News
Lakvijaya extension: No bids, Chinese company gets project on a platter
The Cabinet has approved a 300 megawatt extension to the Lakvijaya coal power plant to be constructed by China Machinery Engineering Corporation (CMEC)–without calling for bids, even before the mandated feasibility study has been done.
The Cabinet paper, sanctioned on February 12 and sent to line ministries, recognises that CMEC is a nominated business of the Government of China. It states that a joint venture will be formed between the contractor and the Ceylon Electricity Board (CEB) purely for the purpose of building the extension in strict adherence to statutory environmental provisions and guidelines.
CMEC must also secure its own capital and finances to build the 300mw extension to Lakvijaya–with no contribution from the Government of Sri Lanka–indicating that this would be an independent power purchase (IPP) agreement on build, own, operate and transfer (BOOT) terms. There is no mention in the Cabinet decision of an estimated project cost, tariff or profit margin for CMEC.
Days before the Presidential election in November 2019, the CEB issued a letter expressing its intention to engage CMEC for a detailed feasibility study for a fourth unit at the 900mw power plant using the existing infrastructure and the same or advanced systems and facilities.
But the feasibility, which was in progress at the time, was stopped owing to the Chinese New Year holidays and, now, the coronavirus. Cabinet approval has, therefore, been granted without knowing whether the project is viable.
The Cabinet paper also approves the rescinding of an earlier decision awarding a 300mw combined cycle natural gas plant in Kerawalapitiya to Windforce (subject to the Attorney General’s approval) and agrees to award it to Lakdhanavi Ltd. The matter is now in court.
Another 300mw natural gas power plant by an identified Japanese contractor where work has already begun in Kerawalapitiya can continue, the Cabinet says. A further 500mw liquefied natural gas combined cycle power plant is to be implemented as a joint venture between NTPC Ltd, India’s largest power conglomerate, and the CEB. All will be IPPs with their profit structures inbuilt and nominal shares for the local utility.
Separately, the Cabinet has consented to implement a 300mw natural gas plant in Kerawalapitiya with the financial support of Asian Development Bank (ADB). It was not immediately clear where the proposal for an ADB-funded natural gas plant emerged from. The regional funding agency only helped the CEB draft a request for proposals (RFP) for a floating storage regasification unit and pipeline.
There is also a question of whether the Lakvijaya extension qualifies as a “Government-to-Government” project. The Sri Lanka Electricity (Amendment) Act refers to “an offer received from a foreign sovereign Government to the Government of Sri Lanka, for which the approval of the Cabinet of Ministers has been obtained…” The project, however, was not offered by China to Sri Lanka.
The Cabinet has also approved the extension of costly emergency power agreements by another six months. It is not clear what will happen after this ends because all gas and coal plants will take more than four years to build.