Sri Lanka trying to outsource LNG purchases to one company for 20-years: report

ECONOMYNEXT – Sri Lanka’s current administration is attempting to give a deal to purchase up to a million tonnes of liquefied natural gas a year for 20 years to state-run Ceylon Electricity Board in the guise of building an LNG terminal, a media report said.

An unsolicited bid by SK E&S Company, which is backed by the government of Korea had been first submitted to President Maithripala Sirisena, Sri Lanka’s The Sunday Times newspaper reported.

Sirisena had already shot down a plan to build a 500MW coal plant which would have given cheaper power to the country, in place of building more expensive LNG plants. LNG plants however are cleaner.

A joint memo has been put to the cabinet of ministers by Energy Minister Ranjith Siyambalapitiya and Special Assignments Minister Sarath Amunugama to get the state-run Ceylon Electricity Board to tender the project on a ‘Swiss Challenge’ concept.

A ‘Swiss Challenge’ will allows another company to better the proposal.

SK E&S Company was offering to supply one million tonnes of LNG on a ‘take or pay’ basis if where the buyer has to pay a penalty if the buyer not accept a shipment, the news report said.

The company will build its own terminal ‘free of charge’ if it gets the contract to supply LNG. But the government will also have to build pipelines for the company.

The price of the LNG, or what premium to what international benchmark was not given in the report. The company has sought a purchase and supply agreement from mid-2020 to March 31, 2040.

Sri Lanka’s government has problems in procurement allegedly paying above market prices. The ousted Rajapaksa administration was faulted for setting up Lanka Coal, which carried out coal procurement outside the purview of the CEB.

Critics also allege hat the administration bought Litro Gas, the country’s largest cooking gas distributor from Shell for political appointees to make money off inflated LPG tenders.

The CEB was originally expected to build its own terminal to unload LNG – or call bids for a private or floating plant which will then charge a throughput fee for each tonne unloaded.

A private operator is expected to build a dual fuel 300MW combined cycle power plant for the CEB, and existing combined cycles could also potentially be converted to run on LNG at an unknown cost.

The proposal to cabinet indicates LNG procurements for plants of up to 1000MW, the report said.

The report said there were several other proposals including an Indian Japan consortium which may be asked to join the ‘Swill Challenge’ process.

Sri Lanka now has several private power plants which were built on competitive tender based on the efficiency of generation (heat rate) with the CEB supplying fuel except for the LakVijaya plant by Lanka Transformers group which was negotiated without a guaranteed heat rate.

There has been concern among energy analysts that several LNG plants have been proposed not on the heat rate but on fuel procurement basis. Sri Lanka does not yet have daily auctions for energy procurement. (Colombo/Jan13/2018)

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