By: Staff Writer
May 15, Colombo (LNW): The Ceylon Electricity Board (CEB) has reopened negotiations to revise the Power Purchase Agreement (PPA) for a proposed 300 MW Liquefied Natural Gas (LNG) power plant in Kerawalapitiya.
The plant will be developed by Sahasdhanavi Ltd., a special-purpose entity formed by Lakdhanavi Ltd., the lowest evaluated bidder selected through an international competitive process in 2021.
The renewed talks come nearly three years after the tender was awarded and are driven by significant policy and financial changes, including the removal of VAT exemptions on imported machinery and the introduction of the Social Security Contribution Levy (SSCL). These changes have raised construction costs, increasing the levelised tariff from Rs. 19.73/kWh to Rs. 20.15/kWh.
The revised draft PPA, which incorporates recommendations from the Technical Evaluation Committee (TEC), is now awaiting legal clearance from the Attorney General. These changes also redefine terms like “change in law” and adjust for recent cost escalations.
The second LNG plant is considered a strategic addition under Sri Lanka’s Least-Cost Long-Term Generation Expansion Plan (2018–2037). The Cabinet approved the project in 2020, and in December 2023, issued a Letter of Intent (LOI) to Lakdhanavi to develop the plant on a Build-Own-Operate-Transfer (BOOT) basis. Land in Muthurajawela has been allocated for the project.
President and Finance Minister Anura Kumara Dissanayake has reviewed the revised project proposal and approved advance payments for importing necessary equipment.
He also permitted the Ceylon Petroleum Corporation (CPC) to negotiate a Liquid Fuel Supply Agreement (LFSA), while the Treasury Secretary has been authorised to enter into an implementation agreement with Sahasdhanavi.
However, several challenges loom. The Public Utilities Commission of Sri Lanka (PUCSL) has raised concerns over a significant Rs. 52 per unit discrepancy in the projected cost of electricity generation, potentially pointing to a misrepresentation of actual costs. PUCSL has also flagged potential irregularities in the 2025 LNG procurement plan, raising questions about the project’s transparency and financial viability.
Energy Ministry Secretary Prof. Udayanga Hemapala acknowledged that the final unit cost of electricity has not yet been decided. He defended the decision to continue with the project without re-tendering, citing the urgency and complexity involved in launching a new bid process. He also clarified that while there had been a previous attempt to involve India in the project, the current administration is committed to completing the project through the original tendered bidder. As part of the broader energy strategy, the CEB is also involved in the Sobadhanavi LNG plant project, another step towards diversifying Sri Lanka’s energy mix with cleaner fuels. Yet, the ongoing concerns about cost estimation, LNG supply, and legal clearances suggest that further scrutiny and policy adjustments may be needed to ensure the project’s success and sustainability.
