Joint UNDP/World Bank Energy Sector Management Progr am VI Activity Completion Report No. 010/84 Country: sRI TANX Activity: ENERGY ASSESSMttNT STATTUS REPORT January 1984 Report of the Joint UNDP/WUrld Bank Energy Sector Management Program This document has a restricted distribution. Its contents may not be disclosed without authorization from the Govemment. che UNDP or the World Bank. Energy Sector Management Program The Joint UNDP/World Bank Energy Sector .Ianagement Prograt. is designed to provide a rapid and flexible response to governments who request assistance in implementing the policy, planning and instituti nal recommendations of the Energy Assessment Reports produced under another Joint UNDP/World Bank Program, or in carrying out prefeasibilicy studies for energy investments identified in these reports. The Energy Sector Management Program can provide the following types of assistance for countries which have had assessments: o assistance to improve a government's ability to manage its energy sector, for example by defining staffing and work programs, evaluating management information needs, identifying sources of public and private finance, developing a medium-term investment plan, o prefeasibility work on priority investment plans, especially those which will improve the efficiency of energy use, bring about economic fuel substitution, or provide enough affordable energy to rural areas; o specific short-term assistance in institutional and manpower development, both at the sectoral and agency levels. The Lcogram aims to supplement, advance and strengthen the impact of bilateral or multilateral resources already available for technical assistance in the energy sector. Funding of the Program The Program is a major international effort and, while the core finance has been provided jointly by the UNDP and the World Bank, important financial contributi.ns to the Program have been made by the Governments of the United Kingdom, the Netherlands, Denmark, Finland, Norway, Sweden, Australia and New Zealand. I~~~~~~~~~~~~~~~~~~~ 0 . SRI LANKh ENERGY ASSESS,ET STATUS REPORT January 1984 ... . . _ _ . _. _ . . . . . S~~~~~~~~~~~~~~~~~ e . ESTIMATED AVER&GE CURRENCY EQUIVALENTS lUS$ Rs. 16.5 (1980) 19.2 (1981) 20.8 (1982) 23.6 (1983) ABBREVIATIONS AND ACRONYMS CEB - Cayloa Electricity Board CGWC - Colombo Gas and Water Company CISIR - Ceylon Institute for Scientific and Industrial Research CPC - Ceylon Petroleum Corporation CTB - Ceylon Transport. Board - Energy Coordinating Team .,MAC - Energy Efficiency, Demand Management an.l Conservation Task Force EPPAN - Energy Planning and Policy Analysis Task Force GOSL - Government of Sri Lanka JEDB - Janata Estates Development Board MPE - Ministry of Power and Energy NERD - National Engineering Research & Development Center -ERSE - New, Renewable and Rural Sources of Energy Task Force NRESA - Natural Resources, Energy and Science Authority SPC - State Plantations Corporation e TABLE OF CONTENTS Page No. I. BACKGROUND AND SUM MARYD......................*..9.9........1 II. ENEFRGY SECTOR DEVELOPMENTS 1981 - 1983.............. 2 III. STATUS OF ASSESSMENT RECOMMENDATIONS ................ 7 IV. ONGOING AND PLANNED TECHNICAL ASSISTANCE ACTIVITIES 15 V. PRIORITY AREAS FOR FURTHER TECHNICAL ASSISTANCE ..... 18 APPENDIX TABLES ........... .......... .... 22 . a SRI LANKA ENERGY ASSESSMENT STATUS REPORT 1/ I. BACKGROUND AND SUMMARY 1.1 Although Sri Lanka was able 1:o cope relatively easily with the first round of oil price increases 'n 1973/74, its energy situation deteriorated dramatically by the end of the decade. The marked improvement in economic performance after 1978 brought with it a rapid increase in the lemand for commercial energy. AA the rate of growth of domestic energy production (hydropower) actually declined during this period, the economy's oil import requirements increased by about 60X between 1977 and 1981 and, because of the 1979 doubling of oil prices, the proportion of non-oil export earnings devoted to importing oetrolerm rose from 11Z to 41% (Table 1). At the same time, despite the addition of expensive thermal generating capacity, the supply of electricity could not keep pace with rising demand and severe power shortages ensued in both 1980 and 1981, affecting both industrial production and the prospect of attracting additional private investment, which was an important feature of the Government's economic development strategy. 1.2 The net effect of these developments was that enerSy had become a major national concern by the time of the energy assessment mission to Sri Lanka in June 1981. 2/ Given the immediate energy problems facing the country, the mission's work focussed primarily on those options which could result in quick itprovements in the country's energy situation. The most important of these options lay in improving the efficiency of energy use in the main consuming sectors such as industry and transport, an area which had received little attention until then. The mission's findings indicated that a concerted energy efficiency improvement program, focussing initially onu the largest industrial and commercial energy users, could result in substantial oil savings ($24 million per year by 1984/85) and improve the electricity supply/demand balance, at a relatively low investment cost. The main constraints that needed to be overcome were the absence of an effective institutional framework for carrying out this task and the need for technical support in conducting energy audits and the other preinvestment work required. The mission also recommended a number of changes to the structure and level of energy prices ro complement this demand management effort. S~~~~~~~~~~~~~~~~~~~~~~~~~~ 1/ This report was prepared by a mis4ion comprising :lasood Ahmed and Huda Kraske, which visited Sri Lanka in December 1983. The report was discussed with Government of Sri Lanka (GOSL) officials in the field and the list of priority technical assistance projects, in Section V, is fully endorsed by GOSL. 2/ The final report of that mission, Sri Lanka: Issues and Ogtions in the Eneray Sector was issued in May 1982 as part of the joint ULDP/World Bank Energy Sector Assessment Program. -2- 1.3 On the supply side, the most important short term recommet.dation was to ensure the timely completion of the Victoria hydro project by mid- 1984. Specific improvements in the supply of petroleum products were also recommended. For the longer term, there was a need to begin the preparatory work for introducing coal-fired power generation by 1990 and to expand the inadequate level of afforestation activities to ensure a sustainable supply of fuelwood, which remains the country's most important energy resource. In the area of renewable energy, the priority was to develop the institutional framework to eoordinate, streamline, and better focus the then widely-spread program, wnich encompassed a variety o' technologies and applications. 