What if STELCO Packs up?

What if STELCO packs up? Such an eventuality is not as farfetched as one might believe. Established in 1949, and boasting a checkered history, the company has been on financial intensive care since 2006. By the end of 2008 it ran up a massive debt of an estimated Rf 928 million, with no apparent solution for the impasse. If the 60-year-old company goes out of business, it would not be just symbolic. Life would simply grind to a halt for STELCO's 40,000 customers. How did the prestigious company end up in these dire straits?

Low level of investment:

STELCO has not made any significant investment in production infrastructure –not just during the last 3 years when the company has been running at a loss, but even earlier when it was making profits. The installed capacity is just 30.5 MW. With about 1250 kWh per capita, electricity consumption in Male is perhaps the lowest in the Indian Ocean area, and compares unfavorably with Sri Lanka (3000 kWh per capita) Mauritius (12,000 kWh per capita) and Seychelles (40,000 kWh per capita).

STELCO uses 13 diesel generators to produce electricity in Male. Of these, apart from 2 sets of 6 MW each, the others are relatively small. The total capacity of these generators (30.5 MW) is barely enough to cater to Male'. Further, STELCO has no reserve capacity and when a generator develops a fault or needs servicing, power outages are unavoidable. Often in the hot early months of each year, generators get overheated resulting in load shedding.

In fact, in recent years it has been routine for STELCO to issue public announcements during the hot first quarter of the year, requesting customers to minimize electricity consumption. This was the case in March 2007, as also in March 2008. On the latter occasion the company warned that power consumption would soon exceed capacity. Even in February this year there was a blackout in Male' lasting more than 2 hours, when one of the 6 MW generators developed a fuel leak, spraying the other generators in the vicinity.

Rising fuel costs:

STELCO was making a decent profit till 2003, when the price of diesel was below Rf 4. But since then its balance sheet and profits have been hit by skyrocketing fuel costs resulting from escalating global oil prices. In May 2008, when the global crude oil prices shot above $ 140 per barrel, State Trading Organization (STO) raised their diesel price to Rf 15.50 per liter. Diesel prices have since come down just below Rf 7.00 in February 2009.

During 2008 budget discussions, former STELCO Managing Director Abdul Shakoor had informed People's Majlis that 1 liter of diesel produces just 3.5 or 3.6 units of electricity. This meant that when diesel prices were at Rf 15.50, the fuel cost of producing 1 unit of electricity was Rf. 4.42. At a diesel price of Rf 7.00 the fuel cost would be 2 rufiyaa per unit. To this one would have to add labor and fixed costs to calculate the actual production cost.

In fact, from 2006 onwards STELCO was making losses and by July 2008 the company was losing a whopping Rf 1.96 million per day. According to a statement made by STELCO at the time, the company was losing Rf 3.19 per unit of electricity consumed. This was understandable because most of the electricity consumed in Male was being billed at Rf 1.60 or Rf. 1.70 per unit.

Political interference:

For political reasons, STELCO was not allowed after 1990 to increase its tariffs despite runaway inflation and rising fuel costs. In fact the prices were lowered from Rf 2 to 1.60 for the lowest bracket of home consumption and Rf 3.50 to 3.15 for the lowest bracket of commercial consumption.

Also for political reasons, STELCO was made to establish or takeover loss making power stations in 27 islands and subsidize them. Before 2006, the subsidy came from the profits of STELCO's operations in Male. However, since Male operations have also been making losses since then, the subsidy now comes from the government budget. From 2007, a subsidy of 200 million rufiyaa was allocated for Male and 100 million for the other islands. However, from the discussion above one could see that these are grossly inadequate sums.

Delay in Upgrading:

Stelco proposed the Fourth Power Development Project in 2005 to increase electricity production capacity. Funded with grant and loan assistance from Denmark, the Project involves installing two new sets of generators of each 8 MW capacity, bringing the total production capacity in the capital to 49 MW. After considerable delays a Rf 540 million contract was finally signed with a German-Danish consortium in October last year. Work on the project is expected to start soon.

The future:

The volatility of the global oil market during the last couple of years underscores the unreliability of a fossil fuel based power supply system in a country like the Maldives. Exploring renewable sources of energy is thus an imperative. With recent developments in wind power and solar power technologies, these are no longer impractical solutions.

Wind turbines of over 1 MW capacity are now quite common in Europe. According to some experts wind speeds above the 8m/s velocity required for wind power are available in the north and south extremes of the country.

Similarly solar plants with over 8 MW capacity are in operation in Europe and a 140 MW plant is under construction in Australia. These newer plants use sunlight concentration techniques that reduce land area requirements to less than 1% of what traditional solar panels use. A 14 meter solar dish using this technology could have a capacity of 35 kWh.

Maldives Gas has been operating experimental wind and solar power stations in three islands, Haa Alifu Uligamu, Meemu Raiymandhoo and Gaafu Alifu Konday of Atoll. Further studies will be required to see if these power stations are successful.