Report No. 3794-CE Sri Lanka: Issues and Options in the Energy Sector May 1982 Report of the joirt UNDP/WrWd Bank Energy Sector Assessment Proam This document has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bark. CURRENCY EQUIVALENTS US$1 = Rs. 18.00 1, ABBREVIATIONS AND ACRONYMS GOSL Government of Sri Lanka MPE Ministry of Power and Energy CEB Ceylon Electricity Board CPC Ceylon Petroleum Corporation CGWC Colombo Gas and Water Company CISIR Ceylon Institute for Scientific and Industrial Research STC State Timber Corporation NERDC National Engineering Research & Development Center NRESA Natural Resources, Energy and Science Authority NSC National Science Council CTB Ceylon Transport Board toe 2/ ton of oil equivalent = 10 million kilocalories or 39.68 million BTUs. This report is based on the findings of an energy assessment mission which visited Sri Lanka in May-June 1981. The mission comprised Messrs. Masood Ahmed (Chief of Mission), John Borthwick (Country Economist), Andres Liebenthal (Energy Economist), Anwer Malik (Renewable Energy Specialist), William Matthews (Petroleum Sector Specialist, Consultant) and Brian Robinson (Energy Conservation Specialist, Consultant). For its analysis of the electric power sector, the mission drew on the work of the Power VII project appraisal mission comprising Messrs. B. Davis and J. Ryan which was in the field at the same time. A draft of this report was discussed with the Government of Sri Lanka during a follow-up mission in May 1982. The mission has also been able to draw on a number of recent studies of Sri Lanka's energy situation. A good overview and description of the sector is provided in the March 1981 report prepared by Messrs. Fernando, et al of the Government of Sri Lanka for the Asian Development Bank's Regional Energy Survey. 1/ The exchange rate used in this report is the one prevailing in June 1981, : the time of the mission. Since then, the Sri Lankan Rupee has depreciated against the dollar and the January 1982 rate is around Rs. 21 = US$1. 2/ Other energy coefficients and conversion factors are listed in Annex 1. FOR OFFICIAL USE ONLY Report No. 3794-CE SRI LANKA ISSUES AND OPTIONS IN THE ENERGY SECTOR May 1982 This is one of a series of reports of the Joint UNDP/World Bank Energy Sector Assessment Program. Finance for this work has been provided, in part, by the UNDP Energy Account, and the work has been carried out by the World Bank. This report has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the World Bank. SRI LANKA ISSUES AND OPTIONS IN THE ENERGY SECTOR TABLE OF CONTENTS PAGE NO. MAJOR FINDINGS AND RECOMMENDATIONS ........................ (i)-(vi) I. ENERGY AND THE ECONOMY OF SRI LANKA Country Background .. . ....... 1 Recent Economic Trends .................................... . 1 Trends in Energy Consumption ... 3 Petroleum Products . .. 5 Electricity ...................................... 6 II. ENERGY RESOURCES AND SUPPLY Overview . .................. . ....................... 8 The Supply of Petroleum .... 8 Exploration ........................................ 8 Refining . . ......................................... 9 Petroleum Retailing ........... 14 The Supply of Electricity . . ........................ 16 Standby Generators .... 18 Projects Under Construction .... 19 Fuelwood Supply .... 21 Charcoal .................................... ...... 24 Non-Conventional Energy Sources . . .................. 25 Solar Energy .... .. ......... 26 Minihydro .... 26 Other Renewables . . ............................... 27 Institutional Coordination .... 27 Conclusion ....................................... .. 28 III. ENERGY CONSUMPTION AND EFFICIENCY Overview ........................................... 29 1980 Energy Balance .. 30 Industrial Energy Consumption . . ................ 33 Energy in Transport . . 38 Household Energy Use ........................... 39 Conclusion . . 42 IV. ENERGY PRICING, TAXES AND SUBSIDIES Overview ........................................... 44 Petroleum .......................................... 44 Ex-Refinery Prices .. 45 Pricing for Export . . 46 Retail Petroleum Pricing . . 47 Electricity ........................................ 51 - ii - Table of Contents (cont). PAGE NO. Fiscal Contribution of the Sector ... 53 V. ENERGY PROSPECTS IN THE 1980s Introduction ....................................... 57 Medium Term Energy Demand . . . 58 Electricity ........................................ 60 Coal ......... 62 Petroleum Products . . . 63 Managing Short Term Energy Demand ... 66 Energy Conservation Program ... 66 Contingency Planning . . . 68 An Energy Strategy for the 1990's ... 69 VI. CONSTRAINTS TO SECTOR DEVELOPMENT Overview ....... ................................... 72 The Energy Import Bill ... 72 Energy Sector Investment . . . 73 The Power Sector ............................... . 73 Non-Power Energy Investments ... 74 Institutional Strengthening . . . 76 ANNEXES Annex I - List of Conversion Factors and Coefficients II - Energy Balance Tables 1980, 1985 and 1990 III - Energy Demand and Supply Projections for the 1980's IV - The Kerosene Stamp Scheme: The effect of higher kerosene prices and an increase in the value of kerosene stamps. V - Review of Petroleum Sector Projects MAPS Sri Lanka - Electric Power Network (IBRD No. 16236) Sri Lanka - Petroleum Exploration (IBRD No. 16078) MAJOR FINDINGS AND RECOMMENDATIONS i. Energy has only recently become a serious problem for Sri Lanka. The oil price increase of 1973 had made petroleum, which supplies a third of the country's primary energy requirements, a significant factor in the balance of payments, but a combination of slow economic growth and stringent import controls ensured that the burden of oil imports was manageable during the following years. At the same time, the addition of new hydro capacity resulted in a comfortable balance between electricity supply and demand and helped to contain the demand for oil by substituting for thermal generation. ii. Since 1978, however, this situation has changed dramatically. The marked improvement in economic performance that followed the adoption of a market-oriented development strategy under the new Government has brought with it a substantial increase in the demand for all forms of commercial energy, which rose in aggregate at 8.8 percent per annum in the 1978-80 period as opposed to a slight decline in the preceding seven years. Petroleum consumption has grown even more rapidly because, in the post-1977 period rising electricity demand had to be met principally through increased thermal generation from oil. Thus total petroleum consumption grew at 9.5 percent a year during 1978-80 after having declined at an average 3.3 percent per annum in the 1970-77 period. Rising import volumes and a doubling of world oil prices in 1979 took their toll on the balance of payments. Between 1978 and 1981 the oil import bill more than tripled and the proportion of export earnings devoted to oil imports rose from 11 to 39 percent. iii. Nor has the energy crisis been confined to petroleum. 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 the early months of 1981. The effects of these shortages on industrial output and economic performance have not been quantified but they are likely to be substantial. Perhaps even more important is the potential impact of a rapidly worsening external payments situation and the prospect of recurring electricity shortages on the success of the Government's efforts to attract foreign and domestic private investment, which is a key element of its new development strategy. The net effect of these developments is that energy has now become a major national concern. iv. The analysis in this report suggests that the situation is likely to worsen before it improves. For the first half of the 1980s, the implementation of a large public investment program and the commissioning of major industrial and commercial projects now under construction will result in continued strong growth in energy demand. The estimated 15 percent increase in commercial energy consumption in 1981 is unlikely to be repeated, but a projected economic growth rate of 5.7 percent per annum will still be associated with a substantially higher growth rate for commercial energy demand - an average of 8.5 percent per annum between 1981 and 1985. In terms of fuels, electricity consumption is projected to grow over twice as rapidly as the direct - ii - demand for petroleum products; but, because nearly all of the additional electricity demand will have to be met through higher oil-based thermal generation in this period, the economy's total petroleum requirements in 1985 will still be half as large again as in 1980. As a result, even if oil prices remain at their 1980 level in real terms, 45% of projected export earnings and 10% of GDP will have to be earmarked for importing oil in 1985. This burden will, of course, be greater if real oil prices rise in the next five years. v. Along with continued pressure on the balance of payments, short term developments in the energy sector will be a particular source of concern for national policymakers in two other areas. First, the investment requirements of the power sector - and especially for the Mahaweli hydro projects - will continue to strain the overall public investment program. Between 1982-86, budgetary investments in the power sector will amount to Rs 23 billion ($1.4 billion), which is approximately a quarter of total public investment over this period. Much of this investment is for the implementation of the Mahaweli power projects, and, given the importance of these projects, both in terms of public investment and power supply, it is worrying that their completion might be delayed because of funding and manpower shortages. This would make the already distinct possibility of recurring electricity shortages up to 1984 - which is the other main concern in the sector - an even more likely event. vi. Under these circumstances the highest priority in short term energy supply management must be attached to ensuring that the first of the Mahaweli projects, Victoria, comes on stream as scheduled in mid- 1984. If Victoria is delayed from mid-to end-1984, an additional 100 GWh of thermal generation will be required in those six months at a 1980 fuel cost of Rs. 250 million ($14 million). Any further delays will have serious consequences for the cost and availability of adequate electricity in 1985. To achieve the timely commissioning of Victoria the Government should set up a special mechanism to closely monitor progress on the Victoria site and this project should be assigned the highest priority in the allocation of manpower and funding (2.25-26).1/ vii. Other supply-side options to improve the near term energy situation are limited. Three measures should be undertaken however. The first is to close down the LPG/air pipeline which the CGWC operates in Colombo. The pipeline-s current losses - estimated at up to 70% of input volumes - cost the country $0.5 million a year in lost fuel, a loss which Sri Lanka can ill-afford at this time (2.12). Secondly, further detailed work should be undertaken to assess the viability of recovering additional LPG from the refinery for distribution in bottled form. A review of CGWC's proposal for such a project suggests that this could be 1/ Numbers in parentheses refer to paragraphs in the main text where the relevant issues are discussed in greater detail. - iii - an attractive investment opportunity in the petroleum subsector and merits further consideration (2.14-15). Finally, substantial savings could accrue from a streamlining of the current arrangements for crude oil importation which are resulting in high transport costs (2.09). CPC's project to install a Single Point Mooring Buoy system for unloading crude oil imports appears to have a high rate of return and should be investigated further as a matter of priority. (2.10). viii. Nevertheless, the main thrust of Government efforts to