1.4 Finally, the report stressed the importance of strengthening the overall institutional framework for energy policy formulation and investment planning and implementation. Weaknesses in this regard had been a major cause of Sri Lanka t9 current energy problems and without major improvements, the institutional structure was likely to become a serious bottleneck in implementing the country's future energy develop- ment strategy. 1.5 The Government noted the main findings of the energy assessment report and subsequently acted on most of its recommendations. As discussed in detail in the following sections, the institutional structure for energy policy analysis and sector management has been greatly strengthened through the establishment of a number of issue- specific task forces in the Ministry of Power and Energy, under the overall direction of a Senior Energy Advisor to the Minister. 1/ In the area of demand management, both electricity and petroleum prices have been raised to reflect the cost of supply, and the relative price structure has been altered to remove a number of anomalies identified in the report. II. MAIN SECTOR DEVELOPMENTS 1980 - 1983 2.1 The major developments in the energy sector can be summarized under the following headings: 1. Energy supply and demand Petroleum Electricity Fuelwood and other renewables 2. Energy pricJng policy 3. Institutional changes 4. Industrial conservation I/ The fact that this energy portfolio is being held by the President himself, has further helped to facilitate action in this sector. -3- Enerxy Supply and Demand 1/ 2.2 Primary commercial energy consumption increased from 1.684 million toe in 1980 to 2.075 million toe in 1982 (11% per year), compared to an 8.8% annual growth rate during 1977-1980. However, in 1983, preliminary estimates indicate that consumption declined by 8% to 1.918 million toe as a result ef reduced hydroelectric generation (-25%) due to the severity and continuation of the drought, the mid 1983 disturbances in economic activity, and price increases in major oil products in July 1983 (Table 2). Petroleum 2.3 The demand for petroleum products grew by 13% during 19i0-82, compared to 9.5% during 1977-80. The iec oil import bill also peaked in 1982 and consumed almost 50% o' non-petroleum export earnings, compared to only 35% in 1980. During 1983, figures for the first three quarters suggest t1hat consumption has fallen slightly and the cost of oil imports is expected to be about 12% lower than in the previous year, partly due to improved freight management and better prices (Table 1). 2.4 On the supply side, the detailed analysis recommended for both the single point mooring buoy and the hydrocracker projects has been carried out, with the former proceeding now to the implementation stage. The hydrocracker project has been shelved for the time being as it is not profitable. The recommendation to close down the LPG pipel'.ne has been partly Implemented, with the pipeline being reduced from 180 miles to 11 miles serving a few large users. Electricity 2.5 Electricity generation (Table 3) increased by 11.3% annually during 1980-82, i.e. at roughly the same rate as during 1977-80, but declined to 2% during 1983. However, growth rates of hydro and thermal generation varied markedly. Hydro generation declined by about 7% per annum, from 1479 GWh in 1980 to 1206 GWh in 1983 due to drought conditions and constituted only 57% of total generation in contrast to 89% in 1980. On the other hand, thermal generation increased geometrically from 188 GWh in 1980 to 907 GWh in 1983 i.e. at almost 70% per annum. Electricity sales, estimated at about 80% of generation, increased from 1392 GWh in 1980 to about 1700 GWh in 1983 (1188.6 GWh by August 1983). Private generation has been encouraged from February 1983 and is estimated at about 6 GWh per month. Two hour power cuts are in force since November 1, 1983, but this is still an improvement over 1981 when eight hour cuts were not considered unusual. 1/ Estimates of 1983 electricity generation probably correspond to actual figures; however, estimates for petroleum imports and consumption, based on imports up to September, might deviate from actual figures for 1983 since petroleum is received in bulk shipments arriving at varying intervals. -4- 2.6 The serious supply shortfalls of 1980 and 1981 have been considerably alleviated through the addition of 40.KW of gas turbines in late 1981 and the 30'MW extension of the Canyon hydro station in February 1983. However, demand is still in excess of supply and the situation may worsen again in the first half of 1984 because of the extremely poor rainfall level of 1983 which has led to an estimated 25% drop in hydro generation during this year and will have a continued impact until the next monsoon. Thus, the daily two hour power cuts in effect now will probably need to be extended in the coming months. 2.7 Of the power projects under construction, work on the Victoria project has proceeded satisfactorily and the project should be ready for commissioning in mid-1984. Initially, power from the project may need to be transmitted to the grid through a temporary 6 kilometer 132KV connec- tion because the permanent 230KV line is unlikely to be-ready in time. Also during 1984, 80MW of diesel plant will be added to the system in two phases - 40KW 'n April and 40MW in August. For the proposed coal-fired power station, a prefeasibility report has been prepared, and detailed feasibility work is scheduled to begin in 1984. This project should be ready for commissioning around 1990. A prefeasibility study for a power system efficiency improvement and distribution rehabilitation project has also been carried out (with UNDP/World Bank assistance) and the detailed design and r-. paration of the subsequent investment project is underwav. Fuelwood and Other Renewables 