- Phase I expected last month; Phase II set for January 2025
- Completion at 60%, facing obstacles
- Force majeure prompts tariff change for high interest rates
- PPA talks ongoing with CANC and PC/CEB
- Spiralling costs affect power generating units and civil construction
- Heavy equipment transport, engineering and testing face obstacles
The much-anticipated Sobadhanavi 350 MW Liquefied Natural Gas (LNG) Combined Cycle Power Plant at Kerawalapitiya finds itself entangled in controversy as unexpected delays and tariff adjustment negotiations create a cloud of uncertainty.
Undertaken by LTL Holdings Ltd., the project has reached nearly 60% completion, but hurdles in negotiations for a tariff adjustment have presented what seems like an impossible roadblock.
As learnt by The Sunday Morning, almost 60% of the project work has been completed and Phase I of the plant was expected to contribute to the nation’s grid last month, with Phase II slated for January 2025.
Due to force majeure and changes of law events, Sobadhanavi is now looking for a tariff adjustment to cover exorbitant project cost increments due to Interest During Construction (IDC).
In the Power and Energy Ministry’s progress report for 2023, LTL stated that several meetings had been conducted with the Cabinet-Appointed Negotiation Committee (CANC) and the CEB Procurement Committee (PC) to reach suitable amendments to the Power Purchasing Agreements (PPAs), expressing confidence over a positive resolution in the latter part of September 2023.
However, a firm timeline for concluding negotiations or executing resultant amendments to the PPAs remains undisclosed.
Nevertheless, when contacted by The Sunday Morning, Power and Energy Ministry Secretary Sulakshana Jayawardena said Phase I (open cycle) of Sobadhanavi would hopefully be available by April and Phase II (combined cycle) by the end of this year.
“This is a private power plant. We only sign a PPA with them and they are supposed to make arrangements to secure financing and equity. That is their responsibility,” he stressed.
Furthermore, the Secretary emphasised that it was necessary to amend the PPAs: “The only issue is that VAT is imposed on materials and equipment that need to be imported. We have not made any decisions about whether that VAT should be considered under the tariff or whether the CEB should pay or reimburse it.”
The original project loan negotiated with the Asian Development Bank (ADB) and other overseas financial institutions remains suspended, pending improvement of Sri Lanka’s macroeconomic situation and its credit rating.
However, negotiations with a consortium of nine local banks have been successful in obtaining a project loan of Rs. 45.3 billion, subject to the proposed tariff adjustment to make the loan serviceable from the revenue of the power plant.
Construction costs on the Engineering, Procurement, and Construction (EPC) of the project, such as for power generating units, electrical and mechanical balance of plants/equipment, civil construction, erection, installation, heavy equipment transport, engineering and supervision services, testing and commissioning, have skyrocketed, notes the LTL report.
Further, it was stated that the unprecedented increases in freight charges, transportation of machinery/equipment, heavy bank charges on confirmed LCs, and VAT on local project expenses too have skyrocketed to a considerable extent. Therefore, the amendment to the PPA at this crucial juncture is of paramount importance to meet project costs and ensure completion within the scheduled timeline.
As per LTL, detailed engineering activities have been accelerated, with more than 97% of the open cycle-related detailed engineering work, foundation designs, and drawings completed, along with 86% of combined cycle-related foundation designs and drawings, except for a few foundation drawings related to ST auxiliary module, workshop building, ST SEE transformer, ST PCC, cooling water pipe supports, ST GCB, water treatment plant, and mixed bed, which are in progress.