By: Staff Writer
July 21, Colombo (LNW): In a move that has sparked concerns in New Delhi, Sri Lanka is preparing to terminate a key energy agreement with India’s Petronet LNG Ltd. (PLL), citing misalignment with national priorities and mounting geopolitical pressures. The decision, influenced by growing Chinese inroads into Sri Lanka’s energy sector and earlier U.S.-brokered involvement, has raised eyebrows across South Asia.
The controversial decision targets the Memorandum of Understanding (MoU) signed between Petronet LNG and Sri Lanka’s LTL Holdings on August 20, 2024, for the development of Liquefied Natural Gas (LNG) supply infrastructure.
The agreement was part of a broader Indian initiative, announced by Prime Minister Narendra Modi, to support Sri Lanka with LNG supplies, interconnect the two countries’ power grids, and construct a petroleum pipeline — part of New Delhi’s strategic energy diplomacy in the Indian Ocean region.
However, Sri Lanka’s Ministry of Energy has formally sought Cabinet approval to cancel the MoU. Officials say the Indian proposal — involving the transport of LNG via ISO tank containers from PLL’s Kochi terminal to power plants in Kerawalapitiya — does not align with immediate energy needs due to issues of scalability and timing.
The ministry contends that the Indian LNG plan overlaps with a parallel and already-awarded Chinese-led LNG infrastructure project. The Chinese venture includes the development of an LNG terminal and pipeline network, intensifying the regional competition between Beijing and New Delhi for strategic influence in Sri Lanka’s critical infrastructure.
Energy Secretary Udayanga Hemapala confirmed that Cabinet approval for the Petronet deal’s cancellation is expected soon. He also assured that Indian firms, including Petronet, will still be allowed to bid for future LNG supply tenders under a competitive and transparent process once the necessary infrastructure is in place.
This isn’t the first time foreign involvement in Sri Lanka’s LNG sector has raised eyebrows. In 2021, U.S.-based New Fortress Energy (NFE) struck a deal with the former Sri Lankan government to develop an offshore LNG terminal near Colombo.
Despite local opposition and legal challenges — notably from CEB engineers concerned about the lack of a competitive bidding process — the project was greenlit after the court dismissed all petitions in March 2022.
NFE was granted rights to supply gas to both the existing Yugadanavi Power Plant and the planned Sobadhanavi facility, with expectations to deliver over 1.2 million gallons of LNG daily. Former U.S. Ambassador Alaina B. Teplitz had played a key role in facilitating the deal, describing it as a private investment bringing cleaner, more affordable energy — and distancing it from debt-driven models.
Critics argue that the Sri Lankan government’s LNG decisions have become a geopolitical chessboard for the U.S., China, and India. What was initially seen as India’s opportunity to balance China’s dominance is now unraveling, with Colombo caught in a strategic tug-of-war.
As Sri Lanka grapples with chronic energy shortages and its fragile post-crisis economy, decisions over critical infrastructure are increasingly dictated not just by domestic necessity, but by external power plays — leaving India to recalibrate its next move in the region.