2.8 In the fuelwood area, an additional IDA-assisted project has come on stream with a large component of training and technical assis- tance, including the preparation of a Forestry Master Plan and Forestry Department strengthening. However, there is a need to ensure that the temporary supply of wood from the clearing of the Mahaweli area does not lead to a false sense of complacency regarding the seriousness of the underlying fuelwood supply problem. As to renewables, some progress has been made to strengthen the institutional implementation capability, and to reorient efforts to more immediately relevant projects, but this is still an area where substantial improvements need to be made. Energy Pricing Policy 2.9 In the area of demand management, the main changes have been the rationalization of electricity tariffs in mid-1982 which brought their structure more in line with the costs of supply. The level of tariffs was raised further in mid 1983, through an increase in the fuel adjustment surcharge from 110% to 185% of basic tariffs. Moreover, capacity charges for electricity have been trebled with a dramatic effect in terms of consumer response through the installation of power factor correction equipment. 2.10 Petroleum prices were raised in July 1983 to reflect higher costs and the devaluation of the Rupee (Table 5). An important structural change was the virtual elimination of the general subsidy on kerosene. To protect the purchasing power of lower income households, -5- the 'alue of kerosene stamps, provided to about hali of the population, was also raised ae the same time. This increase in the price of kerosene also permitted the CPC to increase industrial diesel prices which had not been increased for fear of substitution by cheap kerosene. Itlstitutional Developments 2.11 The major development in the institutional framework of the energy sector has been the setting up of the Energy Coordinating Team (ECT) in December 1982 in the Ministry of Power and Energy (MPE), under the supervision of a newly appointed Senior Energy Advisor to the. Minister. The principal objective of the ECT is to coordin_te work among the relevant ministries and prevent duplication of efforts. The ECT consists primarily of three coordtnating task forces that cover the following areas: (i) Energy Planning and Policy Analysis (EPPAN), under which an integration of all energy sector activities is attempted. EPPAN is attempting to identify the overall objectives of national energy policy in order to define an energy strategy that meets these objectives within the established goala of maximizing Sri Lanka's development in the coming decades. The setting up of a comprehensive energy data base, including energy balances which feed into energy policy analysis and modelling, is already underway. (ii) Energy Efficiency, Demand Management and Conservation (EDMAC) includes a number of activities that are of short- term importance in the area of energy conservation, especially in industry, but also in commerce, households, transport and agriculture. EDMAC has also been instrumental in setting up a special cell in CEB to reduce system losses, and in reviewing electricity and petroleum pricing policies. (iii) New, Renewable and Rural Sources of Energy (NERSE) aims at coordinating activities in the renewable energy subsector, assessing the economic and technical feasibilities of some of these technologies as they apply to Sri Lanka and promoting and financing the commercialization of these technologies. The three task forces meet on a regular basis (approximately once a month) and they include representatives of the major energy related ministries, departments and parastatal organizacions. The task forces also have access to a small group of economists and technical staff who have been recruited for this purpose by the MPEE. -6- Industrial Energy Conservation 2.12 In the industrial energy conservation area, a number of corporations have implemented the easier and low cost efficiency improvement recommendations made by the assessment mission. In parallel a major public awareress and training effort has been launchedt The next step in this effort is a detailed training course in energy auditing for the plant managers of the 30 largest energy consuming corporations, planned for February-March 1984. If this momentum can be maintained, the necessary feasibility and preinvestment work for major industrial retrofitting and energy efficiency projects should be carried out ouring 1984 with the projects being implemented in the subsequent 2-3 years. In transport, smaller industries, and the household sector, progress has been slower but plans are underway to tackle these sectors in the coming 12-24 months. Summarv 2.13 The actions that the Government has taken have had some impact on alleviating the current energy problem but their main importance is in laying the basis for substantially larger improvements in the second half of the 1980s. In short, much of the groundwork for effective energy sector management has been done in the last two years and the country is ready to begin the operational and implementation phase of a number of programs which will improve the energy situation in the medium term. The task now is to ensu e that this momentum can be maintained, particularly during a period when overall resource availability is seriously constrained. This in turn requires that both the government and external assistance agencies allocs.te available resources only to those projects which have high, relatively certain and, preferably, quick payoffs. Some of these activities are listed in part V o! this report. 