alleviate the country-s short term energy prospects must be directed towards improving the efficiency with which energy is currently used. One of the most important conclusions of this report is that a concerted national energy conservation program, focussing initially on the industrial and commercial sectors, could begin to yield substantial energy savings in a relatively short period and at limited cost by increasing the efficiency with which these sectors currently use energy (3.07-11). Preliminary analysis suggests that if such a program were embarked upon immediately it could reduce the country's petroleum import requirements - through both a direct reduction in industrial/commercial sector liquid fuel use and an indirect effect through a lower need for thermal electricity generation - by $15 million in 1983 rising to $24 million by 1985, all in 1980 prices (5.20-21). These projected savings compare very favorably with the $10-15 million investment cost that is likely to be associated with such a program and the $0.5 million that would be required to establish it (5.21, 6.09). These figures need to be confirmed through more detailed work but they serve to illustrate the high priority that should be attached to a more systematic and comprehensive effort to identify energy saving opportunities and to bring about their realization. To achieve this, the Government should establish an energy advisory and audit service to provide industry with the necessary technical information and advice in undertaking appropriate retrofitting investments and good housekeeping measures. The establishment of this service could be assisted through the provision of one or two experienced conservation specialists under a technical assistance program (3.11). ix. The Government's efforts to promote energy conservation also need to be complemented by a rationalization of energy pricing policy. The proposed change in electricity tariffs is an important step in this direction but a number of other energy pricing issues need attention. The most important of these is the continuing general price subsidy on kerosene which is superfluous given that, in the concurrently operated Kerosene Stamp Scheme, a mechanism is already in place to meet the Government's objective of mitigating the effects of higher kerosene prices on poor households (4.08-11). The Government should, therefore, raise the price of kerosene to its economic cost and simultaneously increase the value of kerosene stamps thereby protecting poorer households but discouraging suboptimal kerosene use in other sectors. Similarly, the price differential between light and heavy fuel oils is not sufficient to encourage users to invest in the facilities necessary to handle and use the heavier grades even where this would be economical (4.12). Both of these measures could help to improve the efficiency of energy use and the fiscal contribution of the energy sector. - iv - x. In the second half of the decade Sri Lanka's energy prospects are expected to improve, mainly as a result of interfuel substitution (5.04). The commissioning of the Mahaweli hydro projects in the mid- 1980s and a 120 MW coal thermal station in 1989 will reduce the share of oil-based electricity generation from 25 percent in 1985 to 17 percent by 1990 (5.11). The planned conversion of the cement industry to coal will also help to moderate the demand for petroleum which is projected to grow at a fairly modest 3.6 percent per annum over the 1986-90 period (5.14- 15). Commercial energy consumption as a whole is also expected to grow more slowly in the second half of the decade -- at an average annual rate of 6.0 percent - reflecting a less energy intensive pattern of economic growth as the heavy construction and investment push of the early 1980s begins to pay off. Nonetheless, by the end of the decade, energy imports -- coal and oil -- will cost around $620 million (in 1980 prices), accounting for 45 percent of projected export earnings (5.18). While this figure could be reduced by an estimated $36 million (in 1980 prices) as a result of the conservation program recommended in this report, it would still entail a far higher proportion of national resources being devoted to the energy sector than has been the case in the past. xi. Even this scenario of energy prospects in the late 1980s is contingent upon early Government action in a number of policy and investment areas. First, in the power sector, preparatory work for the introduction of a coal thermal station must begin urgently. Although the station is not due to be commissioned until 1989, the long lead time for setting up such a facility and the associated infrastructure for coal imports, plus the manpower training and familiarization requirements of introducing a new source of electricity, already makes 1989 a tight schedule for power supply from such a plant (2.28). Also in the power sector, there is a need to resolve some of the uncertainties regarding the planned timing of major new power using projects, where conflicting signals are making CEB's task of forecasting its future load growth unnecessarily complex and difficult (5.09-10). xii# Paradoxically, the long term prospects for commercial energy will be significantly affected by developments in non-commercial energy supply, specifically that of fuelwood which currently provides over half of Sri Lanka's primary energy requirements and is the main fuel for the majority of its population. Although data on fuelwood supply and consumption are sketchy, they indicate that a large part of the current requirements for fuelwood is met from the clearing of forests (2.29- 30). Fuelwood demand is only one source of deforestation -- the growing requirements for agricultural land and "chena" cultivation methods being at least as important factors -- but deforestation is nevertheless a serious problem and a continuation of this trend could leave the country virtually denuded of forest cover in about 30 years. Serious local fuelwood shortages would emerge well before then. The resulting increase in the demand for commercial energy -- mainly petroleum -- would put a significant strain on both the balance of payments and domestic economic management (2.31). Current reforestation efforts fall far short of the estimated $150 million program that is required over the next 20 years to ensure a sustainable supply of this fuel in the longer term. Embarking on such a program is a high priority task for the Government (2.32-33). The Government should also encourage and expand the CISIR's project to develop and popularize more efficient wood and charcoal stoves which could substantially reduce household fuelwood consumption in the longer term (3.16). xiii. In the petroleum supply subsector, the existing imbalance between the refinery's production pattern and the mix of product demand is projected to continue throughout the 1980s (5.17). Therefore the economics of alternative refinery modification options to reduce this imbalance should be studied by the CPC and the Government. The CPC's hydrocracker project proposal is one such alternative, but further work is required to resolve some remaining technical and economic uncertain- ties in the analysis (2.07-8). xiv. Finally, in the area of nonconventional energy there is an urgent need to establish clear sectoral priorities so as to guide the currently isolated and too thinly spread efforts of individual agencies (2.36-38). Two areas which appear to have early potential for use in Sri Lanka are the application of solar energy for crop drying and water heating (2.40-41) and the reactivation of minihydro sites to meet the electrical energy needs of rural industries (2.42-44). A study to establish sector priorities and a detailed assessment of the potential of these applications needs to be carried out. xv. The analysis in this report confirms that developments in the energy sector will have a critical bearing on the success of the Government's overall development strategy for the 1980s. Successfully surmounting the challenges in the energy sector will itself require a substantial strengthening of the currently weak and fragmented institu- tional structure for energy management and planning. Inadequate planning and delays in decision making and program implementation are to a large extent at the root of Sri Lanka's present energy sector problems. Even now, no single agency in Sri Lanka is effectively formulating a national energy policy or coordinating the work of the various organizations that are active in the energy field (6.11-15). The June 1981 decision to establish a Natural Resources, Energy and Science Authority to advise the President has yet to be followed up with details on its exact role, focus and staffing even though policymakers need to take urgent action on a number of energy policy and investment issues. Some of these -- such as embarking on a concerted conservation program for industry and commerce -- offer the only real options for improving the country's short term energy prospects. A contingency program for minimizing the disruptive effects of possible electricity shortages up to 1984 must also be urgently developed (5.22-24). Other decisions, such as commencing preparatory work for the coal thermal station or expanding the reforest- ation program, will not affect the energy sector until the late 1980s but, because of long lead times, they need urgent attention if their contribution is to be realized as scheduled. At the same time the country must also begin to develop a longer term energy strategy to ensure that its energy requirements can continue to be met at the least cost (5.25-30). To achieve these tasks requires both a high level of - vi - commitment to efficient energy sector management at the national level and a core of technical staff which can provide policymakers with a continuing analysis of Sri Lanka's energy issues. Recent developments suggest that such a commitment now exists at the highest level of policymakers; what is now required is to translate this commitment into a series of operationally-oriented policy actions which will enable Sri Lanka's limited energy options to be fully realized. CHAPTER I ENERGY AND THE ECONOMY OF SRI LANKA Country Background 1.01 Sri Lanka is a small, moderately industrialized island country with a population of about 15 million and a 1980 per capita GNP of $270. Agriculture accounts for 23 percent of GDP with over a third of this coming from the production of tea, rubber and coconuts. The processing of these tree crops also accounts for a third of the value added in industry (18% of GDP) and over half of the country's exports. The country's other major exports are precious stones, textiles, fish products and re-exported refined petroleum products which have recently become the second largest export earner after tea. Recent Economic Trends 1.02 Sri Lanka's economic performance during the 1970's can be divided into two distinict periods. Prior to 1977 the economy was characterized by a rigid system of controls and a policy environment unconducive to growth and private investment. These factors, along with inadequate investment and poor economic management, resulted in a level of economic growth -- 2.9 percent per annum between 1970-77 -- which was both well below the economy's previous performance -- 4.4 percent per annum in the 1960's -- and its inherent potential. These trends were dramatically reversed after 1977 as a result of a change in government and the election of the United National Party. The new government has sought to revitalize the economy by dismantling controls, restoring realistic relative pricing and by taking measures to encourage domestic and foreign private investment. To lay the foundation for longer term development and provide a growth stimulus in the intervening period, the government also embarked on a large public investment program built around three "lead" projects: the Accelerated Mahaweli Development Program, by far the largest multipurpose river basin development ever undertaken in the country; a 200 square mile free trade zone near Colombo and several investment promotion zones administered by a new special commission; and a massive housing and urban development program, including the building of a new State Capital complex outside Colombo. 