By Gulbin Sultana, PhD

Sri Lanka has reached 100% electricity accessibility and almost 99.9 % electrification. Yet uninterrupted power supply to the whole country is far from reality.A scheduled power cut has become a daily phenomenon in the country amidst the ongoing foreign reserves crisis. As Sri Lanka’s foreign reserves have declined to the lowest in its history,the import-dependent energy sector has suffered heavily. The lack of foreign currency is making it difficult for the Sri Lankan government to clear the consignment of fuel docked at the Colombo Port immediately causing acute shortages of fuel in the country including domestic Liquified Petroleum Gas (LPG). In the absence of the crude, many of the power plants have to be shut causing disruption in the power supply. Lack of fuel in the county has also disrupted transportation and impacted the manufacturing industries and service sector.

Import dependent energy sector

The present total installed capacity of Sri Lanka’s national grid is 4587 MW, which consists of 57% energy renewable sources (31% hydro, 26% includes wind, solar, solid waste, dendro, and biomass) and 43% fossil fuels (20 % coal and 23% from fuel oils), according to Sri Lankan Power Ministry.56% of total energy consumption in the country is from indigenous (biomass + hydro) and 44% is imported. This requires importing 02 MMT of crude oil, 04 MMT of refined petroleum products, and 2.25 MMT of coal to the country annually, costing approximately US$ 5 billion in foreign exchange. The average annual total bill of imported fossil fuel is 25% of Sri Lanka’s import expenditure, and nearly 50% of total export income. Therefore, the power and energy sector has a huge bearing on the country’s balance of trade and exchange rates.

Dwindling foreign reserves and fuel crisis

Sri Lanka’s foreign reserves dipped to a precarious level of US$ 1.6 billion in November 2021, which was just enough for meeting one month’s import. In December 2021, there was a slight increase but even then, it was not enough for two months’ import. The gross foreign reserves dropped 24% further in January 2022 and since then it is stuck at around US$2.3 billion. Declining foreign reserves has impacted the import of fuel and cooking gas into the country. On more than one occasion this year, fuel shipments docked in the Colombo Port could not be cleared immediately due to a lack of foreign currency.The Ceylon Electricity Board (CEB) is also facing financial issues to purchase sufficient stocks of fuel from the Ceylon Petroleum Corporation (CPC). In the absence of adequate fuel, Sri Lanka has used hydropower to run the power plants. Nonetheless, due to the lack of rain reservoirs are getting empty. There is a fear that excessive use of the waters from the reservoirs to run the power plant may cause water shortages for irrigation purposes in case of inadequate rain and will affect agricultural production. The foreign reserves crisis, lack of fuel, inadequate supply from renewable energy sources cumulatively resulted in the shutting of many of the power plants causing long-hour power cuts across Sri Lanka.

India came to the rescue of Sri Lanka to pay the import bill of fuel during this crisis period. India offered US$ 500 million Credit Line to buy fuel from India. Sri Lanka started receiving fuel under the Indian Credit Line from 13 March onwards. A stock of Jet fuel for aviation use was the first to arrive under that facility. Additionally, Indian Oil Corporation had supplied 40,000 Metric Tonnes of fuels on 60 days credit.

National energy policy and strategies

Anticipating crisis in the energy sector due to too much reliance on imported resources, Sri Lanka’s National Energy Policy and Strategies, adopted in 2019, does talk about the need for strategies to achieve self-reliance by developingindigenous energy resources to optimum levels and minimise the vulnerability of energy supplies to external situations and to attain a higher degree of resilience in the energy sector. The strategies adopted in this regard include: 1)exploration of oil, natural gas resources of the country as well as exploration ofindigenous mineral resources such as Thorianite and other similar nuclear fuels with commercial resource potential and kept ready for development at the appropriate time when conversion technologies are available;2) enhancing the availability of biomass by establishing dedicated energy plantations or plantations with residue as a potential fuel, in prescribed biomass energy development areas; 3) gradual diversification of transport energy in both rail and road transport from present oil dominance to electricity.

