Are We Wise or Foolish in Enforcing Power-cuts?

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By Lakshman Athukorala

We are currently experiencing continued power cuts during the day and night. This is becoming a part of normal life. It is not a secret that power cuts do occur due to the Government’s strategy to save foreign exchange and cut down purchasing of crude oil and refined petroleum products and not due to lack of capacity in generation of power. 

The purpose of this article is to compare the savings of foreign exchange by enforcing power cuts and loss to the national economy due to such power cuts. 

I am not an expert in the power sector, and I have taken statistics published by the Public Utilities Commission of Sri Lanka (PUCSL) and Ceylon Electricity Board (CEB) for the purpose of calculating the exchange savings on power cuts. 

As per the PUCSL and CEB, prior to the pandemic, the country’s electricity demand has grown at an average rate or 5.7% during last five years and the maximum recorded peak demand to date of 2,717 MW was recorded in March 2020. Total net electricity generation in 2020 was 15,714 GWh. Average daytime demand in March 2020 was about 2,200 MW and average nighttime demand was about 2700 MW.

At the end of 2020, including rooftop solar, Sri Lanka had a total installed generating capacity of 4,615 MW approximately. This included 2,447 MW of renewable energy-based generation capacity and 2,168 MW of thermal power generation capacity. In the year 2020, nearly 37% of the generation share came from coal-based generation, another 37% came from renewable energy-based generation, and only 26% from thermal oil-based power generation. 

Due to pandemic situation the power generation in 2021 was less than normal and hence for my calculations I will take pre-pandemic figures of power generations. As per PUCSL and CEB, current daytime demand-supply gap is about 600 MW and nighttime the gap widens to 900 MW. This means the estimated total hourly generation requirement to avoid power cuts during the daytime is about 0.66 GWh and in the nighttime, it increases to 1 GWh per hour. Sri Lanka does not generate entire power by using oil-based fuel and as indicated earlier only 26% are generated by using oil-based fuel. For this calculation we will assume that entire 100 per cent of the power will be generated by using diesel. 

I understand that one kilogramme of diesel can generate 4kWh of electricity, in layman’s terms-four units of electricity. This was calculated by taking efficiency factors prevailing in Sri Lanka. Based on this figure, to avoid one hour power cut during the day and generate 0.66 GWh we will need 165 tons of diesel and to generate 1 GWh during the night, we will need 250 tons of diesel. 

As per the Globalpetrolprices.com on 14 March 2022 an average world market price of a metric ton of diesel cost amounted to US$1,482.35. If we save 165 tons of diesel by enforcing a one-hour power cut during the day, the total amount we save as foreign exchange by that is only US$244,588. Likewise, if we save 250 tons of diesel in the night, the saving of foreign exchange by having a one-hour power cut in the night amounts to US$ 370,588. The average amount we save per hour by having a one-hour power cut in the day and night works out US$ 307,588.

When there is a power cut, a number of privately owned backup power diesel generators will start immediately. As a result, the country will not be able to save US$307,588 as calculated above. There is no statistics available to find out how many such private generators will be commissioned during the power cut. For easy calculations, we will assume that no such generators will be in operation and total savings to the country will be just over US$ 300,000.

Now we will work out the loss to the economy by having a one-hour power cut. The size of a nation’s overall economy is typically measured by its gross domestic product (GDP), which is the value of all final goods and services produced within a country in a given year. As per the 2020 annual report of the Central Bank, the size of Sri Lanka’s overall economy in 2020 amounted to US$ 80.7 billion. The pandemic caused a decline in the overall size of the economy in Sri Lanka to US dollars 80.7 billion in 2020 from US dollars 84.0 billion in 2019. We will assume that the economy had picked up to the pre-pandemic level. This means the overall size of the annual economy at preset is around about US$ 84 billion. 

If the size of the annual economy of Sri Lanka is US$ 84 billion, then the average GDP her hour, works out to over US$ 9.6 million. This means if the country comes to a standstill for one hour, we will lose over US$ 9.6 million. One can argue that by having a power cut the country will not come to a total standstill. Even if we assume that the loss to the national economy is just 50 per cent of the average amount given above, then the loss works out to be US$ 4.8 million per hour. 

In other words, we saved just over US$ 300,000 by having a one-hour power cut and loss of US$ 4.8 million contribution to the national economy. As indicated earlier, the purpose of this article is to compare the savings of diesel verses the loss to the national economy. Politicians should take decision by looking at the bigger picture and not the narrow picture. In this case it is obvious the decision to have a power cut was done by just looking at the direct saving on diesel fuel and but not looking at the bigger picture of the national economy. I urge authorities to reconsider the power cuts enforced in the country as the loss to the nation is much more than the direct saving on diesel.

The writer is a Fellow Member of the Institute of Chartered Accountants and Chartered Institute of Management Accountants (UK); MBA (Warwick), Chair of the Audit Advisory Committee of the United Nations Industrial Development Organization, Vienna, Austria and Retired from Asian Development Bank as a Financial Management Specialist Senior Director/Chair Audit Committee of Assetline Leasing Co Ltd and the Chair of the Audit Committee of David Pieris Group. Independent Director/ Chair of Audit Committees of Talawakelle Tea Estates Plc and Hayleys Consumers Ltd.