1.03 The economy's initial response to liberalization was vigorous and encouraging. After several years of near stagnation, 1978 and 1979 saw substantial increases in output, employment and investment. Since 1979, however, difficult problems have emerged. The rapid growth in public and private investment exceeded the increase in national savings and has consequently had to be financed increasingly through inflationary domestic borrowing from the Central Bank and expensive commercial -2- borrowing on international capital markets. These domestic problems were compounded by a 20 percent deterioration in the country's terms of trade, largely caused by the doubling of international petroleum prices in 1979. As a result of these factors, by 1980 the rate of inflation had doubled to 31 percent 1/ the current account deficit rose to 19 percent of CDP (as against 11 percent in 1979), and foreign exchange reserves declined to less than nine weeks of imports by the end of the year. 1.04 Recognizing that these developments constituted a severe threat to the success of its overall development strategy the government took a number of measures in late 1980 to reduce capital expenditures and contain budgetary and current account deficits. These measures led to a substantial improvement in 1981, but a much more comprehensive and prolonged stabilization program is required to ensure sustainable economic growth over the medium term. In particular, the budgetary requirements of the public investment program will need to be continuously monitored and trimmed as they are in excess of available resources for 1982 and 1983. With a large part of the investment budget already committed, this implies that new projects will have to be subjected to a great deal of scrutiny not only to ensure that they offer high economic returns but also to confirm that these returns will be substantially reduced if project implementation is postponed until the overall resource position eases up. By contrast, those projects which could alleviate the short to medium term resource position should be given a much higher priority in terms of public funding and support. 1.05 Developments in the energy sector will have an important bearing on the country's overall economic prospects. A large part of Sri Lanka's current economic difficulties stem from the rising cost of petroleum imports which now absorb a third of export revenues and the increasingly heavy burden of the power development program which accounts for 35 percent of projected government investment between 1981-85. Under these circumstances, any measures to reduce oil consumption in the near term acquire a high degree of importance. At the same time, despite the heavy investment requirements of the Mahaweli Program, the country must begin to plan for additional indigenous energy development to further reduce its dependence on an expensive and imported source of energy. 1/ Based on changes in the Wholesale Price Index (WPI) which is the most comprehensive. Increases in the price of energy accounted for 34% of the WPI increase over 1978-80. However, even this increase understates the full impact of higher energy prices on inflation because the effect of the fuel adjustment clause in electricity tariffs is not included and the weights attached to energy in the WPI are outdated. There is also the secondary effect of higher energy prices on the cost of other goods and services for which energy is a major component. -3- Trends in Energy Consumption 1.06 In 1980, Sri Lanka consumed about 3.7 million toe of primary energy.L/ Over half of this was in the form of fuelwood and other non- commercial energy sources with the balance being provided by imported oil (33 percent) and indigenous hydropower (13 percent). Per capita energy consumption levels -- commercial sources 114 kgoe and total energy 250 kgoe per annum -- are comparable to other developing countries with similar levels of income. Developing a detailed picture of sectoral energy consumption patterns in Sri Lanka is hampered by the absence of reliable data at a sufficiently disaggregated level for even the commercial fuels. The inclusion of fuelwood increases the margin of error further because even total consumption figures vary widely according to source.Z/ Nevertheless, preliminary analysis suggests an overall energy consumption pattern which is fairly typical for a moderately industrialized low income country. Industry and transport are the main users of commercial fuels - accounting for 37 percent and 36 percent of commercial energy consumption respectively, with direct household demand accounting for only 17 percent of the total. These shares change dramatically if fuelwood is included in the analysis. Direct household use then accounts for nearly half of total primary energy supply, which in turn reflects the fact that the bulk of household energy is supplied from fuelwood. Furthermore, because fuelwood is currently burned at a very low level of efficiency, a disproportionately large primary energy input is required to generate a modest amount of "useful" energy for cooking and lighting.3/ In rural areas, the better off households also use kerosene for lighting but very few have access to electricity. In urban centers, commercial energy use is more common but fuelwood is still an important cooking fuel. As in most developing coun- tries, the classification of fuelwood as a "noncommercial" energy source belies the fact that most urban families purchase it in local markets. The bulk of it, however, is consumed in rural areas where most families gather their own requirements. 1.07 Fuelwood is also an important source of energy for the industrial sector but its use is primarily limited to tree crop 1/ Excludes international bunker sales and reexports of petroleum products. 2/ The estimate used in this report - an approximate 1980 consumption level of 5.2 million tons per year - is the best one available, but it should still be viewed as indicative. Other estimates range from 3.8 to 5.3 million tons a year. 3/ This question of relative transformation efficiencies and the potential for moderating the growth in primary energy demand by improving these efficiencies is discussed at greater length in Chapter III of this report. - 4 - processing in rural areas. Non-agricultural industries rely mainly on electricity and petroleum for their energy, with furnace oil and diesel being the major liquid fuels. The transport sector is now exclusively petroleum based although coal was once an important railway fuel. Table 1.1 Pattern of Energy Consumption (1980) Sector Fuel Source (000 toe) Sub-Total Direct "Commercial" Petroleum Electricity Energy Fuelwood Total Industry/Commerce 315.5 303.7 619.2 520 1139.2 Transport 607.3 - 607.3 - 607.3 Households 221.0 70.9 291.9 1520 1811.9 Public and other unallocated 40.5 131.6 172.1 - 172.1 Total 1184.3 506.2 1690.5 2040 3730.5 Notes: (i) Indirect petroleum consumption in the form of thermally generated electricity is included here as electricity. For a breakdown of energy supply by primary energy source see Table 1.2. (ii) Hydroelectricity converted at thermal generation replacement. (iii) Transformation and distribution losses allocated to end use sectors on a prorata basis. Source: Staff estimates; see Annex 2 for details and assumptions. 1.08 The absence of reliable time series data on fuelwood consumption makes it even more difficult to identify trends in total energy demand or to relate them to other economic variables. Various estimates which have been made suggest that there has been no marked shift away from non- commercial to commercial energy sources over the past two decades and indeed fuelwood consumption may have risen in the mid-1970s in response to higher kerosene prices. However, it is not possible to quantify these effects. As far as commercial energy is concerned, its consumption trends have closely mirrored the economy's overall performance. Between 1970 and 1977, the near stagnation in economic activity and real incomes -5- was reflected in a largely constant level of commercial energy demand, with rising electricity consumption offset by an average 3.3 percent per annum fall in the demand for petroleum products. Since then, however, the surge in economic performance and the liberalization of import regulations for consumer durables has led to a sharp increase in the demand for all forms of commercial energy which has been growing on average at about 8.8 percent per year. Table 1.2 Primary Commercial Energy Consumption a/ Consumption Average Annual 000 toe Growth Rate % 1970 1977 1980 1970-77 1977-80 Petroleum Products 1195.3 947.1 1243.0 -3.3 9.5 Hydro Electricity 223.9 367.3 447.5 7.3 6.8 Total 1419.2 1314.4 1690.5 -1.1 8.8 a/ Including transformation, refining and distribution losses. Source: Staff estimates based on data from GOSL, CEB and CPC. Petroleum Products 1.09 Between 1970 and 1977, the consumption of all petroleum products fell, with the exception of LPG which was essentially a new fuel and auto diesel whose sales remained much the same.' Part of this decline can be attributed to the virtual elimination of petroleum based electricity generation that followed the addition of new hydroelectric capacity but there was also a more general response by all users to the doubling of petroleum prices in a difficult economic period.l/ Since 1977, most products have exhibited strong growth in an improved economic climate and the oil requirements of the power sector have again been an important factor, this time contributing to above average increases in diesel and fuel oil demand as a result of higher thermal power generation. Only kerosene and gasoline consumption have continued to fall in the post-1977 period. This is a reflection not only of the larger percentage increase in their prices but also of the fact that their consumption appears to be more sensitive to price changes. 1/ Thermal elecricity generation declined from 41.6 GWh in 1970 to 2.1 GWh in 1977. - 6 - Table 1.3 Consumption Trends for Major Petroleum Products Product Consumption Annual Average Growth (000 tons) Rates (M) 1970 1977 1980 1970-77 1977-80 Gasoline 148.4 111.6 107.7 -4.0 -1.2 Kerosene 272.5 213.1 188.7 -3.5 -4.0 Autodiesel 254.5 261.4 399.5 0.4 15.2 Industrial diesel 87.9 46.3 61.0 -8.8 9.6 Fuel oil 208.8 134.7 247.2 -6.1 22.4 Memo Item: Power Sector Consumption 133.0 7.0 58.5 -34.3 +102.9 Fuel oil (133.0) (7.0) (45.0) Diesel ( - ) ( - ) (13.5) a/ Excludes reexports and bunker sales. Source: CPC. Electricity 1.10 In marked contrast to the demand for petroleum products, electricity consumption grew at an average annual rate of seven percent during 1970-77. This was partly due to the increasing attractiveness of electric power as an energy source -- there was no tariff increase between 1972 and 1978 while retail petroleum prices more than doubled and the general price level rose by 51 percent over the same period. Equally however, this reflects the fact that the consumption of electricity in Sri Lanka is to a large extent supply constrained with a large and growing potential market that is still untapped. Consequently the demand for electricity has shown less responsiveness to price and changes in overall economic performance than that for petroleum products. 1.11 Since 1977 electricity demand has accelerated. Between 1977 and 1980 electricity sales grew at an average of 9.6 percent per annum although this figure underestimates the underlying growth to some extent -7- because of the three percent reduction in 1980 sales that resulted from prolonged power cuts.l/ The liberalization of electrical appliance imports has been reflected in sales to the household sector which have grown most rapidly at around 20 percent per annum. 