inventory management, purchasing, invoicing, customer orders, customer scheduling and supplier scheduling.

The leave and attendance solutions for MODA is a customer need oriented solution which has been entirely developed after extensive analysis of the strategic human resource management of Saudi Arabia taking into consideration the culture and the employee packages provided by the Ministry.

Commenting on the process of the MODA, Manager Software Development Asanga Marasinghe stated “The focal point that made us win the deal of MODA is the consultant strength that IFS Sri Lanka boasts over the other networks in the region. The 700 consultants employed by IFS Sri Lanka are trained in various locations and entrusted to work for Sri Lankan business solution requirements whilst adapting for the regional needs. Their capability and potential their hands on experience has been our core strength. More over the inter relationship maintained between consultants and technicians has also been a contributing factor.
IFS Sri Lanka will act as the interface between Nexus a German based technology already embedded in the MODA operation and Kerfi Arabia. More over this initial start up of providing solutions to MODA will spread the spark in the region for IFS Sri Lanka. The application solutions provided for MODA has been developed based on the extensive and detailed analysis conducted by Sri Lankan consultant. Thus this 5 team member 4 months period project hopes to be live by early January next year whilst representatives from MODA will fly in to Sri Lanka to test the entire solutions developed prior to implementation. Though challenges were faced at early stages on infrastructure and server log in time they have been sorted out by both parties involved giving IFS Sri Lanka to function independently with more efficiency.

****

Wheat and rice price outlook dismal

Record wheat prices to escalate

By Samantha Whybrow
The global supply and demand outlook for wheat and other cereals, looks grim for 2007/2008, showing no significant signs of improvements to production, says the Food and Agrictulture Organisation (FAO), almost guaranteeing already record high prices will escalate.

“Given the anticipated growth in world cereal demand in 2007/08, the current level of production, if it materializes, will not allow any replenishing of world reserves from their very low opening levels,” says the FAO in its latest report on Global Crop Prospects and Food Situation.

The report warns prices of wheat are likely to increase from the record highs witnessed in September given the deterioration in southern hemisphere crops, while, world wheat stocks will reach their lowest levels since 1982.
“Wheat prices remain highly vulnerable to the prevailing tight situation in the markets and are therefore likely to stay volatile,” says the report.

Meanwhile, in a worrying outlook for Sri Lankan consumers, the FAO also predicts a global increase in the price of rice, especially if there is a shift in import demand from wheat to rice.
The prediction that does not bode well for Sri Lanka, with the government recently announcing it is set to start importing rice from India in an attempt to bring down the noticeably escalating costs of this food staple amidst depleting local stocks due to drought.
 
With the price of essential food items set to increase across the board, the toughest times are yet to come. Combined with hikes in oil prices—increasing the costs of production and distribution—and swelling inflation, the chance of these commodities becoming affordable to the average consumer is dismal. In a telling statement, the report labels Sri Lanka as a ‘country in crisis requiring external assistance’ with regards to severe localized food insecurity on the island. This is apparently due to a variety of factors including the after-effects of the tsunami, the escalating conflict, and floods.

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Chairman Ernst & Young, Global meets the President

The Chairman of Ernst & Young Global Jim Turley visiting Sri Lanka to celebrate the 100th anniversary of Ernst & Young Sri Lanka met the President at Temple Trees recently. On this occasion the President was presented with the book titled Ernst & Young Sri Lanka 1907 – 2007. At this meeting Jim Turley shared the experience of Ernst & Young in the rapid transformation of China and India as fast growing economies and discussed Sri Lanka’s plans for economic development and infrastructure development and the role of Public Private Partnership in this process. The Country Managing Partner of Ernst & Young Sri Lanka, Aiste Talwatte, who accompanied the Jim Turley briefed the President on the significant contribution Ernst & Young has made to the commerce and industry in Sri Lanka and to the overall economy of the country during past 100 years and pledged to continue its efforts to effectively contribute towards this process.

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