Government Revives LNG Terminal Tender for 2028 Launch

By: Staff Writer
June 19, Colombo (LNW): Sri Lanka is moving forward with a long-delayed tender to build a liquefied natural gas (LNG) terminal, reviving a key energy project aimed at reducing generation costs and transitioning to cleaner fuels, Power and Energy Minister Kumara Jayakody told Parliament.

The tender, originally issued in 2021 for a Floating Storage and Regasification Unit (FSRU) under a Build-Own-Operate (BOO) model, was previously derailed by policy shifts and administrative changes. Now, the government has reactivated both the Cabinet-appointed negotiation and project committees to finalize the deal with the selected bidder. LNG supply is expected to commence in 2028.

The project is closely linked to the 300MW Sobadhanavi Combined Cycle Power Plant in Kerawalapitiya, which is designed to operate on LNG. The plant, anticipated to be completed within 18 months, will be the largest privately-owned power producer in the country. The government views LNG as a transitional energy source as it pushes toward greater reliance on renewables, despite it being more expensive than coal.

After a seven-year gap, Sri Lanka resumed cooperation with India’s Petronet LNG Limited, signing a memorandum of understanding (MoU) via state-run LTL Holdings. The partnership aims to lower energy costs, support cleaner fuel adoption, and develop a domestic LNG market, Energy Minister Kanchana Wijesekera confirmed.

Petronet had earlier partnered with Japanese firms Mitsubishi and Sojitz to build a US$250 million LNG import terminal with a capacity of around 2.7 million tonnes per annum. The plan, approved by the Public Utilities Commission of Sri Lanka (PUCSL), was to support LNG-fired power generation on a BOOT (Build-Own-Operate-Transfer) basis. The Asian Development Bank later funded expert consultancy for project development.

However, in 2022, Sri Lanka canceled its agreement with Petronet over delays, controversially awarding the tender to the Engro Consortium of China and Pakistan. This triggered diplomatic friction with India. A year later, in August 2023, the government reversed course and reinstated Petronet. As of mid-2024, the deal is nearing finalization, with Petronet likely to receive exclusive rights to supply LNG to Sri Lanka.

Energy cost comparisons presented in Parliament underscored the urgency of this shift. Hydropower, which once supported a 100% renewable grid, now costs just Rs.1.00 to Rs.12.69 per unit due to depreciation of assets. In contrast, coal costs Rs.20.80 per unit, other thermal sources range from Rs.45.52 to Rs.174.27, and diesel remains heavily taxed. Solar energy is priced between Rs.27.26 and Rs.35.50, while wind power stands at Rs.12.27.

The previously proposed New Fortress Energy deal under the Rajapaksa administration was mired in controversy. Critics, including CEB unions, opposed its ‘take-or-pay’ clause which forced long-term LNG purchases regardless of cost competitiveness. In contrast, the current BOO model allows fuel procurement at prevailing market prices, similar to how coal is sourced.

Officials note that LNG also offers future versatility beyond electricity, including powering public transport systems, as seen in other countries.