Present power crisis – The Chinese factor

 

By Dr. Janaka Ratnasiri-April 8, 2019, 8:50 p

In response to the writer’s previous articles on the present power crisis published in the Island of March 28th and April 05th, he has received from an investor some new information which would shed light on the real party behind the present power crisis. This investor claims that he has submitted a proposal in response to a call for proposals published in the press by the Sri Lanka Ports Authority (SLPA) for setting up business ventures at Hambantota Port.

The information to be revealed hereunder could be considered confidential as they refer to Cabinet discussions. Since much misinformation about the present power crisis is being circulated by people in authority including politicians (which includes the President himself), ministry officials, professionals in the field and the media, to put the record straight, the writer feels that this information should be revealed in the public interest.

 

Proposal to build 1200 MW LNG power plant at Hambantota

A press notice calling for proposals says the investor is required to design, build, finance, manage and operate the business venture to be set up at the Hambantota Port, where 17 m deep jetty and a 610 m long berth for oil and gas projects are available. The closing date for receiving proposals was 24. 08. 2012. In response, the investor has submitted a proposal to build an LNG receiving terminal at the Hambantota Port along with a 1200 MW natural gas fired power plant in the Port premises, which has been accepted by the SLPA.

After evaluating the proposals and short-listing them, which took about one and a half years, the said proposal was recommended to the Cabinet by the then Minister of Ports and Shipping in March 2014 and was taken up at the Cabinet meeting on 03. 04. 2014. The Cabinet memorandum has recommended the construction of a 1200 MW of LNG power plants phased out over a period of eight years, subject to the investor entering into a Joint Venture Company (JVC) with the CEB and BOI and 10% shares issued to the Treasury. The power purchase agreement was to be entered by CEB with the JVC.

Subsequent to the recommendations made at this cabinet meeting, Secretary to the Treasury summoned a meeting of representatives of the Ministry of Ports & Shipping, Ministry of Power & Energy, Ministry of Investment Promotion and other relevant officials. According to a report, dated 09. 10. 2014 circulated as a follow-up to this meeting by the Secretary of Ministry of Ports & Shipping among all the stakeholders, the following observations were made at the meeting:

Need for a power plant at Hambantota

About 10 industrial/commercial projects were approved during 2011 and 2013, but work on any of them did not commence mainly because no assurance could be given of an uninterruptible power supply. Hence, building the proposed power plants would be a prerequisite for the development of the industrial zone associated with the Hambantota Port. It has also been reported that the existing industries are very enthusiastic about having an LNG power plant at Hambantota as it will not cause pollution including coal ash.

The investor present at the meeting gave the assurance that he could supply uninterrupted power as required and build an LNG terminal hub, which meant the re-exporting of LNG as well as extending its use in other sectors locally in transport. The Investor agreed to form a JVC as suggested and the SLPA agreed to lease out the necessary extent of land within the Port premises to set up the LNG storage tanks and the power plant.

Cheapest offer for power generation

One critical factor referred to at this meeting was that only the energy cost would be charged at not more than UScts 7 per kWh of electricity, and that no capacity charges or other hidden costs would be levied. This is very important because capacity charges are payable whether the plant runs or not. It was reported in media that the CEB had been paying billions of rupees as capacity charges for the controversial diesel power plant in Jaffna even during the period when it remained shut down.

The outcome of the above meeting, along with the observations of the Ministry of Finance was again submitted to the Cabinet for consideration at its meeting held on 30. 10. 2014. Subsequent to receiving the concurrence of the Cabinet, the Secretary ofthe Ministry of Ports & Shipping wrote to the Chairman of SLPA on 02.12.2014 directing him to implement the project. This was followed up by the SLPA writing to the Investor on 20. 04. 2015, releasing 30 ha of land within the Port premises requesting him to take necessary follow up action.

Cancellation of the project by CCEM

The Investor subsequently commenced preliminaries such as getting the environment impact assessment report prepared. Then to his surprise, he received a copy of a letter dated 21. 06. 2016 from the Chairman of SLPA, addressed to the Secretary to the President, informing him that the project had been disallowed by the Cabinet Committee on Economic Management (CCEM) on a decision taken at a meeting on 25. 05. 2016. The reason given was that the CCEM had decided to put on hold all the projects planned under the RFPs because the government had decided to hand over the Hambantota Port to the Chinese!

Would a similar thing happen anywhere else in the world? The government invites proposals from investors to set up business ventures at their own expense and approves a project from an investor who has submitted a proposal to generate clean power at a rate cheaper than what the government spends currently and gives the green light for him to proceed after releasing land also. Then China comes in and demands ownership of the Port in exchange for the debt the government owes China. The government meekly agrees to cancel all commitments it has made to investors. Isn’t this a shameful act done with no self-respect? The government could have handed over the Port but without cancelling the projects it had already agreed to. This is after the BOI collecting over LKR 9 million from the investor as application processing fee. What signals would this action send to new investors?

