ECONOMYNEXT – Sri Lanka’s state-run Ceylon Electricity Board has received Asian Development Bank funding to tap international expertise to prepare bid documents to acquire a liquefied natural gas terminal, officials said.
"We don’t have the expertise around LNG terminals so the ADB funding was made to available to us so we could consult experts recommended by the ADB in India and other countries to prepare a tender book," Athula Wanniarachchi, past president of the CEB Engineers Union said.
Sri Lanka current administration has been entertaining several proposals from private parties to build LNG terminal provided the power utility purchases large volumes of LNG.
In 2018, the Cabinet approved a controversial unsolicited proposals brought forward by the Ministry of Development Strategies and International Trade from countries like Korea and Japan to set up an LNG terminal by giving the firm the right to sell fuel to Sri Lanka for up to 20 years.
If the fuel is not required, the CEB has to pay the terminal operator for the unused LNG, which is known as take-or-pay.
The unsolicited bids for take-or-pay floating terminals to force the CEB to buy 2.7 million tonnes per annum, whether it was needed or not, earlier reports said.
One terminal proposed 1 million metric tonnes a year while another proposed 0.6 million tonnes, according to reports.
The terminal itself will come ‘free’ as long as a commitment was given to buy the gas for 20 years.
Floating terminals may cost anything from 250 million dollars upwards, if they are built on used ships.
But the take or pay gas contracts may be worth 7 billion US dollars.
"This will be the biggest contract ever awarded by the government of Sri Lanka," Saumya Kumarawadu, President of the Union said. ‘it will be bigger than the Mahaweli projects".
Officials say the terminal could be state owned or if privately owned could be build operate transfer project where guaranteed terminal charges will be given like the capacity charge of an independent power producer to recover its capital.
"The gas procurement and the terminal have to be separate," Wanniarachchi said.
Sri Lanka is planning to build more LNG plants under a new power plan and diesel combined cycle plants that are now proposed have to be dual fuel.
Without a gas terminal plans that are now called ‘300MW LNG’ will remain in fuel oil.
One 300MW plant tendered in 2016, expected be built in Kerawalapitiay near the capital Colombo remains mired in alleged tender corruption and is now caught in a court battle.
Another 300MW plant is due in 2021 to replace a coal plant cancelled by President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe’s administration.
China is planning a 400MW plant in Hambantota with its own terminal.
Sri Lanka also has found offshore deposits of natural gas, estimated to contain a combined 2.3 trillion cubic feet, but they are too deep to be commercially viable.
Cairn India, which found the deposits, exited the field after spending 240 million US dollars as global LNG prices collapsed.
Imported LNG is liquefied below 160 degrees Celsius for ease of shipping and storage, and re-gassified and distributed for use.
It is not clear whether the CEB will have to pay above global prices to buy LNG extracted from Sri Lanka.
More combined cycle plants including one promoted by India and another by Japan of 300MW each are expected to be built in Kerawalapitiya.
Union officials say whatever plant is acquired it has to come through competitive bidding.
Given past attempts to bypass tenders by powers-that-be the CEBs engineers union is prepared to lobby hard, even resort to strike action.
"We will have to resort to union action if the government fails to adopt open tenders when calling for bids for strategic projects of this nature," Kumarawadu, President of the Union said.
"The tender process will minimise fraud because there is visibility on who is offering what. This will prevent vested interests from making unfair gains," he said.
The government attempted to bring the take-or-pay plants through a ‘Swiss Challenge’ process.
The CEB has now exited the technical evaluation committee officially.
A case in point about how competitive bidding is subverted is the tender for a 300MW plant which has now ended in court.
The tender for a 300MW combined cycle plant that was floated in 2016 shows how even competitive bidding can be subverted at higher levels.
Seven companies had tendered their bids to build a 300MW plant in 2016 but authorities decided to open just one bid from a Korean company.
The CEB Engineers Union objected to the move and lobbied to open and evaluate the bid documents of all seven companies.
"But due to interference from various political bigwigs, undue influence on members of the tender board(s) and unwarranted actions by several officials in the ministry have left this tender entrapped in a legal stranglehold," the union said in a statement last Tuesday.
"Removal and reappointment of members in the tender boards on several occasions is clear testimony to the extent of political interference in the selection process.
"Instead of proper mediation by the authorities to get this massive power plant built by a suitable company, it is learnt that several attempts are underway to award the tender to a party which is more favourable to them," the union claims.
However, at a press conference on Tuesday the union’s executive committee declined to name the persons or companies behind what they called a mafia.
Meanwhile, the government has announced plans for three separate LNG power plants which will be funded and built by companies from China, Japan and India.
India’s proposal is believed to be a government-to-government agreement for a 500MW plant. The Japanese proposal is for the same capacity while the Chinese offer is for 400MW.
"Even though the government attempts to include these power plants in future plans, there is neither any appropriate proposal nor any agreement on pricing reached up to date," the CEB Engineers Union said.
"One other reason for objecting and delaying tenders calling for competitive bids in favour of unsolicited proposals is to pave the way for paying higher rates for energy produced from these plants," it said. (COLOMBO, 4 April 2018)