1REGIONAL 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

2Sri 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.

3

GOSL(MOPE)

C.E.B.Generation

Transmission

DistributionL.T.L

Transformer Manufacturing

Lakdhanavi(IPP)

Nivindu(Mini Hydro)

LECODistribution

CEI

UDA,Local Authorities

ABB

Existing Power SectorOwner, Operator & Regulator - MOPE

IPPMini

Hydro

Private Private

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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.

5CHANGE 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

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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.

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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

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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

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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 andcapital investment in public utilities industries

To promote an efficient allocation of resources in public utilities industries

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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

11PUBLIC 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.

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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

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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

14ELECTRICITY 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

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ELECTRICITY SECTORObjectives 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

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ELECTRICITY SECTORObjectives 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

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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

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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

19ELECTRICITY SECTORFunctions 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

20GOSL

MOPEPublic Utility Commission

Regulator

Transco

MAC

SS

Disco

Disco

Disco

DiscoC

O

U

S

N

R

E

M

SLargeconsumers

Sector Proposed

IPP

RenEnergy

ProfitCentre-1

ProfitCentre-3

ProfitCentre-2

GENCO

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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

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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)

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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)

24STATEMENT 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

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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

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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

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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

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Challenges and ObstaclesUnbundling 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