1.12 The post-1977 increase in electricity consumption has had a significant impact on the economy because it has meant increased thermal generation from imported oil. An important implication of this is the fact that marginal increases in Sri Lanka's commercial energy demand are directly linked to the size of petroleum imports regardless of whether these increases take the form of higher electricity consumption or the direct consumption of petroleum products. Table 1.4 Petroleum Import Bill $ Million 1970 1977 1980 1981 A. Petroleum Imports 10 160 489 515 B. Petroleum Reexports 5 64 181 172 C. Net Petroleum Imports 5 96 308 343 D. Non Petroleum Exports 337 667 864 885 E. C as percent of D 1.5 14.2 35.6 38.8 Source: Sri Lanka Customs. Leads and lags in reporting may lead to minor inconsistencies with CPC data used elsewhere in this report. 1.13 These factors are evident in the figures shown in Table 1.4 above. Up to 1977, the cost of oil imports was not a source of serious concern for Sri Lanka. The 1973 oil price increases had made this a significant item but a continuation of slow economic growth, stringent import controls and only moderate further increases in oil prices ensured that the burden was a manageable one. After 1977, however, a combination of increased consumption and a doubling of world oil prices resulted in a rapidly rising oil import bill. By 1981, the net oil import bill more than tripled and the proportion of export earnings devoted to importing oil rose sharply from 15% to 39%. The means by which this burden can be contained in the future is one of the main concerns of this report. 1/ The CEB estimates that without the power cuts, 1980 consumption of 1396 GWh would have been about 50 GWh higher and the average annual growth rate for electricity sales in the 1978-80 period would have risen to 10.9%. CHAPTER II ENERGY RESOURCES AND SUPPLY Overview 2.01 Sri Lanka has only limited indigenous energy resources. The country's hydro electric potential is estimated at 2000 MW with an annual energy production capability equivalent to replacing about 2 million tons of oil per year in thermal electricity generation. Only a fifth of this potential has been developed to date, but projects currently underway will raise this proportion to one-half by the end of the decade. Fuelwood is the other major energy resource, currently supplying between 1.5 and 2.0 million toe on a primary energy basis every year. However,a major reforestation effort is required to maintain a sustainable yield of this resource in the future because a large part of current consumption derives from the clearing of forests and not from their natural regeneration. Other renewable resources - solar, wind, biomass and smallscale hydropower - offer prospects for exploil7tion but their contribution during this decade will remain small, 2.02 There are no known hydrocarbon reserves, and although a modest petroleum exploration program is underway, prospects for making substantial discoveries are believed to be limited. Consequently, imported petroleum which currently accounts for a third of primary energy supply will continue to play a major role in Sri Lanka's energy future. Imported coal, which provided half of commercial energy supply in the fifties, but is not used now, will reappear as an important energy source during the decade. The Supply of Petroleum Exploration 2.03 Sedimentary basins covering 10,250 Km2 along the island's northwest coastline have been fairly intensively investigated by foreign oil companies since 1967, but there have been no significant discoveries to date. Government policy is that all exploration should be carried out and financed by private oil companies subject to standard production sharing contract terms. In 1977 the prospective area was divided into eleven blocks, some of which have since been leased by US firms. For 1/ In addition to the above, small deposits of peat and of monazite sands (containing 10% thorium oxide and 0.1% uranium oxide) have been surveyed in the 1960s and in 1978 but the results have not stirred any enthusiasm. A number of thermal springs have been identified in the eastern part of the island but not enough is known to evaluate their potential as a geothermal source. - 9 - each block, the work commitment is limited to a seismic survey with an option to relinquish if results do not merit drilling. On the whole, the strategy of the Government is sound. Despite the relative paucity of prospects it has been successful in attracting oil companies to explore the more prospective areas. However, in view of the results to date and the underlying geological characteristics, the prospects for discovering substantial petroleum reserves in Sri Lanka must be considered to be limited.1/ Even if such a discovery were to be made in the near future, it would not have a direct effect on the country's supply of energy during the 1980's because of the long lead times between the initial discovery and the commercial production of oil. Refining 2.04 The Ceylon Petroleum Corporation (CPC), an entirely state owned agency, is responsible for all aspects of petroleum supply with the exception of the retail marketing of LPG which is the responsibility of another state agency, the Colombo Gas & Water Company (CGWC) - and some secondary marketing of petroleum products through small private dealers. The bulk of the country's petroleum product requirements is imported as crude oil which is then processed at the 2.3 million tons per year (52,000 barrels/stream day) CPC refinery on the outskirts of Colombo. The crude slate is comprised of Middle East crudes whose average gravity usually blends in the 32-33 degrees API range. CPC acquires its crude oil through state-to-state deals with the Government oil companies of Saudi Arabia, Iran and Iraq and through a contract with Caltex. 2.05 While the refinery's aggregate throughput is greater than the total consumption of petroleum products, its production slate differs significantly from the mix of product demand. Running as much crude oil as possible to try to meet the demand for middle distillates - kerosene, aviation turbo and diesel - has still resulted in a deficit of these products with a need for supplementary imports while at the same time producing a surplus of naphtha and fuel oil which has to be reexported. 1/ Since the mission, there has been some improvement in these prospects and in the interest of foreign oil companies in exploration in the country as a result of a promising discovery in neighboring Indian offshore waters in the Palk strait. - 10 - Table 2.1 Petroleum Product Supply & Demand Balance 1980 Domestic Refinery 3/ Net Product Product Consumption 1/ Output Imports 000 tons % '000 tons % '000 tons LPG 7.5 0.5 7.5 0.4 -- Gasoline/ Naphtha 143.0 8.9 273.6 15.4 -130.6 Kerosene/ Av turbo 309.3 19.3 241.5 13.6 67.8 2/ Diesels 522.7 32.6 480.1 27.1 42.6 Furnace Oil 577.9 36.1 744.9 42.0 -167.0 Bitumen 41.2 2.6 26.2 1.5 15.0 Total 1601.6 100.0 1773.8 100.0 -172.2 1/ Domestic consumption includes 450,000 tons of bunker sales. While these sales represent reexports in financial terms, they do not result from refinery imbalance but are a market that CPC must cater for as part of its normal operations. Nevertheless, CPC does have some flexibility in supplying this market and the aggresiveness with which it markets marine furnace oil is in part a reflection of the surplus availability of this product. Consequently, these figures may understate the extent of the current imbalance. 2/ Includes 9,400 tons from stock change. 3/ Excluding refinery fuel and losses of around 6% of output. Source: CPC. 2.06 Some balancing trade in products is an inevitable byproduct of indigenous refining for most countries. If small, this is not a cause for concern because the higher transport costs entailed in this trade are lower than the costs that would be associated with modifying the pro- duction pattern for the refinery. However, in Sri Lanka, as a result of prolonged wide disparities in the growth of consumption for different petroleum products, the volume of this trade has now reached a level - 22% of crude imports - which warrants remedial action. - 11 - Table 2.2 Petroleum Supply Structure 1970 1975 1980 --------'000 tons------------ A. Crude oil imports 1819.5 1464.6 1860.9 B. Supplementary products imports - 9.2 116.0 C. Surplus product exports!/ 276.0 127.8 297.6 (B) + (C) as % of (A) 15.2 9.4 22.2 1/ Excludes bunker sales; see discussion in footnote 1 of Table 2.1. Source: CPC, Sri Lanka Customs. 2.07 The short term options for reducing this imbalance are limited. Theoretically a change in the crude oil feedstocks, or the use of a "spiked" crude, could alter the refinery's production pattern to produce more middle distillates. However, this might also entail higher input and operating costs and result in increased naphtha production of which there is already a surplus .1/ Another option is to increase the production and marketing of heavier fuel oils which would also have the side effect of increasing middle distillate output. The range of fuel oils currently produced by the refinery is quite light - 500 to 1500 Redwood seconds - and because of a very narrow price differential across the range, many consumers who could use the heavier products have no incentive to do so-1/ There is also the possibility of marketing an even heavier blend (2000 - 3500 seconds) to a greater number of large consumers who could economically install the facilities required to handle this product. Another way of increasing middle distillate production would be for the CPC to increase its production of bitumen. In 1980, the refinery produced 26,000 of the 41,000 tons of total bitumen supply in the country with the remainder being met through direct imports. CPC claims that the refinery has the basic bitumen production capability to supply all of the country's requirements but there is a bottleneck in drum filling facilities due to irregular lifting of product by the major consumers. If this is indeed the case, this bottleneck could be eased at relatively low cost with the additional benefit that increased bitumen production would result in lower fuel oil and higher distillate production from the refinery. However, this would require improved coordination between the CPC, the drum producers and the major _/ During 1982 CPC has already taken advantage of a lower price differential for certain lighter crudes and altered its refinery feedstock to achieve precisely this effect. The longer term viability of this option will, however, depend on future movements in relative crude oil prices. 2/ See Chapter IV, paras. 