Energy Regulation Legislation in Sri Lanka REGIONAL ENERGY REGULATION PARTNERSHIP Energy Regulation Legislation in Sri Lanka B.N.I.F.A. Wickramasuriya Power sector Reforms J. Nanthakumar Ceylon Electricity Board THIMPU, BHUTAN 7- 9 OCTOBER 2002

Sri Lanka Country of 19m Population and 62% has grid electricity. Installed Capacity 1800MW (2000MW with emergency generation), Maximum demand 1400MW Ceylon Electricity Board (CEB) is responsible for 85% of Generation, entire Transmission and 85% of Distribution. Balance generation by IPPs and distribution of electricity to the rest (15% ) by Lanka Electricity Company (LECO). Until recently, Minister in Charge of Power and Energy (MOPE) and the Chief Electrical Inspector (CEI) were responsible for the regulatory functions. Now some of the regulatory functions have been transferred to the newly established Energy Supply Committee. Draft Bill for the restructuring of the sector and setting up of the Regulatory Commission has been submitted to the Cabinet of Ministers, for approval.

Owner, Operator & Regulator - MOPE Transformer Manufacturing Existing Power Sector Owner, Operator & Regulator - MOPE GOSL (MOPE) C.E.B. Generation Transmission Distribution UDA, Local Authorities CEI ABB L.T.L Transformer Manufacturing LECO Distribution Private Private Nivindu (Mini Hydro) Lakdhanavi (IPP) Mini Hydro IPP

SECTOR GOAL The basic goal of the sector is to meet the demand for energy services at all times at least economic , social and environmental cost and thereby promote economic development and social well-being.

CHANGE ENVISAGED Separation of Owner, Operator and the Regulator New Electricity Act Establishing the Regulatory Commission Vertical and Horizontal Unbundling of the presently vertically integrated monopoly

PRESENT STATUS Two Bills submitted to the Parliament PUBLIC UTLITIES COMMISSION BILL TO REGULATE UTILITIES INDUSTRIES PURSUANT TO NATIONAL POLICY ELECTRICITY REFORM BILL TO PROVIDE FOR THE REGULATION OF THE GENERATION, TRANSMISSION AND DISTRIBUTION OF ELECTRICITY, TO PROVIDE FOR THE TAKING OVER, AND DISCHARGE OF THE FUNCTION OF THE C.E.B AND L.E.C.O BY CERTAIN PUBLIC COMPANIES TO BE INCORPORATED FOR THAT PURPOSE, TO REPEAL THE C.E.B. ACT AND ELECTRICITY ACT.

PUBLIC UTILITIES COMMISSION Five members to be appointed by Minister in charge of the subject of Policy Development and Implementation with the concurrence of the Constitutional Council one member experienced in engineering one member experienced in law one member experienced in business management Members of the Commission to perform on a part-time basis Commission to appoint a Director General who shall be the CEO of the Commission Commission may appoint one or more Deputy Directors-General

CONSTITUTIONAL COUNCIL Members of the Council the Prime Minister the Speaker the leader of the Opposition in parliament one person appointed by President five persons appointed by the President on the nomination of both Prime Minister and the Leader of the opposition one member appointed by the minority parties in the Parliament Speaker shall be the Chairman of the Council

PUBLIC UTILITIES COMMISSION Objectives of the Commission To protect the interests of all consumers To promote competition To promote efficiency in both Operations of public utilities industries and capital investment in public utilities industries To promote an efficient allocation of resources in public utilities industries

PUBLIC UTILITIES COMMISSION Objectives of the Commission (Cont..d) To promote safety and service quality in public utilities industries To benchmark, where feasible, the utilities services as against international standards To ensure that price controlled entities acting efficiently, do not find it unduly difficult in financing their public utilities industries

PUBLIC UTILITIES COMMISSION Functions of the Commission Advise the Government on all matters concerning any industry falling within the purview of the act Consult any person or group who or which may be affected, or likely to be affected, by the decision of the commission Collect, record and disseminate information concerning any public utilities industries Prepare regulating manual containing the code of good practice governing the function of the commission.