2.14 A few policy issues also remain to be resolved. These include: (i) Reviewing the efficiency of the existing instirctional arrangements for the marketing and distribution of Liquified Petroleum Gas (LPG) and, in particular, the respective roles of the CPC and the CGWC. (i') Reviewing the arrangements for tax collection in the petroleum sector whereby CPC's retail sales price includes an element of government imposed taxes which are not accounted for separately in CPC accounts and are transfered to the exchequer in an ad-hoc manner. (iii) Examining the feasibility and benefits of introducing an automatic adjustment clause in retail petroleum prices to reflect movements in international prices or in the exchange rate. -7- III. STATUS OF ENERGY ASSESSMENT RECOMMENDATIONS Recommendation Action Taken Energy Planning and Institutions (i) Longer-term energy strategy Overall energy planning and should be developed to coordination has been strengthened ensure that energy require- with the setting up of the ECT ments are met at least (para. 2.10). The EPPAN task force cost. is in the process of doing that, with the assistance of a newly established computerized data bank and models. (ii) An energy advisory and The EDMAC task force is taking audit service should be aggressive and commendable actions established to provide to implement a national conservation industry with technical program, focussed initially on the information with regard to industrial sector (para. 2.10). conservation. (iii) Improve the degree of No action has been taken in this coordination between CGWC regard. and CPC. (iv) Strengthen the capabilities The 1982 Bank forestry project has a of the Forestry Department'. sizable institutional and training component. Moreover, the Forestry Master Plan currently under preparation will define further institutional requirements in this sector. -8- National Energy Conservation Program (i) Initiate a concerted EDMAC has already initiated such a national energy conser- program with a series of seminars vation program, focussing for senior managers of major energy initially on the industrial using corporations, to be followed and commercial sectors. by actual training in energy audits early in 1984, then the undertaking of feasibility studies and actual implementation of conservation investments (para. 2.11). The total time required for the implementation of the energy efficiency improvement investments in the large industries is estimated to be about 2-3 years. During this period, a pro- gram to tackle the energy efficiency of smaller industries can also be developed. In this regard it is im- portant to note that several of the industries visited by the assessment mission accepted the mission's recommendations passed on co them by the Government, and instituted conservation measures on their own. (ii) Develop a program to A working group of EDMAC is now improve the efficiency of examining the short and long term energy use in the transport measures that could be employed to sector, focussing initially improve the energy efficiency of the on the larger users, such transport sector. However, work in as the CTB and the this area has progressed slowly. railways. Pricing (i) Abolish the general subsidy In July 1983, kerosene prices were on kerosene by raising the raised to the estimated border cost price to its economic cost of supply. The value of kerosene of supply. To protect stamps has also been raised to poorer domestic users of Rs. 21 per household per month, from kerosene, raise the value Rs. 9.50 in 1981. As a result of of kerosene stamps this action, the Treasury will save accordingly. an estimated $2.7 million during 1984 (based on an estimated consumption of 161,QOU tons of kerosene in 1983, retail prices of Rs. 5.20/liter prevailing in March 1983 compared to the current price of Rs. 6.58/liter). -9- (!.i) Widen the differential While the differential between between light and heavy different types of fuel oil has not fuel oil to induce greater changed much, the differential use of heavier products. between heavy diesel oil and fuel oil has been sharply increased (from less than Rs. 1 per gallon in 1980 to Ra. 13 per gallon). This increase has been made possible partly by the increase in kerosene prices whose previously low levels were restricting the CPC's abilitv to alter fuel prices. CPC reports that the price changes have resulted in a shift to the use of heavier fuels. Petroleum (i) Examine the viability of CPC has carried Out a detailed installing a Single Point feasibility study which confirms the Mooring Buoy (SPMB) system profitab,lity of this project. Im- for unloading crude oil plementation is planned for November directly from large 1985 to May 1986 and the expected tankers, thereby lowering cost of $40 million will be financed freight costs. from commercial sources and CPC's own funds. (ii) Reexamine the viability of C1C has reevaluated this project and the proposed hydro-cracker found it to be unprofitable, project to modify the particularly given the projected refinery's production increase in CEB's demand for fuel patterns oil in its diesel plants to be commissioned in 1984. The project therefore has been shelved for an indefinite period. (iii) Examine the viability of No detailed analysis has been made recovering additional LPG of this project but CPC feels that from the refinery fuel gas it would be more economical to system for supply to the import the additional LPG directly domestic market. rather than tnvest in the facilities to recover it from the refinery. - 10 - (iv) Close down the LPG/Air The pipeline system has been reduced pipeline operated by the from 180 miles to 11 miles and now CGWC. serves only a few major users whose needs cannot be met through bottled gas. Losses on the pipeline have fallen from 70A to 50% of (the reduced) throughput and, according to the CGWC, should fall further as a result of an ongoing pipeline rehabilitation program. (v) Do not embark on a proposed Plans for such a project are in new gas pipeline project abeyance. without a thorough re- examination of its technical and economic feasibility. (vi) Examine short-term options During 1982, CPC altered the crude to improve the refinery's mix of the refinery to take operation through changing advantage of relative price feedstock mix, increasing movements; it is monitoring relative bitumen production and crude prices to see if this action aggressively marketing can be repeateu. Regarding bitumen heavier fuel oil. production, the refinery's output increased to 25,000 tons in 1982 but further increases are limited by the demand of the highways department. In the area of fuel oil production, a widening of the retail price differential between diesel and fuel oil has enabled CPC to market more of the heavier products. Coal (i) Begin, urgently, the A prefeasibility study was com- preparatory work required pleted, with Australian assistance, to ensure the commissioning in April 1983. The preparation of of a coal-fired power detailed designs and engineering station by 1989. specifications will be done during 1984 with ADB assistance. The plant is now expected to be commissioned