8, 11. - 12 - consumers. In addition to these short term measures, more extensive modifications can be made to the refinery to alter its production pattern. One such project which the CPC has had under consideration for some time is to install a $135 million hydrocracking unit which would convert 350,000 tons of heavy fuel oil into lighter products as shown in Table 2.3. Table 2.3 Summary Effects of Hydrocracker Installation at Change in % Refinery Yield Product Output With Hydrocracker ('000 tons) (percent) Chemical Naphtha + 28.4 8.4 LPG + 9.5 0.9 Auto diesel + 56.2 16.7 Av. turbo/kero. + 185.2 14.0 Fuel oil - 350.3 7.4 Losses/own use + 71.0 10.0 a/ Based on crude run of 2.0 million tonnes. Source: CPC Hydrocracker Feasibility Study, op. cit. 2.08 CPC's preliminary feasibility study for this project indicated that it would have a high (21%) economic rate of return and a financial payback period of four years.l! However, a number of assumptions made in the CPC report need to be reexamined before a final decision is taken on the project's viability. First, the relative prices used in the study relate to a period - 4th quarter of 1979 to 3rd quarter of 1980 - when middle distillate product prices were generally higher in relation to fuel oil prices than has been the case over the longer term. Second, the actual product prices used were spot rather than posted prices which would provide a better basis for longer term planning. Third, the study does not take into consideration the possibilities for altering the refinery's production pattern through heavier fuel oil and increased bitumen production or the running of lighter or "spiked" crudes as discussed above. Finally, it is worth noting that running the hydro- cracker at full capacity would result in Sri Lanka becoming a large net 1/ CPC; Hydrocracker Project Feasibility Report, Feb. 1981. The report actually analyzes two alternatives - a hydrocracker and lube plant complex costing $150 million and a $133 million hydrocracker unit alone. The figures cited here are for the second option but inclusion of the lube plant does not alter the basic results or the comments made here. - 13 - importer of fuel oil (about 150,000 to 200,000 tons/year) and an exporter of middle distillates (primarily about 160,000 tons/year of aviation turbo). This is the exact opposite of the existing product trade pattern and while it may be a preferable one because of relative international prices for fuel oil and middle distillates, it does mean that Sri Lanka will continue to remain in the export refining business and that it will have to compete in the international petroleum market with products from much larger and more sophisticated refineries currently under construc- tion in the oil producing states. In view of these uncertainties, the mission recommends that the CPC reexamine the economic feasibility of the hydrocracker project to take account of the above comments. This study should also review other refinery modification options and it should specifically examine the effect on project economics of delaying implementation until the Government's overall resource position is easier. 2.09 Another issue in wholesale petroleum supply relates to the adequacy of existing arrangements for the transport of crude oil imports. CPC currently imports the bulk of its crude oil requirements in VLCC's (180,000 ton range) which are then offloaded via a lightering mechanism using smaller vessels (31,000 tons) which can be accomodated at the Colombo oil jetty. Smaller vessels are also used occasionally for direct voyages to fill in between VLCC shipments. This system has resulted in very high freight costs for the company partly because the lightering mechanism entails an unloading period of approximately three weeks for the VLCC's and partly because of the high rates that have had to be paid for the smaller vessels used for both offloading the VLCC's and for some direct voyages. In 1980 and 1981 the average freight cost for CPC was about $18-20 per ton of crude oil imported. Although a change in market conditions should bring this cost down to about $12/ton in 1982, there is still room for further cost reduction. 2.10 To achieve these savings CPC is, considering the installation of a single point mooring buoy (SPMB) system which would allow direct discharge of VLCC tankers through an underwater pipeline to expanded shore receiving facilities. This system would eliminate use of the more expensive smaller vessels either for lightering or for infilling operations and would result in lower VLCC operating costs by reducing their port turnaround time. The preliminary results of a consultant study being carried out for the CPC indicate that for an investment of about $35 million in this project, CPC could reduce its average freight cost from $12 per ton (assuming 1982 market conditions) to around $6/ton, which translates into annual savings of between $12-14 million for the current level of crude oil imports. An additional unquantified benefit would be to reduce congestion in the Colombo port area. These figures suggest that CPC should continue to pursue this question as a matter of priority. - 14 - Petroleum Retailing 2.11 The main issue in petroleum retailing concerns the existing arrangements for the marketing and distribution of LPG. This is the responsibility of the Colombo Gas and Water Company (CGWC), a state-owned enterprise which distributes bottled LPG throughout the island and operates a 107 km LPG/air pipeline system serving 2000 consumers in Colombo. CGWC obtains its supply of LPG from the CPC refinery - the bottled gas in the form of already filled cylinders and the pipeline supply in bulk by road tanker. The volume of LPG trade is currently small - roughly five tons/day through the pipeline and 15 tons/day via cylinders - but the potential exists for expanding LPG production at the refinery by another 40 tons/day and this fuel is likely to become increasingly important in the future. 2.12 The main operational problem with LPG supply is the extra- ordinarily high level of pipeline losses, which now amount to 70% of the input volume. This is mainly due to the age of the pipeline - it was built over a hundred years ago - and the fact that it was originally designed to distribute town gas made from coal and is not suitable for LPG distribution. This pipeline should be closed down. It is costing the country $0.5 million a year in lost fuel and causing other LPG consumers to pay much higher prices than necessary because the CGWC offsets the cost of these losses against their other sales. Furthermore, there exists a ready market for the gas that would be diverted from the pipe- line amongst those potential bottled gas consumers who are currently on a waiting list for service. Closing down the pipeline would also permit the shifting of CGWC's operations to a site adjacent to the refinery's LPG bottling plant. Their present location in a heavily congested commercial area in the heart of the city is due primarily to the fact that this is the center of the old pipeline system. However, this location entails double handling costs and is inappropriate for safety reasons. 2.13 CGWC recognizes this problem but its proposal to resolve it is to replace the existing pipeline with a new $200 million piped gas system which would use refinery off-gas as its feedstock. To this end, CGWC has prepared a study to analyze the economic and financial viability of such a project.l/ The mission has reviewed this study and believes that a number of technical and economic issues remain to be resolved. First of all, it is not clear that adequate off-gas from the refinery is available to supply the project's needs - CPC's management dispute the avail- ability of adequate feedstock. Secondly, even if such gas were to be made available, it is unlikely that it would be at zero cost - the CGWC study assumes that half the feedstock would be provided free of charge as they indicate that it is regularly flared by the refinery - another point I/ A Pre-feasibility Survey of Proposals for Piped Gas Distribution in the City of Colombo. CGWC, 1981. - 15 - which the CPC disputes. Finally, the existence of a large enough market to justify the heavy capital costs of the pipeline also has to be proven. Reworking the analysis in the CGWC study to allow for the value of feedstock gas and a 12% rate of return on investment results in a total mid-1981 cost per unit of pipeline gas (about Rs. 200 per million BTU) which is well above the cost of competing fuels such as diesel or kerosene. These factors suggest that the CGWC should not embark on such a scheme before a thorough reexamination of its technical and economic feasibility has been carried out. 2.14 In contrast to the new pipeline project, the other proposal being considered by CGWC - to expand the supply of bottled LPG by re- covering additional LPG from the refinery - appears to be a promising one. A study has been carried out for the company by Shell Inter- national 1/ which indicates that an additional 15,000-17,000 tons per year of LPG currently used as refinery fuel could be recovered through the installation of compression, LPG splitting and ancillary facilities at an estimated investment cost of about US$6 million. 2/ The study does not include the additional cost of converting the refinery's burners to fuel oil from LPG and the cost of additional cylinders that would be required to market the product, but even allowing for these, the total investment costs of the project should be well under $10 million. Additional LPG supply would primarily displace kerosene or industrial diesel, both of which are deficit products and its replacement by fuel oil as refinery fuel would reduce the current surplus of the latter. 2.15 The mission has reviewed the analysis of this project which appears to be an attractive investment opportunity. Using the c.i.f. value of displaced kerosene as a measure of benefits and an initial capital cost of $10 million, the project provides an internal rate of return of around 20% and a net present value of over $5.8 million at a 12% discount rate. 3/ However, before an investment decision can be made, further analysis is required both to verify these figures and to examine alternative options for the use of the additional LPG. In particular, CPC has suggested the alternative of using the refinery's fuel gas in the neighboring fertilizer plant to replace the naphtha currently used as fuel in that plant. This project would have a much lower investment cost of about $2 million but whether it comprises a higher value use for the available LPG has yet to be studied in detail. The mission recommends that these options be examined as a matter of priority. Another option which should also be analyzed is the possibility of using imported LPG to supply an expanding domestic cooking fuel market. 1/ This study was carried out in March 1981 by Shell International Petroleum Maatschappij B.V. 2/ Mid-1981 prices based on US gulf coast location estimates. 3/ In 1981 prices; see Annex V for details. - 16 - 2.16 Finally, efforts should also be made to improve the degree of coordination between the CGWC and the CPC. Currently there are some differences of perception between the two organizations regarding their respective roles in the petroleum supply business. These roles should be reassessed and if it is decided to maintain a separate agency for LPG distribution, then better working level coordination between this agency and its supplier, the CPC, needs to be established as a prerequisite for the successful implementation of the above project, as well as the general functioning of the LPG trade. The Supply of Electricity 2.17 During the last decade, the doubling of generation requirements has not been matched by a commensurate increase in generating capacity, thereby resulting in a progressive straining of the system's ability to maintain reliable electricity supply. To some extent this was caused by the understandable failure to anticipate the rapid growth in electricity demand which followed the economic liberation of 1977. But the problem has been exacerbated by inadequate planning of the hydroelectric construction program and delays in program formulation and implementation. The fragmented institutional structure of the power sector has also been an important contributory factor. The Ceylon Electricity Board (CEB) is the principal power supply agency but a quarter of its sales are to local authorities which then distribute it to consumers in their areas. 1/ Tariff discrepancies between direct CEB sales and local authority sales have been a major source of concern. CEB has also had only limited coordination with the Mahaweli Development Authority which is responsible for the implementation of the Accelerated Mahaweli Program whic7 is the most important component of the power development program.- 2.18 The results of these shortcomings became apparent in 1979-81 when the supply of electricity fell short of demand and severe power shortages ensued. The disruptive impact of these power cuts on indus- trial production has not been quantified , but CEB estimates that in 1980 they resulted in about 50 GWh of unmet demand with a large proportion of this coming from industrial users. During the more recent power cuts of 1981, a number of public sector factories had to be temporarily closed down and many private plants were operating on curtailed shifts. 