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CEB union backs LNG for power, but warns of pitfalls in unsolicited contracts
View(s):The Ceylon Electricity Board Engineers’ Union (CEBEU) has urged the Government to draw up a strategic plan to use liquefied natural gas (LNG) in meeting the country’s energy demand instead of adopting ad hoc measures from time to time.
In a letter to the President, the Prime Minister, Ministers and MPs, the union says that it is “high time” to choose LNG as a source of energy in the electricity general mix of the country. They point out that the CEB’s Least Cost Long-Term Generation Expansion Plan 2018-2037 calls for LNG power plants with a total capacity of 1,500 megawatts to be added to the system.
The union also says the shift to LNG needs to be undertaken only after conducting a proper study. It also notes that in the absence of a proper plan, several unsolicited proposals for LNG use (storage terminals, long term supply contracts and power plants) have been presented to the government by various parties.
Unlike other sectors, there is high competition among investors to obtain contracts for LNG terminals and LNG supplies, the union says, and adds that the common feature among those who come with unsolicited proposals has been their “reluctance for competitive bidding”. They also ignore the country’s requirements.
The union also says some investment proposals are being submitted by private companies as Government-to-Government concessionary contracts or as joint ventures. The union warns that proposals for such joint venture companies, where Sri Lanka will have only a meagre share were aimed at avoiding the competitive bidding procedures and to bypass certain regulations.
Unlike diesel or coal, LNG cannot be purchased in varying quantities and also cannot be easily stored, the CEBEU notes. As a result, the LNG supply chain depends on complex technical and trade constraints. In the proposals before Sri Lanka, including an Indo-Japanese one, contracts are expected to be signed to buy a minimum quantity of LNG per annum for as long as 20 years. These are take-or-pay contracts; if you fail to buy the agreed minimum quantity, you still have to pay for the total consignment.
“When there are unfavorable terms like this in a twenty-year contact, it is difficult to avoid the country being pushed into an economic crisis,” the union warns. “The loss incurred by a contract like this can be a thousand times higher than the loss incurred due to a hedging deal signed by the CPC for fuel purchase.”
The world’s major LNG exporters are Qatar, Australia and Malaysia. “Therefore, purchasing LNG from importers like India and Japan is a big puzzle to us,” the CEBEU says. “This may be a strategy of those countries to divert to Sri Lanka LNG they purchase on unfavorable long term contracts signed by them in the past.
“When there are a lot of investors keen on investing in LNG power plants and supplying LNG, the most appropriate way of implementing such proposals is through competitive bidding,” the union insists. “If there are concessionary Government-to-Government loan commitments, it is the responsibility of the Government to channel those funds to other sectors which cannot attract investments.”
The CEBEU calls for the formulation of a strategic plan on the supply and use of LNG with the assistance of experienced local and foreign experts.