PUBLIC UTILITIES COMMISSION Functions of the Commission (Cont..d) Exercise licensing regulatory and inspection function Regulate tariff and other charges levied by regulated entities Mediating and determine dispute arising in any public utility industry Set and enforced technical and other standards relating to the safety, quality, continuity and reliability of the public utilities industries

COMPETITION Commission’s Competition Function Commission shall inquire into anti-competitive practices, monopolies, acquisitions and abuses of dominant positions and merger situations and carry out investigation either of its own motion or on a complaint made to it by any person

ELECTRICITY SECTOR Objectives of the Commission to protect the interests of consumers in relation to the supply of electricity, by promoting efficiency, economy and safety by persons engaged in, or in commercial activities connected with, the generation, transmission, distribution and supply of electricity to secure that, so far as it is economical to meet them, all reasonable demands for electricity in Sri Lanka are met to secure that licensees acting efficiently will be able to finance the carrying on of the activities authorized or required by their licences

ELECTRICITY SECTOR Objectives of the Commission (Cont..d) to promote the efficient use of electricity supplied to premises to protect the public from dangers arising from the generation, transmission, distribution, supply or use of electricity to give effect to any guidance on environmental objectives notified to the Commission by the Central Environmental Authority or, where applicable, a Provincial Council to promote competition, where appropriate

ELECTRICITY SECTOR Objectives of the Commission (Cont..d) "the interests of consumers" includes the interests of existing and future consumers with regard to the prices charged and other terms of supply of electricity the availability and continuity of supply of electricity the quality of electricity supply services provided

ELECTRICITY SECTOR Functions of the Commission to advise the Government, on all matters concerning the generation, transmission, distribution, supply and use of electricity in Sri Lanka to exercise licensing, regulatory and inspection functions in relation to the generation, transmission, distribution and supply of electricity to approve technical and operational codes and standards

ELECTRICITY SECTOR Functions of the Commission (Cont..d) to regulate tariffs and other charges levied by licensees and other electricity undertakings after consultation with distribution licensees, to publish a statement setting out the rights and obligations of consumers to collect and record information relating to the generation, transmission, distribution, supply and use of electricity

ELECTRICITY SECTOR Functions of the Commission (Cont..d) to set and enforce technical and other standards relating to the safety, quality, continuity and reliability of electricity supply services and metering services to promote the efficient use, and conservation, of electricity to prepare, a regulatory manual containing a code of good practice relating to the functions assigned to the Commission to consult, any person or group of persons who may be affected, or are likely to be affected, by the decisions of the Commission

Sector Proposed GOSL MAC Public Utility MOPE Commission C O N Disco U Regulator S Disco C O U N R E M Large consumers IPP Ren Energy Profit Centre-1 Centre-3 Centre-2 GENCO Transco

Features of the Proposed Sector Structure Ownership, Regulation and Operation separated Independent Regulator Generation procurement by competitive bidding Transmission and Distribution regulated Independent and autonomous entities Improved governance and accountability

Company Governance Companies are Government Owned setup under the Companies Act Treasury is the shareholder Minister in charge of subject of Power and Energy to exercise the powers of the shareholder Performance monitoring by Monitoring and Advisory Committee (MAC)

SUCCESSOR COMPANY The Memorandum and Articles of Association (MAA) of every Company shall contain provision for the appointment and removal of directors by the Minister only on the recommendation by MAC prohibiting a person from being a director for more than one company requiring the Board to submit for Minister’s approval a Statement of Corporate Intent (SCI)

STATEMENT OF CORPORATE INTENT (SCI) The SCI intent to specify the commercial and other performance objectives and levels of the company and the financial targets (including rates of return) required to be achieved by the company, during the next three financial years

Monitoring and Advisory Committee (MAC) Composition Deputy Secretary to the Treasury Additional Secretary M/P&E Members representing The Chamber of Commerce The Institute of Chartered Accounts of Sri Lanka The Institute of Engineers of Sri Lanka Two persons appointed by the Minister from amongst persons employed in the private sector who do not have relevant interest

Major Function of MAC Recommendation to the Minister on the appointment / removal of directors Reviewing of the SCI & forwarding recommendations Monitoring the financial & operational performance Advising the Minister on the exercising his powers as a share holder in the event a Company fails to meet the objective and targets specified in the SCI Committee shall discharge above functions, so long as Government owns 80% of the shares of a Company

Challenges and Obstacles Establishment of the Commission Effectiveness of Regulatory Control over the State Owned Entities Appointment of Experienced and Qualified personnel to the Commission Public Confidence in the Regulatory Process Effectiveness of P.U.C in regulating the multi-sector utilities

Challenges and Obstacles Unbundling and Creation of New State Owned Companies Unbundling the Sector Boundary Issues Asset allocation, O&M procedures Commercial Contracts between newly formed entities Preparation of Standards and codes Effectiveness of Company Governance by MAC