YAHAPALANA AND THE ECONOMY Part 11 B
Posted on August 10th, 2019

KAMALIKA PIERIS

GAS TERMINALS (1)

The electricity generation is moving in the direction the saboteurs wanted it to, towards oil, announced a critic in March 2019. Yahapalana government favors gas terminals. The share of electricity produced from oil reached a 20-year low of 18%, in 2015, and now it has risen back to 34% by 2017, and will surely exceed 50% by 2020.

The retired oil power plants are been revived. Companies are writing reports on how one oil power plant is more expensive than the other. The PUCSL is not approving contracts as regards oil power plants. There are accusations and counter-accusations against oil power plants. In the end, it is oil and more oil, he exclaimed.  Gas costs more than coal and renewables.

India so far has only four gas terminals; three of them hardly used, owing to the higher costs of gas compared with coal and renewables. However, politicians in tiny Sri Lanka are toying with nine gas terminal proposals.

Are we really building a gas terminal asked one critic.  The number of gas terminals being contemplated by various arms and individuals of the government is nine, but none has reached the construction phase. All proposals and their hidden sponsors within various government committees try to evade the competitive bidding process. The spoils too attractive to share. One LNG power plant was to come up by 2021 but the government hasn’t even called for tenders for the second power plant.

One advertisement for an LNG terminal said that the government had got a proposal for an LNG terminal, and anyone could match that could send counterproposals within five weeks. The terminal is at least a 300-million-dollar investment. Surely, no company of repute would even attempt to send a counter-proposal to finance and build a 300-million-dollar asset in five weeks. Even a building contractor takes two weeks to send his pricing to build a 10-million-rupee house! Here, we have a government that has received a proposal from an interested party, which was not solicited (meaning there was no tender process in the first place) now trying to rush the proposal through by inviting counter-proposals in five weeks so that there will be no counter-proposals.

One investor had 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.  He had 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.

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 in April. 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.

The investor 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.

Cabinet approved the project and Secretary to the Ministry of Ports & Shipping SLPA wrote to him, releasing 30 ha of land within the Port premises requesting him to take necessary follow up action. The Investor commenced preliminaries such as getting the environment impact assessment report prepared. Then to his surprise, he received a copy of a letter dated June 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) at a meeting in May. 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.

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.

If this project was not canceled, 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 an 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). There wouldn’t be any external costs as there is no pollution caused by natural gas. This proposed LNG-operated power plant, expected to generate about 2000 GWh annually, would have greatly helped CEB, helping it save around LKR 15 Billion annually? This is the loss to the country by canceling the proposed LNG project, concluded critics.

GAS TERMINALS (2)

In February 2019 Cabinet of Ministers has appointed a committee to look into the government decision to award a tender to a Sri Lankan-Chinese joint venture for the construction of a 300 MW LNG power plant at Kerawalapitiya. The appointment of the committee will further delay the construction of the LNG power plant, which should have been operational by now, said critics. This power plant should have been up and running by 2019.

The tender opening was in January 2017 and the contract was to be awarded later that year, but due to a tug of war between Ceylon Electricity Board (CEB) affiliated LTL Holdings and China’s Golden Concord Holdings with its local partner WindForce and RenewGen caused the tender process to be delayed.

The country will lose Rs. 90 billion within the next 20 years if the government awarded the construction for the construction of a 300 MW LNG power plant at Kerawalapitiya to any company other than Lanka Transformers Ltd (LTL),  said the LTL unions, addressing the Presidential Commission of Inquiry investigating corruption in the current administration.

LTL was one of the main contenders for the construction of the plant. LTL had been recommended by the Technical Evaluation Committee (TEC) on the power plant on four separate occasions. However, various parties with vested interests had attempted to ensure that they didn’t get the contract.

“In November 2016, the tender was called for the construction of the power plant and we submitted our bid on April 21, 2017. It was a two-envelope system, where technical and financial bids are submitted separately and the financial bids of those who have been successful in their technical bids are opened. On June 06, 2017, the TEC decided that financial bids of six companies should be opened, but the Cabinet Appointed Procurement Committee only opened the bid of one Company, Samsung C & T. But because they had not submitted a hard copy of an important document their financial bid was rejected.

“At a meeting held on June 13, 2017, Secretary to the Ministry of Power, had told Chairperson of LTL, to withdraw the LTL’s bid. It raised suspicions that there would be deliberate attempts to scuttle their bid. “We had the least cost––the price of a unit of power was Rs. 14.98. The second best price by WindForce was Rs. 15.97. The TEC approved our bid and sent us some details for us to clarify. On November 22, 2017, we provided the necessary information. The Ministry obtained a letter from the Ministry of Finance stating that the equipment LTL wanted to import was not exempt from VAT. LTL again inquired about this from the Finance Ministry as the VAT Act had not been amended.