One-stop centre for BOI projects at Hambantota – a farce?

It was reported in the media recently that the BOI has opened on March 23, 2019, a one-stop service centre for the benefit of businessmen who wish to invest in projects at the Hambantota Port. The new centre was reported to be a joint venture between the BOI and the new Port Authority, to provide all information about Sri Lanka’s investment policies to those interested in investing in Hambantota. The Hambantota Port was targeting port-related investments within the 3.5 square km area allocated for the Hambantota Port’s development. However, when the potential investors come to know of the government’s decision to cancel projects which had already been granted approval, under pressure from a foreign government, won’t any sane party think twice before deciding whether to come to Hambantota?

Had the project not been aborted by the government, it would have commenced in mid-2016 after completing the EIA within one year. With the fuel being natural gas, there would not have been any pollution unlike in the case of a coal-fired power plant, and the location has already been set up, EIA approval would not have taken much time. With the construction of the plant to be undertaken by the investor, there would not have been any ministry tender procedures which could have delayed the process. The time span could have been further reduced if the proposal had not been referred to the Cabinet twice.

Loss due to cancellation of project

Consequently, the first phase of simple cycle operation generating 200 MW of power could have been completed by the end of 2017 and the balance work generating additional 100 MW of power generation by the end of 2018, generating a total of 300 MW of clean power in 2019 at a cost of LKR 12.25 a unit (@ LKR 175 per USD). CEB’s Statistical Digest for 2017 has reported that the average fuel cost alone for operating the CEB’s thermal power plants to be LKR 12.22 a unit in 2017.

With overheads and cost of operation and maintenance added, the cost of generation would likely to exceed LKR 20 a unit. The other important factor is that there wouldn’t be any external costs as there is no pollution caused by natural gas. Under such circumstances, wouldn’t the proposed LNG-operated power plant, expected to generate about 2000 GWh annually, been a wind-fall to the CEB, helping it save around LKR 15 Billion annually? This is the loss to the country by cancelling the proposed LNG project.

Parties responsible for cancelling the project

Now, who is responsible for killing this clean power project when it was about to take off the ground with no financial burden on the government? Was it the President or the Prime Minister or the line Minister or the Cabinet or the CCEM? Somebody should take the responsibility. Apparently, this matter has been questioned even in the Parliament, recently. They cannot get away by trying to put the blame on the PUCSL for not approving the CEB plan promptly, which has no relevance to the present crisis.

A lot of people talk about the President killing the Sampur project but even if it had been allowed to proceed it wouldn’t have solved today’s crisis as explained in the earlier articles by this writer. But the general public does not seem aware that the government killed the LNG project, which could have generated clean and cheap power by now if it had been allowed to proceed. It is sad that the government did so, disregarding the national priorities just to make the Chinese happy.

In his previous article written on April 5th, the writer said that Sri Lanka didn’t have the courage to say ‘no to India when it offered to build a coal’-fired power plant at Sampur with conditions when the CEB had already called for proposals for setting up power plants with no financial commitment. All these proposals were set aside in favour of the Indian offer and that was the first mistake Sri Lanka made.

Second instance of yielding to pressure

from a foreign country

Now, this is the second mistake made by the government when it cancelled the LNG project, which was about to commence. In so doing, Sri Lanka demonstrated to the world that it had no backbone to tell China that the country had to give priority to its national needs. Why is the country so subservient to foreign powers? Why do our leaders allow these foreign powers to bully Sri Lanka in this manner? This has resulted in everyone being troubled by power interruptions which affect the day-to-day activities as well as the economy of the country?

Instead of owning up to their own mistakes responsible for killing the power projects planned earlier or trying to find out what has happened in the past, the country’s leaders seem happy to bash officials referring to their conflicts which have no relevance to the current power crisis. If the leaders are not capable of logical thinking, how can they run a country?

Conclusion

It appears that several factors have contributed to the present power crisis.

=Firstly, the undue long delay in selecting an investor to build the 300 MW combined cycle power plant at Kerawalapitiya, for which proposals were invited in November 2016. The CEB’s procurement division is totally responsible for this as described in a previous article.

=Secondly, the undue long delay of over 10 years for finalizing the plans to build the coal power plant at Sampur, for which CEB and NTPC delegates who took part in the negotiations are responsible.

=Thirdly, the cancellation of the BOO project inviting proposals in November 2006 to build 4x300 MW coal power plants on the Southern coast during 2012 – 2020, for which the line ministry and CEB are collectively responsible.

=Fourthly, the cancellation of the BOO project to build a 1200 MW LNG power plant at Hambantota, initially with 300 MW capacity, when it was about to commence work in 2015, for which the Government including CCEM was responsible.

In summary, it can be said that politicians, government policymakers, economic advisers, CEB engineering professionals and the government procurement committees are equally responsible for the present power crisis.