1/ There are 218 local authorities which purchase electricity from the CEB and distribute it to about 225,000 consumers. These consumers account for over half of the total number of consumers with access to electricity. 2/ See also paras. 2.25-27 below. - 17 - Table 2.4 Electricity Generation by Source Installed Capacity Energy Generation Year Hydro Total % Hydro Total % MW ---------- ------Gwh-------- 1970 191 261 73 741 782 95 1977 329 399 83 1215 1217 99 1981 1/ 369 499 74 1550 2140 72 Annual Average Growth 1970-81 - % 6.2 6.1 -- 6.9 9.6 -- _/ Provisional Source: CEB, Bank staff estimates. 2.19 The late 1970-s also saw a major increase in the role of thermal generation which had previously been restricted to standby or peaking use only. By 1981, CEB's old thermal units were being used as base load plant and their output was being supplemented by 60 MW of gas turbines which had recently been installed to ease the tight electricity supply situation. While the availability of 500 GWh of thermal power proved an invaluable asset in mitigating the worst effects of the power shortages, it also brought with it a substantial increase in the cost of power supply. At the peak, the long run marginal costs of supplying electrical energy in Sri Lanka, range from ql3-16/KWh (US) which is among the highest in the world. 2.20 The preocupation with meeting short term demand has also led to a deterioration in the quality of maintenance in CEB's generating stations, with the deficiencies being particularly evident at the 50 MW Kelanitissa steam plant which has had to be derated to 40 MW. This is a cause of some concern when viewed in the light of the continued tight supply situation that is likely to persist for the next three years and given the system's exceptional reliance on gas turbines, which also require heavy maintenance. Equally worrying is the recent increase in transmission and distribution losses which currently exceed 16% of generation.l/ Moreover, this figure does not include the distribution losses for the local authorities who account for a quarter of CEB l/ By contrast, the comparable figure for 1976 was 12%. - 18 - sales. Their distribution systems are in a very poor state having received only the barest of maintenance in recent years, a period during which the number of local authority consumers has shown a marked increase. Recent analysis suggests that the overall losses on the CEB system could realistically be reduced by a quarter to about 13% of gross generation through the installation of power factor correction equipment, voltage regulators, the reconductoring of lines and improved mainten- ance. It is important to achieve these savings as they will translate directly into reduced thermal generation. At the margin, a 1% reduction in losses translates into annual fuel savings of about $3 million through reduced gas turbine use. An important step in this direction is the recent decision to establish a small cell in CEB-s planning group to monitor and control these losses, with funds provided under the IDA assisted Power VII project. Standby Generators 2.21 The expectation of frequent and prolonged power shortages has resulted in a dramatic increase in the importation of small (0.1-1.0 MW) standby electrical generators, mainly by large industrial and commercial establishments. Information regarding these imports is sketchy and incomplete, but available data do show a sharp increase in import numbers as well as a large decrease in unit costs which appears to support the widely held view that the use of these generators by households and small commercial establishments increased during 1981. Table 2.5 Imports of Electrical Standby Generators Average Year Numbers Value Unit Price $ Million $ 1978 61 0.4 6,557 1979 142 0.7 4,930 1980 485 4.9 10,100 1981 6,819 8.7 1,276 Source: Sri Lanka Customs data relating to import category BTN 85.01 D. 2.22 The total installed capacity of standby generators is difficult to estimate because the import figures do not specify unit size. However, most of the larger units have been installed with financial assistance from the Development Finance Corporation, the National Development Bank and a private agency, the Lanka Orient Leasing Company. Their combined support has helped to finance the installation of about 11 MW of standby generating capacity in 25 firms. This figure does not include the 10-20 MW of captive generating capacity which the refinery, the fertilizer factory and various other industries have had since well before 1978. Nor does this include the smaller generating - 19 - sets which have been purchased directly by residential and small commercial users, but the total capacity of these generators is not believed to be large. 2.23 Although the operation of standby generators inevitably adds to Sri Lanka's oil imports, this is not inherently undesirable. The larger diesel generating units, particularly those over 75 KVA capacity, are probably at least as efficient as the CEB's gas turbines which they substitute for at the margin. The smaller units - less than 2.5 KVA - however, are less efficient producers of electricity than the CEB and their importation should be discouraged as long as the price of kerosene, their primary fuel, is subsidized. The presence of this 20-30 MW of captive generating capacity in the country also underscores the importance of pricing CEB's generated electricity at its economic cost during the next three or four years while there is a tight supply situation. Otherwise, an artificially lower CEB price would discourage the use of these generators and prevent the country from realizing the full benefits of the $10 million or so of sunk investment in this capacity. Projects under Construction 2.24 To meet the projected tight electricity supply situation until 1984, CEB is carrying out a series of short term measures. These include the installation of a second 30 MW unit at the Canyon hydro station and the installation of 80 MW of fuel oil burning diesel plant for commiss- ioning in 1983-84.1/ The mission supports these measures which will help to ease the short term electricity supply-demand balance. 2.25 However, the centerpiece of power development is the Accelerated Mahaweli Program whose first phase will add 466 MW of hydrocapacity between 1983 and 1987.1/ The importance of the Mahaweli Program cannot be overstated - it will more than double total existing hydro generating capacity; it dominates the public investment program (about a third of the 1981-85 public investment program is devoted to Mahaweli); increases 1/ The CEB's original proposal was to install 120 MW of diesel plant. This was subsequently revised in the light of improved demand projections and the final decision taken by GSL in Sept. 1981 was to install 80 MW of diesel plant. 2/ The three projects comprising the first phase of the Accelerated Mahaweli Program are Victoria (210 MW), Kotmale (134 MW) and Randenigala (122 MW); between them, they will generate 1,500 GWh of electricity per year. A fourth Mahaweli project, Rantembe (48 MW, 187 GWh) is due to come on stream in 1988 but it is not considered to be part of the first phase of the Accelerated Program. - 20 - in the cost of the program are exerting tremendous budgetary pressures on the Government and delays in program implementation have been partially responsible for the decision to install expensive gap-filling thermal generating capacity.l1! 2.26 In view of the importance of this program, it is unfortunate that its planning and execution have not progressed as well as they could. The Kotmale project, which was initially supposed to come on stream by 1983, will now not be completed until 1985 because of continuing design changes and inadequate advance planning. In the case of Victoria, there is still a serious foreign financing gap (15% of foreign costs) which could affect its scheduled completion in mid-1984. As the first of the Mahaweli projects, the timely commissioning of Victoria merits the highest priority. If Victoria is delayed from mid- to-end-1984 -- as CEB's system planning assumes -- it will add 100 GWh to thermal generation in the second half of 1984 at a 1980 fuel cost of over Rs. 250 million ($14 million). If Victoria is delayed even further --and recent reports of funding and manpower shortages suggest that this still remains a possibility -- then there will be serious consequences for the cost and availability of adequate electricity in 1985. Under these circumstances the Government should set up a mechanism to closely monitor progress on the Victoria site so as to ensure its timely completion. 2.27 The availability of power from the Mahaweli projects in the mid 1980's will help meet a substantial portion of the electricity growth during the decade but, contrary to previous expectations, they will not be adequate to meet all these requirements. Preliminary results from a long range generation investment study carried out in July 1981 indicate that an additional 20 MW of hydro capacity in 1988 and 120 MW of coal- fired thermal plant in 1989 will also be required. By the mid-1990's, a second 120 MW coal plant and several hydro sites, including Samanalawewa, Kukule, and Upper and Lower Uma Oya, will need to be developed with the alternate addition of base load steam and hydro helping to balance the system. The additions for 1981-90 are shown in Table 2.6. 2.28 An important development in electric power supply in the 1980s will be the reintroduction of imported coal as a major energy source for Sri Lanka. Preparatory work for this development needs to begin urgently. The lead time for setting up a major coal-fired power station is around 5-6 years even in countries where this is not a new energy source. In Sri Lanka's case, manpower training and familiarization in running a coal-fired thermal station as well as the setting up of coal 1/ Notwithstanding this importance, this report does not discuss the Mahaweli program in any detail. This is because a number of other reports have examined the composition and concept of the Program and the various problems that have been incurred in project design and implementation. For a recent discussion of these issues see, Sri Lanka: Policies and Prospects for Economic Adjustment, World Bank, May 1981. - 21 - import and handling facilities already make 1989 a tight schedule for power availability from a coal plant. The Government and the CEB need to begin this preparatory work within the next few months. Table 2,6 Power Supply Projects 1981-90 Installed Capacity (MW) End Year Hydro Thermal Total Existing End 1981 353 170 523 1982 - Canyon hydro I 30 MW: 383 170 553 1983 - Heavy diesels 20 MW: 383 190 573 1984 - Canyon hydro II 30 MW - Heavy diesels 60 MW: 413 240 653 1/ 1985 - Victoria hydro 210 MW: 623 200 823 1 1986 - Kotmale hydro 134 MW: 757 240 997 2/ 1987 - Randenigala hydro 122 MW: 879 240 1,119 1988 - Rantembe hydro 48 MW Broadlands hydro 20 MW: 947 240 1,187 1989 - Coal thermal 120 MW: 947 360 1,307 1/ 10 MW old diesel plant retired end '83. 2/ 40 MW Kelanitissa steam plant being rehabilitated during 1985. Source: CEB and Bank staff estimates. More detailed figures are shown in Annex 3. Fuelwood Supply 2.29 Reliable data on fuelwood supply are difficult to obtain and existing estimates should be viewed with some caution._/ Nevertheless, these estimates are sufficient to illustrate very clearly the precarious and unsustainable nature of fuelwood supply. Over the past two decades, incremental wood production - from the natural regeneration of forests, agricultural residues and rubber replanting, etc. - has fallen progress- ively behind the growth in consumption and today accounts for less than half of the estimated annual consumption of around five million tons. The balance of wood supply has come mainly from the denudation of the island's natural forest cover which has declined from around 7 million acres in 1960 to about 4 million acres (22% of land area) in 1980. 