around 1990. This is likely to be followed by additional coal-fired units in the 1990s. - 11 - (ii) Study the potential for No systematic exploration of this coal convsrsion in the potential has been undertaken so industrial sector and far, as the Government has accorded develop an action program a higher priority, initially, to (encompassing institutional improving the efficiency of energy arrangements, infra- use in the industrial sector. structure requirements, etc.) to meet this demand. Electric Power *(i) Set up a monitoring The Mahaweli Authority established a mechanism to ensure that progress monitoring unit for the Victoria project can be Victoria and Kotmale. Victoria is commissioned on schedule in now reasonably certain to be mid-1984. commissioned by mid-1984. However, a problem has arisen regarding the completion of the 230KV transmission line to link Victoria to the grid. CEB is now working on setting up an interim 132KV connection to the project until the permanent line is completed. (ii) Develop a program to reduce A joint UNDP/World Bank mission of losses in the power February 1983 analyzed ways of transmission and improving the power loss situation distribution system. and identified the further work necessary to implement a power distribution rehabilitation project. CEB is acting on these recommen- dations and expects to carry out the detailed preparation of such a project during 1984. A separate unit has been set up in CEB to monitor system losses and to initiate efficiency improvement activities. Losses also should-be reduced through the installation of capacitors by industrial and commercial users in response to higher capacity charges and a concerted publicity campaign. The UNDP/Bank study also identified a highly profitable project to re- habilitate the Kelanitissa steam plant which is operating below design levels of efficiency and has been derated in capacity. CEB plans to carry out this rehabilitation - 12 - work during 1985 when the avail- ability of additional hydropower will enable the Kelanitissa plant to be removed from service. (iii) Develop a contingency Some preliminary criteria for program to minimize the allocating electricity during disruptive effects of shortages have been developed. The possible electricity Government also has decided to close shortages in 1984. down the Fertilizer !'actory (a large and uneconomic energy user) during the current short suo,ply period. Owners of captive generation plant are also being encouraged to run them continuously during periods of overall shortage; currently an estimated 6 GWh per month of private generation is being produced. (iv) Improve the demand CEB's load forecasting unit has been forecasting capability in strengthened and there is also the power sector and link better coordination with the it more closely to the Ministry of Finance and Planning on schedule of implementation the timing of major new projects. for major energy using projects. (v) Conduct a comprehensive Such a study is planned for 1984 survey of all potential with German bilateral assistance. hydropower sites. Afforestation (i) Afforestation activities Forestry activities (notably the should be accelerated and USAID and ADB assisted projects and expanded. the various plantings under integrated rural development projects and by tea estates) have been reenforced by the Bank assisted Forestry I project (co-financed with FINNIDA). The project includes, inter alia, the preparation of a Forestry Master Plan which will define the requirements for strengthening the sector's implementation capacity. However, the current afforestation activity is still well below the level required to meet the country's long- term fuelwood requirements. - 13 - Nonconventional Renewable Energy (i) An effective institutional The NERSE task force, has assumed framework should be this role (para. 2.10). NERSE has developed to guide and developed a preliminary set of coordinate the efforts of priorities based on economic and the different agencies technical criteria among various involved in the development renewable energy technologies. of renewable sources, and However, the dissemination and to define a set of implementation of these priority priorities among the options needs to be pursued more virious rqnewable energy vigorously. This effort should be applications. facilitated by the work of the National Consultative Committee on New and Renewable Energy Sources currently being formed as part of the UN follow-up to the Nairobi Conference Program of Action. (ii) A detailed survey should be No action has been taken in this carried out on the size of area. the market for solar water heating, including assess- ment of the viability of local production. Assess- ment of solar drying potential and delineation of a commercialization and diffusion strategy should be made. (iii) Assess the potential for The State Plantations Corporation reviving minihydro schemes (SPC) commissioned the Hydraulic on tea estates, and assess Engineering Corporation of China to the potential of minihydro conduct feasibility studies for the power in irrigation rehabilitation and extension of ten systems. minihydro sites on its estates. The reports were completed in May 1983, and the cost of such rehabilitation is estimated to be US$1.0 million. Financing is already being provided under the Bank's Tea I Rehabili- tation Project. - 14 - In addition, feasibility studies of 67 other sites on the SPC'j estates are underway (financed by CIDA) and scheduled for completion by March 1984. Financing of the preparation of design drawings and specifi- cations for the 67 schemes is still required prior to implementation. Development of minihydro rehabili- tation schemes on the JEDB estates has not progressed as well. Of the estimated 36 sites on these estates, appraisal has been done for only five sites, and only one site will be financed under the Bank's Tea II project. In view of Sri Lanka's tight power situation, which will continue for some time, review, identi_ication and (where economic) financing of these schemes should be continued as a matter of priority. Household _nergy Utilization (i) Efforts to accelerate The Renewables Energy Unit in CEB, improvements in design and along with CISIR, has developed a widespread dissemination of ceramic stove which is expected to woodstoves and charcoal reduce household fuelwood consump- stoves need to be