• Tariff to rise from Rs. 19.73/kWh to Rs. 20.15/kWh
• Proposed changes await AG clearance
• Advance payments for machinery authorised
• CPC to procure LNG from abroad, no India deal

Three years after the tender was awarded, the Ceylon Electricity Board (CEB) has commenced negotiations to revise the draft Power Purchase Agreement (PPA) with Sahasdhanavi Ltd., a special-purpose project company created by Lakdhanavi Ltd., The Sunday Morning reliably learns.

This company was created for the development of the second 300 MW Liquefied Natural Gas (LNG) power plant in Kerawalapitiya.

These negotiations are focused on revising the initial draft PPA that was previously published with the Request for Proposal (RFP) and approved by the Standing Cabinet-Appointed Procurement Committee (SCAPC).

It is also learnt that the need to revise the PPA draft arises from several policy changes, particularly the removal of Value-Added Tax (VAT) exemptions on machinery imports and the introduction of the Social Security Contribution Levy (SSCL), leading to increased construction costs. 

This has resulted in an upward adjustment of the levelised tariff from Rs. 19.7302/kWh to Rs. 20.1545/kWh.

Furthermore, the proposed changes, including adjustments from the Technical Evaluation Committee (TEC) reports, are to be incorporated into the draft PPA but must be reviewed and approved by the Attorney General (AG). These changes encompass various aspects, including the definition of ‘change in law’.

The establishment of the second LNG plant in Kerawalapitiya has been recognised as a key project under the Least-Cost Long-Term Generation Expansion Plan for 2018-2037. 

Following Cabinet authorisation on 16 September 2020, the CEB was tasked with developing the proposed power plant, as outlined in the Cabinet memorandum dated 25 August 2020.

The procurement process for the project began with the invitation of proposals through an International Competitive Bidding (ICB) process on 21 June 2021, with the bid closing on 15 December 2021. 

After a thorough evaluation of the proposals by the Project Committee, the Cabinet-Appointed Negotiation Committee (CANC) granted approval on 25 April 2022 to award the contract to Lakdhanavi, which was selected as the lowest evaluated substantially responsive bidder.

The SCAPC, based on recommendations from the TEC reports dated 10 and 26 December 2024, following negotiations with Lakdhanavi, had approved several changes to the draft PPA for the 300 MW LNG power plant in Kerawalapitiya. 

These changes were aimed at ensuring the successful implementation of the project, although they are subject to legal clearance from the AG.

The Public Utilities Commission of Sri Lanka (PUCSL) had approved the draft project agreements, as required by the Sri Lanka Electricity Act, in April 2022. 

Additionally, in October 2023, the Cabinet had granted approval for the CEB to issue a Letter of Intent (LOI) to Lakdhanavi to construct the 300 MW combined cycle dual-fuel natural gas power plant on a Build-Own-Operate-Transfer (BOOT) basis. 

The Cabinet had also authorised the exploration of sharing infrastructure between two LNG power plants in Kerawalapitiya. The LOI was issued to Lakdhanavi Ltd. in December 2023 and the company had established a project-specific entity, Sahasdhanavi, in April last year to execute the project.

The Sunday Morning also learnt that President and Minister of Finance Anura Kumara Dissanayake had reviewed the proposals presented to the Cabinet and had approved the advance payment for importing machinery and equipment, in line with regulatory requirements, subject to AG approval of the PPA amendments. 

The President had also agreed to allow the Ceylon Petroleum Corporation (CPC) to negotiate a Liquid Fuel Supply Agreement (LFSA) and for the Secretary to the Treasury to enter into an implementation agreement with Sahasdhanavi as part of the PPA. 

Moreover, he has approved advance payments to facilitate the smooth implementation of the project.

When contacted by The Sunday Morning, Energy Ministry Secretary Prof. Udayanga Hemapala stated that a final decision regarding the unit cost of the second LNG power plant had not been made.

“This was approved several years ago and if we go for re-tendering, it will take time. There have been changes in many financial aspects of the agreement. Therefore, the CEB was advised to negotiate with the company. However, we have not decided on the final unit cost yet,” he said.

Furthermore, Prof. Hemapala claimed that there had been an attempt to hand the project over to India under the previous Government, but the current administration had resumed it and instructed the relevant authorities to continue with the LNG project, which had been shortlisted through the tendering process.

Clarifying the LFSA, the Secretary noted that there would be no supply agreement with India. LNG will have to be procured from outside as Sri Lanka has no LNG and therefore the CPC was instructed to negotiate the LFSA.