1/ The data and analysis of fuelwood supply include the contribution of crop residues (primarily rice and coconut husks). - 22 - 'Table 2.7 Fuelwood Supply Pattern Estimated Contribution Cumulative 2/ 1956-80 1/ 1980 Million Million Source Tons % Tons 7 Natural Regeneration of Forests 27 28 0.8 15 Rubber Replanting and Other Crop Residues 36 37 1.5 29 Denudation of Forests 35 35 2.9 56 Total 98 100 5.2 100 1/ Estimated by Fernando, et. al. in ADB Regional Energy Survey, 1981. These estimates are naturally subject to a wide margin of error because of measurement problems but they illustrate the changing pattern of fuelwood supply and the declining contribution of "renewable" sources of wood. 2/ Staff estimates. 2.30 During the next several years an additional 400-750,000 acres will be cleared under the Accelerated Mahaweli Development Program. While this may temporarily ease wood availability in certain areasl/, it should not obscure the basic fact that continued heavy reliance on forest "mining" to balance fuelwood demand and production is neither desirable - for important soil erosion and siltation reasons, among others - and nor is it sustainable in the longer run. 2.31 A theoretical extrapolation of recent trends shows that Sri Lanka's natural forest cover could be completely denuded in about 30 years. Long before then, severe localized fuelwood shortages will emerge with important social, environmental and economic implications. Furthermore, reduced fuelwood availability will inevitably lead to some increase in commercial energy demand as rural industries and the better off rural households switch to alternative fuels. For the most part, 1/ The extent to which the wood produced from the Mahaweli clearing will actually ease national fuelwood availability is unclear because high transportation costs may make it impossible to bring this fuelwood to the consumption centers. There are plans to convert some of this wood to charcoal; these are discussed in para. 2.35 below. 23 - these alternatives will be petroleum products - kerosene for households and diesel and fuel oil for industry. The impact of this substitution would be large: if 20% of the current fuelwood use by households and industry were to be substituted by petroleum products, then, despite the effect of higher end use efficiencies, the demand for petroleum products would increase by about 120,000 tons, adding $43 million to the oil import bill at 1980 prices I/ At the same time, policy makers would be subjected to increasing pressures to subsidize these fuels with attendant public finance implications. 2.32 The Government recognizes the seriousness of this problem and agrees that a key element in its resolution should be a large and comprehensive reforestation program. While some reforestation work has been underway for two decades, it has neither been of adequate scale and nor has it been geared towards directly meeting the country's fuelwood requirements. A 1979 USAID study estimated that meeting these require- ments on a sustainable basis would require the development on degraded land of about 650,000 acres of fuelwood plantations over a ten year period followed by 10,000 acres per year to allow for the effects of population growth. Over a 20 year period this would cost about $150 million (in 1980 prices). A program of this scale would represent a substantial increase on past reforestation efforts, but it is not an unrealistic target; furthermore, the costs of not moving towards this target are likely to be much higher. 2.33 Consequently, the mission supports the reforestation programs now being developed within the context of the USAID and ADB assisted fuelwood projects. The first of these aims to provide upon completion between 10% and 15% of the country's fuelwood requirements through the establishment of 35,000 acres of fuelwood plantations - to be expanded later to 70,000 acres; the reforestation of 15,000 acres of denuded watershed areas in the Upper Mahaweli Catchment Zone; and the establish- ment of pilot village-run fuelwood plots in 50 villages. The project will cost $19 million. The $11 million ADB assisted project complements these efforts by focusing on the development of a community forestry approach whereby local villages are encouraged and assisted in growing their own fuelwood needs. This project will produce an additional 0.4 million tons of wood per year in the early 1990s through the establish- ment of 24,700 acres of fuelwood plantations, 12,350 acres of village woodlots in 100 villages and the creation of a Community Forestry Division within the Forestry Department to provide institutional support for this work. 2.34 In addition to the USAID and ADB assisted projects, the Government is also preparing with the assistance of the Bank, a forestry project which would include finance for the preparation of a comprehensive forestry sector plan. This study would examine the issues of land availability, allocation of forest production between fuelwood Ir Assumes replacement of 260,000 tons of rural industrial fuelwood by diesel and 750,000 tons of household-use fuelwood by kerosene. - 24 - and other timber requirements, the selection of appropriate species, the development of adequate institutional arrangements, etc. The mission attaches a high priority to these fuelwood reforestation efforts and recommends that they be stepped up. In Sri Lanka's circumstances it is difficult to overemphasize the importance that should be attached to measures that will lead to an increase in the supply of wood. These, along with programs to increase the efficiency of wood use, will determine the extent to which the energy requirements of the bulk of Sri Lanka's population can continue to be affordably met beyond the 1980s. Charcoal 2.35 The charcoal industry is still in its infancy in Sri Lanka; commercial production started in 1979 and there is no history of charcoal use in the traditional sector. However, there is now a growing recognition of the potential applications of this fuel and efforts are underway to increase its contribution. These efforts are being spearheaded by the State Timber Corporation (STC) which has set up a special charcoal corporation (the Char Lanka Company) and is obtaining technical assistance for its charcoal development program from a private US company. STC's program is well formulated and comprehensive. It includes a series of public demonstrations to popularize cheap and efficient charcoal stoves, 10,000 of which have been sold in the first 18 months. Market studies carried out for STC indicate that a large charcoal market already exists among urban households who currently use kerosene or fuelwood and that a less certain but potentially much larger market may also exist in the industrial sector. Limited tests by the company have shown that urban households switching from kerosene to charcoal could save 30% of their cooking bill and that while there are no significant cost savings in moving from fuelwood to charcoal at current prices, many urban households are interested in doing so because of increased convenience.!/ It is to meet the estimated 30,000 tons per annum demand of this market that STC is gearing its initial efforts. However, preliminary discussions which the company has had with a number of industrial users indicate that a large industrial market for charcoal may also develop in the medium term. To better assess this potential, STC has persuaded a number of industrial users - including the Cement Corporation and four tea estates - to participate in charcoal trials on their premises. During the next five years, STC intends to obtain its wood requirements (one million tons for five years of production) from the Mahaweli clearing program. In the longer term these requirements could be met in the form of slash or wastage from STC's timbering operations supplemented by the development of special fast-growing fuelwood plantations as part of an integrated operation. 1/ This trend is likely to increase in the future as urban fuelwood prices rise to reflect the longer distances over which fuelwood will have to be transported to the urban market. - 25 - Non-conventional Energy Sources 2.36 Sri Lanka has access to a variety of non-conventional renewable energy resources -- solar, wind, biomass and minihydro -- which could help to meet the country's energy requirements in the medium term. However, current efforts to develop these resources are unlikely to have a major impact because they are being undertaken without a well formulated set of relative priorities, and the limited funds available are spread over too many organizations working on too many projects at the same time. The agencies currently active in this field include the Ceylon Institute for Scientific and Industrial Research (CISIR), the National Engineering Research and Development Center (NER6C), the National Science Council, the University of Peradeniya, the CEB and the Water Resources Board. Their programs include work on solar water heating, solar desalination, photovoltaics for lighting, small wind energy conversion systems for water pumping and electricity generation, generation of biogas from animal waste, rice husk and coir briquetting, ethanol production from sugar cane, the development of efficient wood and charcoal stoves, and microhydro. 2.37 The largest installation exists at Pattyapola, where a $300,000 hybrid PV/biogas/wind system meets the electricity needs of a few house- holds in a coastal village. Because of some design problems, inadequate monitoring facilities and a shortage of trained scientific manpower at the site, the integrated center has not succeeded in becoming a "model in rural electrification through renewable energy resources". A number of windmills for water pumping and biodigestors to produce thermal and electrical energy have also been installed in different parts of the country. Of the other work, the most promising is the CISIR's woodstove program which has good large scale diffusion prospects. The remainder of the work is essentially limited to laboratory prototypes. 2.38 These efforts clearly indicate that a broad spectrum of interest exists in renewable energy development and they are also reflective of the relatively large cadre of skilled engineers and technicians that are available in the country for this type of work. The challenge facing the Government is to harness these isolated efforts into a coherent national research, development and diffusion program for renewable energy sources. For this to happen, two things are required: first, a well defined set of priorities amongst the different renewable energy applications needs to be formulated and a study should be carried out for this purposel/; and, second, an effective institutional framework should be developed to guide and coordinate the efforts of the different agencies in the light of these sectoral priorities. 