tion by at least a third. Several strengthened. hundred units have already been distributed and have met with social acceptance. Given their low cost (Rs. 20 or $0.80), the stoves should also be affordable to the majority of the popula':ion. However, the Government is also prepared to subsidize them if necessary to ensure their rapid dissemination. An ambitious target for the dissemination of 10,000 stoves has been set for 1984. As to charcoal stoves, the Timber Corporation which has gone into charcoal production has developed a charcoal stove which is available on the market at a price of Rs. 20. - 15 - (ii) Carry out astudy to NRESA has recently conducted a determine the role of household fuel use survey, and is alternative fuels in still in the process of tabulacing meeting household needs, its results. Preliminary findings principally fuelwood, show that in rural areas, fuelwood kerosene, electricity, LPG supplies only 53% of energy needs, and naphtha. while 29% is supplied by coconut and other crop wastes and 18/%1 by rubber tree branches and wastes. The report's findings will be published * in the next 3 - 4 months. (iii) Examine the possibility of No systematic examination has taken using imported LPG to place. However, the increase $ supply expanding cooking kerosene prices is likely to re.sult fuel market. in a higher demand for LPG in the household sector. IV. ONGOING AND PLANNED TECHNICAL ASSISTANCE ACTIVITIES UNDP/World Bank 4.1 After the energy assessment, a joint UNDP/World Bank mission carried out an efficiency audit of the electric power distribution system and of CEB's generating plant. The report of the mission, published under the Energy Sector Management Program in June 1983, identified a $1.5 mnillion rehabilitai;ion project for the Kelanitissa steam plant. It also defined further work required to prepare a distribution and system rehabilitation project. This latter work is expected tv be financed from funds available under the Bank's ongoing Power VII project. Technical assistance and staff training are also components of the ongoing Power VII and VIII projects. The rehabilitation work at the Kelanitissa plant is expected to be carried out in 1985 when the plant can be withdrawn from service. 4.2 The 1982 Bank assisted Forestry project (co-financed with FINNIDA) includes technical assistance funds to draw up a Forestry Master Plan, which is already underway. Total technical assistance (including the Haster Plan, Forestry Traiaing and Plantations) under the project is $3.2 m.llion, or one-fifth of the total cost of the project. 4.3 Feasibility studies for the rehabilitation of ten minihydro plants on SPC tea estates have been completed by Chinese consultants financed under the Bank's Tea I Rehabilitation Project. This project is also expected to provide financing for the actual rehabilitation, estimated at about $1.0 million. Financing for reactivating one minihydro site on JEDB estates will be provided under. the Bank's Second Tea Rehabilitation Project. - 16 - UNDP/FAO 4.4 The UNDP has also financed the first part of a forestry inventory survey begun by FAO in January, 1982. The ongoing survey is funded until the end of 1984 and will feed into the Master Plan mentioned under 4.2. U2NDP/UNIDO 4.5 UNIDO is likely to execute a $375,000 technical assistance project financed under the UNDP Country IPF (1984-86) for industrial energy conservation. This project would be implemented by the .inistry of Power and Energy, and the Ministry of Industry and Scientific Affairs. It would include the provision of instrumentation, training, and consultant expertise to selected large industrial corporations- It would also help to strengthen the energy audit and advisory capability of the National Engineering, Research and Development Center. UNEP 4.6 The United Nations Environmental Program (UNEP) is financing a $100,000 exte,ision of the rural energy center at Pattiyapola. Asian Development Bank 4.7 ADB has provided about $80,000 to help strengthen the national energy policy analysis and planning effort in the Ministry of Power and Energy. The package includes hardware and software, consultant input and training to establish a computerised energy data base, energy balance and financial analysis models. The ADB has also agreed to finance the detailed feasibility study aad project preparation for the proposed coal- fired thermal power station. This work is expected to be carried out by mid-1985 at an estimated cost of $3.6 million. Some technical assistance is also included under the ADB's ongoing forestry project. USAID 4.8 USAID is financing the ongoing (second) phase of the Demand Management and Conservation Program (para 2.11) which comprises two seminars for senior plant engineers from thirty large corporations. The $100 - 150,000 grant will also finance some instrumentation and the preparation of a detailed energy audit manual. USAID may also provide additional funds to carry out some of the detailed feasibility studies and project preparation work for the energy conservation projects identified through the audits in this phase. USAID is also providing some technical assistance in the fuelwood subsector through its ongoing MIahaweli and Watershed Fuelwood projects. This includes experimental village charcoal production, local and overseas training, research and extension and improvement in the China Bay technical training facilities. - 17 - Finland 4.9 Finnish bilateral assistance has been obtained to finance a $60- 70,000 study which will review and evaluate the country's peat resources and the potential for their economic development for electric power production or direct use. The work will be carried out in coordination with the CEB and the Geological Survey. 