We were informed that such concessions had been suspended from November 2016. But still, even if we added VAT our price was 80 cents lower than the second closest bidder’s. The TEC considered that and recommended that be consulted to see if we were ready to provide a unit of power at the same price, even without the VAT exemption. We agreed. So far we have been chosen by TEC on four separate occasions but the Ministry of Power hasn’t even given us an appointment.”

SOLAR POWER (1)

In April 2019, Solar Industries Association (SIA)   presented their ‘Least cost long term solar PV generation plan 2019 – 2025’   The electricity demand for 2019 was estimated to be about 16 000 gigawatt-hours with a 5% annual demand growth, around 800 gigawatt-hours, in the coming years, the SIA said. The Minister of Power says that we have a gap of around 700 megawatts daily.

The CEB has no plan to meet this increase .and it is unlikely that a large power plan will come up until 2025. The only plan they have is to purchase emergency power as a stop-gap measure. This will be a massive financial cost to the CEB and the people. The estimated cost of purchasing emergency power in 2019 alone is estimated to be Rs. 101 and the accumulated cost over the next seven years would be Rs. 1187 billion, most of which will be paid for fuel imports.

Sri Lanka could have saved up to Rs. 266 billion between 2019 and 2025 if it had met the electricity demand that increased by around 800 Gigawatt hours annually by using solar power, SIA  said. The process of constructing large fossil fuel power plants was long, but solar power units could be established very quickly. Unlike highly polluting private power plants running on diesel and furnace oil, solar power causes no pollution at all.

SIA said that Sri Lanka lost Rs. 1 billion a day due to the four-hour power cut. Things would have been much more difficult if not for the 230 megawatts of power added to the grid by solar power units in the last four years. If the 230 megawatts weren’t there the power cuts would have started on February 2019.

The Solar industry proposes that the government purchase that power at Rs. 23.10 per unit with battery storage and rooftop conversions at Rs. 22. Battery storage would resolve one of the most popular criticisms against solar, i.e. that it can’t be stored. “This will have zero investment cost to the government and solar power can be connected to the national grid within six months.  Awarding these contracts to local entrepreneurs will prevent heavy foreign currency outflows, generate a large number of jobs and create a positive effect on the economy,” Fernando said.

SIA said that there were over 650 applications for generating 1,500 megawatts of electricity using solar power, piled up at the Sustainable Energy Authority since 2016. If those applications had been processed Sri Lanka would not have been undergoing any electricity shortages and there would have been no need for the Ceylon Electricity Board (CEB) to purchase emergency power at a high cost.

SOLAR POWER (2)

The Solar Industry Association expressed its dissatisfaction in June 2019 over the sudden decision taken by the Ceylon Electricity Board (CEB) and the Ministry of Power and Energy to stop the installation of country’s future solar power projects that could add 200 MW to the national grid other than small size solar power projects.

Surya Bala Sangramaya program was launched in 2016 with the sole objective of producing energy using solar power and over 17,000 solar power installations have so far been successfully carried out in all parts of the country. The program has been a resounding success with over 17,000 installations and a combined energy capacity of nearly 200 MW added to the national grid.

The decision, taken to stop the installation of solar power projects will also lead to the complete destruction of the solar industry in Sri Lanka. In June 2019, Solar Industry Association (SIA) alleges that the ‘Surya Bala Sangraamaya’ program, is on the verge of collapse and it will also lead to the loss of over 10,000 employment opportunities.

SOLAR POWER (3)

On 28 May 2019, CEB had stopped accepting applications for solar power projects over 50 kW in size.”They informed us that Net Metering Systems (carry forward of excess energy produced by solar projects in homes) and Net Accounting Systems (sale of extra energy produced by solar projects in homes to the CEB) will be canceled. Meanwhile, Net Plus Tariffs (CEB buys all energy produced by solar projects) are to be drastically reduced rendering the scheme commercially unviable.”These steps would lead to the collapse of the solar industry in Sri Lanka. When the solar power industry collapses, the CEB would have to purchase more power from private thermal power producers at higher prices.

However, In July 2019, Power, Energy, and Business Development Minister Ravi Karunanayake announced that the government is calling for tenders to build 90 Solar Power Plants with a capacity of 1 MW each. Already 76 projects have been awarded procurement approval under this program. Questioned as to why there was no standardization applied to imports of solar panels, he replied The reason why we have not introduced specific standardization to solar panels is that if we do so, some businessmen may accuse us of favoring one country over the other. So we have given the consumers the power to choose their preferred equipment. This is more or less why we have not implemented an official standardization,” he explained.    End of  Pt 11 ( continued)

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