1/ Financial and technical assistance for such a study could be provided by bilateral or multilateral donor agencies. - 26 - 2.39 While the formulation of a comprehensive renewable energy development program is beyond the scope of this report and must, in any event, await the improvement of the existing data base on these resources, the mission has identified two types of renewable energy applications which have the most immediate potential for use in Sri Lanka and whose development should consequently be given higher priority in terms of public funding and support. These are: (i) the use of solar energy for water heating and crop drying; and (ii) the reactivation of minihydro sites for meeting the electrical energy needs of rural industries. Solar Energy 2.40 Sri Lanka's location assures it of a relatively high and uniform level of insolation which could be harnessed for both water heating and crop drying. The technology of solar water heaters is well proven and, on the basis of available data, this appears to be an economically sound proposition for the country. As very few households currently use hot water, the main market for these heaters will initially lie in the commercial and tourist sectors. However, no detailed survey has yet been carried out on the size of this market and the degree to which solar water heaters will be able to substitute for conventional sources. Carrying out such a study is the next step in a solar heater development program and the mission recommends that this be done as a matter of urgency. Most of the efforts to date have focussed on the development of a prototype solar water heater which could be manufactured in Sri Lanka for both local and export sales. While these efforts are progressing well and should continue, in the mission's view this is a separate issue from assessing the potential for solar water heating and encouraging its use -- if it is found to be a cheaper alternative -- through either imported or locally manufactured units. 2.41 The use of solar energy for crop drying also appears to be promising. The use of inexpensive solar air collectors (e.g., those employing the factory roof as an absorber) could economically displace conventional fuel for low temperature heating requirements. For instance, a recent study for a tea factory indicated that over a 10-year period, a combined 75% solar/25% fuelwood system would result in 20% cost savings over a solely fuelwood fired plant and 40% savings over a fuel oil fired plant. These results need to be verified on a larger scale but they are important because tea and other crop processing industries currently consume over one million tons of fuelwood (20% of total consumption) per year. The recommended next steps in this program are a better assessment of solar drying potential and the delineation of a commercialization and diffusion strategy which could be carried out in the context of the overall renewables study. Minihydro 2.42 While the emphasis in Sri Lanka has been on large hydropower schemes, it is interesting to note that about 10 MW of small schemes (5 KW to 250 KW range) have been operating in the tea estates of the central 27 - hills since 1925.I However, during the past two decades most of these installatiouis have beeen abanidoned because of the availability of cheap and reliable electricity from the grid. The mission visited some of these plants and found that a number of these units could be reactivated at relatively minor expense. Given CEB's current and prospective generation costs, the revival of these plants deserves serious consideration and funds for this work could be made available under the proposed Tea Rehabilitation and Diversification project supported by the Bank. 2.43 In addition to the rehabilitation of existing plants, numerous locations for new minihydro schemes exist in the central hills, in the tributaries of major rivers and on the numerous minor rivers of the island. In the late 1960's the Mahaweli River survey report mentioned 29 likely sites that had not been studied in detail. Since then, no comprehensive survey of those locations or of sites in other basins has been carried out. The need for a study of all potential hydropower sites to evaluate their technical and economic viability has been emphasized in the past and the mission supports this. 2.44 A second important set of potential minihydro locations can be found in the irrigation systems. There are almost 300 major and moderate size irrigation tanks in the dry northern part of the island which have water releases up to about 500 cu.ft./sec at heads ranging from 20 to 50 feet. In addition to the tanks, the irrigation canals in both the hills area and the lower plains have a number of drop structures which are likely to be suitable for the installation of minihydro plants. Though the location of these structures, as well as the tanks, is known, there has been no systematic study of the hydropower potentially available at these sites. An assessment of this potential is recommended here as well. 2.45 Other Renewables. Apart from solar and minihydro, a number of other renewable energy applications are promising enough to merit public funding and support but a variety of uncertainties need to be resolved. These include the potential use of biogas digestors, which is suggested by the presence of three million heads of livestock and six million poultry but where problems of dung collection and social acceptability need attention. Wind energy for water pumping and for electricity generation in isolated areas is also an interesting possibility which is supported by the limited available data. However, additional data on local wind regimes, water resources and the cost of applications need to be developed before a judgement can be made on its potential. 2.46 Institutional Coordination. The main reason for the currently fragmented state of renewable energy research and development is the fact that no single agency is charged with the overall responsibility to develop priorities or to coordinate the efforts of individual researchers in this field. The need for this work is overwhelming but it is not clear whether it should be carried out by a separate new agency or by a group in the recently established Natural Resources Energy and Science - 28 - Authority which is to oversee the development of the energy sector as a whole. 1/ In either case, the main tasks would remain the same. These are to provide a national focal point for renewable energy development and to formulate a well-defined renewable energy development program within the context of overall energy sector priorities. In addition, the group would assist communities, industry and government in using renewable energy and it would provide technical support to national policymakers in cooperating with donor agencies and other developing countries. The optimal institutional framework for renewable energy development should be more clearly defined after the completion of the planning study recommended earlier. Conclusion 2.47 The main conclusion of the above analysis is that while there is considerable potential to develop indigenous energy resources, this potential is not likely to make a significant contribution to reducing Sri Lanka's dependence on imported oil in the near future. The Mahaweli hydro development projects will only begin to bear fruit in the second half of the 1980's and until then increased electricity demand will have to be met from higher oil-fired thermal generation. Even a major increase in reforestation programs will only serve to maintain the share of this important source in the 1990's. Other non-conventional renewable energy sources will also make their main contribution in the next decade, although solar and minihydro applications could begin to pay off earlier. 2.48 Given these factors, the main responsibility for containing the energy import bill in the short term must fall upon measures to increase the efficiency with which energy is used and transformed. One such measure - the reduction of the current high level of losses in power transmission and distribution - has already been discussed above. The following chapter identifies a variety of other promising avenues for improving the efficiency of energy use. 1/ See also para. 6.13 for a further discussion of this issue. - 29 - CHAPTER III ENERGY CONSUMPTION AND EFFICIENCY Overview 3.01 End-use energy efficiency estimates are generally subject to a wide margin of error but available data indicate that less than twenty percent of Sri Lanka's primary energy consumption of 3.7 million toe is ultimately transformed into "useful" energy services -- heat for cooking and industrial processes, light, motive power for transport and industry, etc. The other three million toe are lost either in the process of delivering energy to the consumer in the desired form or during the use of that energy by the final consumer himself. In the past, these inter- mediate losses have generally been accepted as an inherent part of the energy supply chain and to a large extent they are still an inevitable physical feature of the system. However, because of the vastly increased cost of primary energy it is now both desirable and profitable to invest in equipment and programs to reduce these losses. The essential objective of these investments is to minimize the cost of meeting the economy's requirements for "useful" energy services (heat, light, etc.), by raising the efficiency with which each fuel is used and by substituting wherever possible a cheaper primary energy source for another. 3.02 Identifying all the opportunities for increasing the efficiency of energy use in Sri Lanka requires a detailed survey of energy utilization in each economic sector which is beyond the scope of this report. However, the mission has been able to develop some preliminary indications of where the most promising potential for energy savings lies and what types of measures will be required to achieve this potential. To facilitate this analysis the mission has developed a preliminary energy balance for 1980 which traces the flow of each primary energy source to the various end use sectors and identifies the losses that are incurred at different stages of the transformation process for each fuel. The main features of the energy balance are summarized in the following section and the detailed energy balance tables for 1980 -- as well as illustrative projected energy balances for 1985 and 1990 -- are attached in Annex II of this report. Complementing this work was the information gathered by the mission through field visits to about a dozen of the largest industrial energy users and to the Ceylon Transport Board (CTB) which is the largest single user of transport fuels. These visits enabled the mission to identify specific opportunities for energy conservation in these agencies and to develop preliminary estimates of the potential savings that could be identified through a more comprehensive national energy audits program. 3.03 While the preliminary nature of this analysis must be emphasized, it strongly suggests that substantial energy saving oppor- tunities exist in all sectors. The most immediate opportunities lie in the industrial and commercial sectors which together account for a third - 30 of primary energy consumption. A concerted energy conservation program in these sectors could save as much as 15-20% of the petroleum products, 5% of the electricity and 30-40% of the fuelwqood they currently consume. Furthermore, many of these savings could be achieved in relatively short periods and with very limited expenditures. Substantial fuelwood savings could also be achieved -- but over a longer period -- in the household sector through the popularization of more efficient stoves. In the transport sector, fuel efficiency at the CTB could be improved by 10-15% and similar savings could probably be identified for other transport agencies. 1980 Energy Balance 3.04 Allocating Sri Lanka's primary energy consumption of 3.7 million toe to the various end use sectors shows an energy consumption pattern which is dominated by household needs for cooking and lighting (49%) and by industrial energy users (31%). However, because a much higher proportion (85%) of the primary energy used by households is in the form of fuelwood which is currently burned at a much lower efficiency than the other fuels, the share of this sector in the distribution pattern for final or "useful" energy is much lower. By way of contrast, the share of industrial-commercial energy demand is increased further in terms of "useful" energy to account for nearly half of the total. Table 3.1 Sectoral Distribution of Energy Consumption - (1980) a/ Sector Primary Energy
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Sri Lanka - Issues and options in the energy sector
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