Unfinished Business – The IPPs-CEB Contracts

Editorial

The resurgence of Covid cases around the island, as well as the controversies relating to ICTA’s initial proposals to counter abuse on social media and the bogey raised around an alleged Indian military base in Agalega and other issues flagged by the media, should not detract us from addressing other matters of national interest which remain unresolved to this day. For example, the Independent Power Producers-CEB cast-iron contracts, a few of which came up for renewal in 2017-18. Little is known about the terms and conditions applied in their renewal, and whether they are still inimical to the CEB’s and by extension the consumer’s interests. Or will this be left to the Utility Regulatory Authority, which has come into operation since last December following amendments brought to the Electricity Act 2005, to examine and review these contracts.

The Labour-led government had sought before 2014 to do so without much success. It bears repeating that the subsequent Alliance Lepep government did not show the same earnestness vis-à-vis the Independent Power Producers (IPPs) as it did in the case of the STC-Betamax contract negotiated by the Labour-MSM-PMSD government for the transport of petroleum products from mangalore, India. It is consumers who are still having to foot the bill for the Lepep government’s lack of similar zeal to dig into the black box that is the IPP-CEB deal. It is to be hoped that the Utility Regulatory Authority, which is chaired by Philip Ah-Chuen, known to be a no-nonsense man, will obtain the support of the current government to ensure that fair and equitable conditions are inserted in the IPPs-CEB contracts

It was in 1997, based on a model employed to encourage energy production in less developed energy-deficient economies, that the World Bank advocated that Mauritius should also embark on a model that shifts energy production from public sector producers to the private sector producers of electricity – the IPPs. Under this concept, the government signed up long-term contracts, Power Purchase Agreements (PPAs), typically for 15 or 20 years, with the IPPs to supply electricity to the public grid. Thus, the CEB was displaced to the benefit of IPPs, the first of which was signed in 1997. Six others were subsequently signed with other sugar-milling companies, thus extending the scope of the private sector from being a negligible supplier of electricity to the country to occupy today some 55% of the total electricity generated.

The PPAs are cast-iron contracts which force the CEB to take or pay (even if it doesn’t take) whatever the IPPs produce, leaving the CEB with the residual role to supply the balance to meet demand. Under the IPP arrangement, the IPPs pass on to the CEB all risks (such as exchange rate, internal and external inflation, guaranteed return on equity to investors, etc.) and are fully insulated. The CEB passes on such risks to consumers including, amongst others, the cost of insulation from all risks sugar millers grouped in IPPs have been accorded by different governments under the contracts.

Readers will also recall the lobby against other new players which sought to enter the electricity supply chain, a victim of which lobbying had been CT Power, a potential 110 MW alternative supplier to the CEB, on the grounds that it would have polluted the environment, notwithstanding the fact that the IPPs themselves use over 50% coal in their electricity generation. From 200,000 tons in 2000, 800,000 tons are today imported for the benefit of the IPPs when the trend worldwide is towards shifting, though incrementally, towards alternative sources of energy to mitigate the negative effects of climate change.

Under the 1990s and early 2000s long-term contracts binding the CEB irrevocably to IPPs, consumers have been at the receiving end of all added costs/risks encountered by the IPPs, which have shown resistance to any review of these same contracts. Arbitration has not helped, and if things do not work out to the satisfaction of the public it might ultimately be necessary to envisage some form of taxation to correct the asymmetries in the IPPs-CEB cast-iron contracts.

* Published in print edition on 28 May 2021