4.10 Co-financing arrangements have already been made between IDA, the GOSL and FINNIDA, under which FINNIDA has committed US$2.44 million of grant aid to finance technical assistance for the Master Plan and plantation activities under the Forestry Project (para. 2.7). Canada 4.11 A C$250,000 technical assistance grant from CIDA is financing feasibility studies on reactivating 67 minihydro sites on SPC tea estates. Canadian bilateral assistance to the CPC is being considered for carrying out seismic work in offshore waters to the west of the island. About 1000 line kilometers of seismic surveys may be done early in 1984 under this grant of about CS1.6 million. CIDA is also providing technical assistance in the forestry sector under the Lower Uva Regional Project. Germany 4.12 German technical assistance in the amount of DM5 million is being provided to Sri Lanka's power sector to carry our a survey of all hydro sites on the island and a detailed study of 2-3 specific hydro sites. The grant will also assist in power system expansion planning and institution building. Holland 4.13 Dutch bilateral assistance of about 3100,000 is being sought for developing and field-testing gasifier units. Dutch financing of about $150,000 is also provided for the initial research and development phase of a wind energy testing and dissemination program. The project is being implemented by NERSE and the Water Resources Board and is primarily aimed at harnessing wind energy for water pumping. The Dutch are also collaborating with NORAD and SIDA to finance about 9,000 ha of fuelwood plantations between 1980 and 1984. Sweden 4.14 Swedish bilateral assistance 'inanced a study in 1983 which confirmed the potential for energy efficiency improvements in the industrial sector through a series of quick and preliminary audits of selected plants. Swedish assistance may also be provided for further work in the energy conservation area but the program has not been finalized. Also under discussion is a $100,000 package of assistance to test and disseminate biomass gasifiers in collaboration with CISIR and Peradeniya University. -18 - Australia 4.15 Australian bilateral funding was used to carry out a prefeasibility study of the proposed coal-fired power station. The final report was issued in April 1983 and, as indicated above, the subsequent feasibility and project preparation work identified by this report is to be carried out in 1984/85 with ADB assistance. V. PRIORITY AREAS FOR FUTURE TECHNICAL ASSISTANCE 5.1 Despite the relatively large amount of ongoing and planned technical assistance, there are a few areas where the provision of further technical assistance is a high priority. (a) Large Industries Conservation Program The current USAID technical assistance program will fund an intensive energy audit training seminar in February 1984 for senior engineers of 30 or so large corporations. Thereafter, these engineers are expected to carry out preliminary audits of their own corporations and to identify energy efficiency improvement projects which require detailed feasibility studies. These feasibility studies will then be offered to various donor agencies for financing. This arrangement has an important advantage in that the individual plant engineers will be involved in the efficiency improvement program from the outset. However, this decentralized approach also makes it important to ensure that the various projects identified are evaluated in comparable and consistent ways and the terms of reference for the individual feasibility studies clearly spell out the criteria that should be used for the technical, economic and financial analysis of proposed projects. An overall work program and schedule for the feasibility studies also needs to be drawn up to obtain a clearer definition of the timing of subsequent investments. Both of these tasks will be handled by the staff of the Ministry of Power and Energy but they will need specialized short term consultant support of about 10-12 weeks. To maintain the momentum of the large industry conservation program, it is essential that this support be provided in March/April 1984 i.e., soon after the detailed audit training course is completed. The Government is now contacting various donor agencies to see if they could provide the $40,000-50,000 required for this task. If this effort is not successful, the Government has requested ESMP funding for this high priority task. The mission supports this request. - 19 - Starting in mid-1984, a much larger volume of support will be required from various donors to carry out the detailed feasibility studies for the various industry specific efficiency improvement projects. The precise amounts required will be defined during the audit stage. (b) Transport Sector Conservation Program Although the Government's initial efforts have rightly focussed on large indnstrial users, there is considerable potential for improving the energy efficiency of the Ceylon Transport Board (buses), the railways, and private transport operators. A working group of EDMAC is currently preparing a preliminary analysis of the short and longer term measures that could be employed to improve the energy efficiency of the transport sector and strengthen the institutions involved. Once their report is completed in February 1984, external consultant support will be needed to help review the findings and to draw up a detailed implementation program. An initial input of 12-16 man weeks costing $50,000-60,000 is estimated to be required. (c) Rural Industry Efficiency Program Rural industry (mainly tea drying, brick making and copra processing) accuunts for a quarter of all fuelwood use and a considerable amount of oil consumption. Preliminary estimates suggest that up to a third of the energy used in these industries could be saved through improved processing techniques and operational practices. However, a more detailed analysis is required of their existing energy use patterns and of the various technologies for energy efficiency improvements. This exercise, for which detailed terms of reference are available, could be carried out in about 12 months at an estimated cost of $150,000. (d) Solar Water Heating - Market Survey and Preinvestment S tudY Although recent increases in electricity tariffs have made the economics of solar water heating (primarily, for the commercial and hotel sector) even more profitable, progress in the wider appiication of this technology has been slow and sporadic. This is partly because of limited awareness and information on the cost and reliability of this technology on the part of consumers, and partly because potential suppliers do not have reliable information on the extent of the market for this product. The Government wants the private sector to take the lead in developing and disseminating this technology, - 20 - but it recognizes that it may have to play an initial role to bring about this potential quickly (e.g. through certifying various manufacturers' products or ensuring the availability of loan financing for the high, up-front