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Tea price fall, delays stymie Sri Lanka estate hydro power scheme

ECONOMYNEXT – An Asian Development Bank-funded scheme to revive hydro-power schemes on Sri Lankan tea estates failed owing to project complexities and delays and a  slump in tea prices.

Of the 19 micro hydropower projects of under 300 kW each with total capacity of about 1.3 MW, to be funded with an ADB loan, only one was built and connected to the grid, an ADB report said.

It cited complexities and delays in the project, inadequacies in agencies involved and a slump in tea prices that prompted plantations companies to lose interest as reasons for the failure of the scheme, which part of a larger electrification project.

Most of the plantation companies historically owned and operated microhydro power plants.

“The estate micro hydro rehabilitation subproject, which attracted attention from plantation companies at the appraisal stage, was not delivered as anticipated and only one micro hydro installation was repowered under the loan,” the report said.

“The design of this subproject was complicated and was inappropriate due to implementation arrangements which involved numerous participants,” it said.

These included the Ministry of Power and Energy as executing agency, the Sri Lanka Sustainable Energy Authority (SLSEA) as implementation agency, the National Development Bank (NDB) as the intermediary bank for credit line management, a contracted energy services company, and individual consultants to supervise design and implementation.

“Delays in engaging the intermediary bank, conflicts between the contracted energy services company and individual consultants over scope of work, and disagreements over the recruitment of implementation contractors contributed to significant slippage in the implementation time frame,” the ADB said.

According to the SLSEA, of the 19 shortlisted sites, across 11 plantation companies, seven either did not submit the requisite documents to the NDB or failed the NDB’s financial risk assessment.

“In all other cases, subproject implementation was terminated by the plantation company, mostly because of the decline in the price of tea, which reduced cash flow available to service the proposed loans.”





The ADB said design of the estate micro hydro rehabilitation subproject was arguably flawed in its complexity and the decline in the price of tea reduced the likelihood that it would be implemented successfully.

The capacity of the SLSEA to bring together all subproject stakeholders was overestimated, especially considering the SLSEA’s lack of institutional experience at the time, it said.
(COLOMBO, 28 September, 2018)

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