• Justice Minister’s concerns over LNG suspension to impact investor confidence: Herath

The suspension of the long-delayed Liquefied Natural Gas (LNG) procurement process, intended to establish a Floating Storage Regasification Unit (FSRU) and an LNG pipeline, is currently under scrutiny, it is learnt.

Although the decision has been taken, allegations have now arisen that the Power and Energy Ministry had made this decision without consulting the Ceylon Electricity Board (CEB).

According to sources at the CEB, as of yesterday (26), the utility provider was unaware of the exact reason behind the suspension, beyond what was outlined in Cabinet Memorandum No.28/2023/PE dated 14 July 2023, signed by Power and Energy Minister Kanchana Wijesekera.

The memorandum states that the Cabinet had suspended the procurement process for developing a floating storage and regasification unit off Kerawalapitiya on a Build, Own, Operate, and Transfer (BOOT) basis, along with a compatible mooring system on BOOT basis. 

The associated project includes the development of an offshore and onshore regasification LNG transmission pipeline network, with onshore receiving facilities and associated systems to serve Kerawalapitiya and Kelanitissa power plants on BOOT basis.

However, it is learnt that the CEB’s management holds a different view, asserting that the tender process should have proceeded, given the critical need for LNG in the coming years, a senior CEB official told The Sunday Morning.

This urgency stems from the existing power crisis – without new power plants being constructed and none nearing completion, the CEB is concerned about sustaining and balancing the supply.

According to the official, the previously-suspended tender was reportedly at its final stage but faced delays over several years due to various issues, including the introduction of the New Fortress Energy (NFE) company’s proposal for LNG, which was an unsolicited bid. 

Ironically, the US, which facilitated the NFE bid earlier that year, had complained about unsolicited bids, the lack of clarity, and a level playing field for investments.

Meanwhile, when contacted by The Sunday Morning, Power and Energy Ministry Secretary M.P.D.U.K. Mapa Pathirana clarified that the tender had not been cancelled but suspended.

When contacted about any new developments in the LNG saga, CEB Chairman Nalinda Illangakoon stated that the ministry had not informed them of any new developments.

The Cabinet approved obtaining the views of the Gas Utilisation Master Plan Committee to evaluate the scope and necessity of the project proposals and the underlying assumptions in alignment with the electricity sector plans.

The Ministry of Power and Energy proposed a re-analysis of the LNG procurement process, specifically catering to the electricity sector’s requirements, considering challenges and the current global environment.

Nevertheless, in his observations on the said Cabinet memo, Justice Minister Dr. Wijeyadasa Rajapakshe had stated that it was understood that the LNG supply was initially planned only to cater to the electricity supply (through combined cycle power plants), to promote electricity generation through cleaner energy sources.

Further, the Cabinet has been appraised through previous Cabinet memoranda that the best modality of acquiring such infrastructure within the shortest period of time is to procure an FSRU instead of constructing a land-based unit.

Furthermore, he had pointed out that the Cabinet had also been appraised that an FSRU was an interim measure for a period of 10 years until a Government-owned land-based LNG terminal was established and such land-based LNG terminal would take over LNG deployment not only to the energy sector but to the other sectors of the country with effect from 2033.

“I believe that the above policy initiatives were taken based on sufficient expert advice and therefore, it is assumed that the re-analysation of LNG requirement will also be done within the same policy parameters,” Dr. Rajapakshe stated.

He stressed that the memorandum stated that the LNG procurement tenders had been closed in June 2021 and the tenders were still being evaluated. No information is provided on the reasons for the delay in finalising the evaluation process, which spans over two years.

“Presently, we are in the process of reviewing and revising respective legislation to remove bottlenecks in existing legislation to improve the investment climate of the country. In order to see the positive results of such legislative adjustments, they have to go hand-in-hand with the connected investment promotion efforts. In this backdrop, efficient procurement decision-making is a determining factor. Long delays in tender evaluations not only negate investment climate and lose investor confidence, but can also lead to various unanticipated consequences,” the Minister stated.

Dr. Rajapakshe also stated that the memorandum proposed suspending the ongoing procurement process.

He added that although the procurement entity had the legal right to cancel the procurement process before awarding the tender, it had to be done as the last resort in the event such a decision was unavoidable as it would damage the investment climate of the country.

Further, he noted that there would be a huge economic loss to the country by delaying the supply of LNG for the combined cycle power plants as they had to be operated with expensive thermal fuel until a sound National Policy was introduced and supply of LNG was assured to such power plants.

The decision to suspend the LNG tender has sparked criticism from various political parties.

During a recent press conference, Sri Lanka Podujana Peramuna (SLPP) MP Prof. Charitha Herath expressed his concerns regarding the Cabinet’s approval of Minister Wijesekera’s decision.

This criticism comes in light of Justice Minister Dr. Rajapakshe advocating for the initiation of the Cabinet-approved process to be cancelled only as a last resort.

Prof. Herath raised concerns about the reasoning behind reversing the project, particularly at a time when the country was grappling with severe economic challenges.

He further pointed out a lack of alignment between the Ministry and the CEB, highlighting the abrupt reversal of the plan aimed at developing natural gas infrastructure.