To reduce pressure on foreign exchange, the National Energy Policy emphasises energy supply from renewable energy resources in the country’s energy mix. The Sri Lankan government has set an ambitious target of generating 70% of the country’s electricity demand using renewable sources by 2030 and achieving Carbon neutrality by 2050. To achieve the target, the government has commissioned a 100 MW wind power park in Mannar and commenced construction of the first 300 MW LNG power plant in 2021. Government has several other plans to implement its energy policy. Sri Lanka is a full-fledged member of the International Solar Alliance (ISA). Sri Lanka was also a co-sponsor of the “No New Coal” compact during the COP26. Sri Lanka is looking for partners to implement its energy policies.

Energy security partners

India has emerged as an important partner to ensure Sri Lanka’s energy security. India is involved in Sri Lanka’s Solar Energy Electrification Project Since 2009.SLR 13 million worth of Solar Energy Electrification Project at Galgamuwa village in Monaragala District of Uva Province was a gift from the government of India to Sri Lanka, which provided solar lighting for 300 households and 50 street lights. India has offered US$ 100 million concessional financing for undertaking solar projects in Sri Lanka. This Credit Linewill help finance various projects in the solar energy sector in Sri Lanka, including rooftop solar photovoltaic systems for households and government buildings. On 11 March this year, Joint Venture & Shareholders’ Agreement (JVSHA) for the Trincomalee Power Company Limited (TPCL) which is a joint venture between NTPC Limited from India and the CEB was signed for developing a 100 MW Solar Power Plant at Sampoor in Sri Lanka. Indian technical experts extended their expertise for the development of a 100 MW wind power project at Thambapawani in Mannar.

The signing of the MOU on the Joint development of the Trincomalee Oil Tank Farm is an important step in the energy security cooperation between the two countries. Early implementation of the MOU will facilitate Sri Lanka to make use of the 99 oil tanks and reserve oils for a longer period.Talk has been going on for India-Sri Lanka grid connectivity. A feasibility study conducted by the CEB and India’s power grid corporation found that connecting the two countries through undersea cable would be an expensive affair. Reportedly, The option of an overhead electricity link between the two countries is being explored. But no decision has been taken yet in this regard, even though; it is mentioned in the priority plan of the national energy policy of Sri Lanka.

Sri Lanka is partnering with other countries as well including the USA, China, Japan, Iran, Kuwait, Austria, and also with the Asian Development Bank (ADB) to enhance its energy security, particularly in the field of renewable energies. In other words, policy, plans, and strategies to ensure energy security in the country are in place. The problem, however, is the lack of effective implementation of the policies and strategies.

Issues and Challenges

The new energy policy and strategies adopted in 2019 could not be implemented due to the Covid-19 pandemic. Several major power sector developments, particularly in the field of renewable energy, that were scheduled to be commissioned in 2021 have been delayed due to the pandemic. There are several other factors responsible for the non-implementation of the energy projects including issues associated with land acquisition and getting clearance from various departments due to lack of coordination and cooperation. In addition to the bureaucratic issues, political and diplomatic opposition is a major hindrance in the immediate implementation of the bilateral energy projects.

Due to political reasons, the MoU to jointly develop Trincomalee Oil Tank Farm between India and Sri Lanka signed in 2001 remained unimplemented for years. A new MOU in this regard was signed between the two countries as Sri Lanka is grappling with an economic and fuel crisis. Even now, there are protests within Sri Lanka against India jointly developing the Oil Tank Farm. Thus, uncertainties loom large on the implementation of the MOU, even though it has been widely acknowledged that the development of the farm will significantly enhance Sri Lanka’s capacity to store the fuel for the crisis period. Sri Lanka’s decision to sign an agreement with U.S. infrastructure firm New Fortress Energy to invest in a gas-fired power plant and proposed liquefied natural gas (LNG) supply terminal in Sri Lanka is also facing public protest. An agreement to develop a hybrid energy project by the Chinese in the Northern Province of Sri Lanka was scrapped, reportedly due to India’s objection.

Conclusion

Delay or non-implementation of many of the policy decisions have reduced Sri Lanka’s resilience to face any crisis in the energy sector. The timely implementation of all the strategies probably would have reduced some challenges the country is facing in the power and energy sector due to the foreign reserve crisis.

While the National policy and strategy of Sri Lanka has recognized some of the major hindrances and formulated plans to minimise those hindrances, the main focus of the government at this moment is ensuring the availability of fuel and cooking gas in the country for daily use.

(The author is Associate Fellow, Manohar Parrikar Institute for Defence Studies and Analyses. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).

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