cost i:.volved). However, it is not clear what the precise role of the Government and the parastatal organizations (CEB, CISIR, etc.) ought to be. Nor is it clear just how important action in thi: regard is, given the uncertainty regarding the size of the market. To resolve these issues, a comprehensive study is required which will establish the "economic" market for this techirology, evaluate how this market could best be supplied (domestic production, imports, etc.), examine the constraints that appear to be holding back the realization of this potential and propose measures that would help to overcome these constraints. The study would also identify the respective roles that the public and private sectors could play in the implementation of a solar water heating development program. Ehe study is expected to cost $80,000-100,000 and would be completed in 8-12 months. (e) Kelanitissa Power Plant Rehabilitation The joint UNDP/World Bank Power Sector efficiency audit study of 1983, identified a detailed program for the rehabilitation of this plant. CEB proposes to carry out this work in 1985 when the plant can be spared from electricity production. To this end, CEB needs to engage consulting engineers now who would help draw up tender documents for the rehabilitation work, order the necessary equipment and then help in the supervision of the implementation of the project. This assistance package is expected to cost about $250,000 and would be required over an 18-24 month period beginning in early 1984. (f) Preparatory Work for Major Hydro Projects In addition to the above projects which fall under the broad category of energy efficiency improvements and fuel substitution, preparatory work on power plants to come on stream in the 1990s should commence now. The ADB is already financing the preparation of detailed designs and engineering specifications on a coal-fired power station to come on stream around 1990. However, preparatorv work ranging from pre-feasibility to feasiblity, to engineering studies on the next hydro plants to be commissioned during the nineties ought to start now. These include development of the Upper Kotmale Basin, Broadlands and Samanalawewa. Financing should be made available to cover the next stage of the preparatory work, on a case by case basis. These activities should require a total of about $5-10 million. - 21 - The three projects involved are: (i) The Upper Kotmale Basin: This covers development of the upper reaches of the basin, as construction of the main Kotmale project in the lower reaches is already underway within the context of the Mahaweli development. The Mahaweli Master Plan prepared by UNDP/FAO dealt with the Upper Kotmale Basin at a reconnaissance or pre-feasibility level of studv. This study recommended six hydro stations (including the Kotmale project currently under construction). The other five developments in the Upper Basin will have a combined installed capaci:y of about 100-250 MW (50Q GWh per year). (ii) Broadlands Hydro Project: Some iavestigations of this project have already been carried out by Hydro Technical Corporation of New York and E.C.I. of Denver in 1961. Calculations by CEB in 1981 showed that a 20 MW plant could be erected; however, cost and energy availability differ greatly depending on whether a dam or a weir is built. A dam would cost Rs. 1,245 million and produce 132 GWJ per year, while the weir alternative would cost only Rs. 700 million and produce 86 GWh of energy. (iii) Samanalawewa Project; This project is located at the southern extremity of the central mountains. Investigations of the site began as early as 1960 by the Department of Irrigation, and in 1966 by the Engineering Consultants Inc., U.S.A. The Mahaweli Development Board, with assistance from Snowy Mountains Engineering Corporation (Australia), prepared a design in the early 1970s based on the 1966 study. The project is expected to have an installed capacity of at least 120 MW and produce 480 GWh per annum. In 1975, further investigations and designs were carried out by the USSR and the Central Engineering Consultancy Bureau of Sri Lanka, which led to discussions of implementation and financing. However, no agreement was reached on the specifications of the project, and the talks were suspended. - 22 - Statistical Annex Table 1: The Import Bill (US$ million) 1980 1981 1982 1983 a/ A. Petroleum Imports 493 515 574 462 B. Petroleum Re-exports b/ 188 175 158 98 C. Net Petroleum Imports 305 340 416 364 D. Non Petroleum Exports 877 891 857 945 E. C as % of D. 35 38 49 39 a/ Preliminary, based on September 1983 actual figures. Actual figures might be different since bulk shipments are received at varying intervals. b/ Includes petroleum re-exports, foreign bunkering and aviation. Source: Central Bank of Ceylon and Dec. 1983 Economic Mission Estimates. Table 2: Pdnry Cowrercial Enety Conuzivtion ('000 toe) 1980 1981 1982 1983 a! Average A4nnal Growth Rate % 1980-82 1980-83 19821-3 retroleum Products b/ 1,237 1,216 1,589 1,554 13 8 - 2 Hdw-ectrity c/ 447 474 486 364 4.3 - 6.6 - 25 Total 1.684 1,690 2,075 1,918 11.00 4.43 - 8 a/ Preliminary estimates. b/ NSet of exports & foreigi bmkering and aviation. c/ Comverted at the rate of 12,000 Btu/kldh and 39.68 million Btu/toe. - 23 - Table 3: Growth of Electricity Generation 1980-83 1980 1981 1982 1983 1/ A. Generation (GWh) Hydro 1479 1571 1608 1206 Thermal 188 301 458 907 2/ Total 1667 1872 2066 2113 (Sales) (1392) (1502) (1680) (1700) B. Growth Rates (%) 1980-82 1980-83 1982-83 Hydro 4 -6.6 -25 Thermal 56 69 98 Total 11.3 8.2 2 1/ Preliminary 2/ Gas turbines are operated on a full-time basis. Source: CEB Table 4: Domestic Consumption of Oil Imports ('000 tons) 1980 1981 1982 1983 a/ Total Oil Imports 2,001 1,889 2,233 2,026 Less Petroleum Produ-ct Exports - 314 - 328 - 288 - 172 Less Foreign Bunkering and Aviation - 450 - 345 - 356 - 300 Domestic Oil Consumption 1,237 1,216 1,589 1,554 a! The 1983 figures have been extrapolated from figures available in CPC up to September, 1983. Source: CPC - 24 - Table 5: Price Trends of Major Petroleum Products 1980-1983 (Rs./Gallon) Product July July July July 1980 1981 1982 1983 Petrol 40 '45.5 45.5 61.40 Kerosene 15.18 17.68 17.68 29.97 Auto Diesel 21.0 27.0 27.0 36.98 Super Diesel 23.0 30.0 30.0 42.2 Heavy Diesel 20.8 25.8 25.8 35.61 Furnace Oil 500 20.2 20.2 20.2 22.22 1000 19.5 19.5 19.5 22.0 Source: CEB 1