Friday, March 7, 2008

Oil Mafia - 2

Power crisis rings alarm bells amongst investors

By Chanakya Dissanayake
Sri Lanka is heading for a major power crisis in 2004 due to delays in commissioning of proposed power plants including the Norochcholai coal-fired plant, business analysts said.

Alarm bells rang in almost all sectors of the Sri Lankan economy last week with the CEB's announcement of prolonged power cuts. Analysts are already factoring the devastating impact of possible 8-hour power cuts up to December this year.

"No foreign investor will be interested in Sri Lanka until the government solves the recurring power crisis," said a leading analyst.

The last major power crisis in 1996 was mainly due to the delay in commissioning the Sapugaskanda diesel power plant. " We were able to predict the 1996 crisis way back in 1992. By 1994 even the power cut hours were calculated. When power plants are not commissioned during the planned period, calculating power cuts is simple mathematics", said Dr Tilak Siyambalapitiya, leading power industry expert. Even if the government decides to go ahead with the coal power project immediately, the commissioning will take six more years and the plant would be ready only by 2007. This is mainly due to the Japanese funding pledged for the project being withdrawn due to government's indecisiveness on whether to implement the project, analysts said.

"We need to bridge the gap from year 2004 to year 2006, until the coal power plant is commissioned," said Dr Siyambalapitiya. He emphasised the need for the diesel fired plants aimed at bridging this gap to be on schedule, in order to avoid continuous power crisis.

However, Aitken Spence's 20-mega watt Anuradhapura diesel power plant which was originally scheduled to join the national grid in February 2002, was thrown off schedule due to political and religious pressure on the site selection.

Analysts say Sri Lanka is experiencing a dangerous trend of major infrastructure projects including expressways and power plants being delayed by various pressure groups, even after the foreign funds are obtained.

The bulk of the impact from the power crisis will be on the manufacturing sector. Analysts say that there is a strong co-relation between the manufacturing sector growth and Foreign Direct Investment (FDI) to Sri Lanka.

"In the past majority of the FDI's were factory related. If the manufacturing sector becomes uncompetitive due to the power crisis, FDI's will dry up causing a slowdown in growth for many years," said a research analyst at a leading stock brokerage.

Dr. Dushni Weerakoon, a senior research fellow at the Institute of Policy Studies, said the adverse impact of the power crisis will be less than in 1996 due to many companies being geared to meet the crisis with generators.

However, the increase in cost of production due to generator usage will affect Sri Lanka's competitiveness in the face of lower cost producers in the region, she added.

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