By Niranjala Ariyawansha

Sri Lanka is heading into a severe economic crisis due to the Government’s decision to establish a Floating Storage Regasification Unit (FSRU), for a massive supply of 2.7 million tons of Liquefied Natural Gas (LNG) per annum without calling for open tenders, energy experts have warned.

They emphasize that if this unsolicited decision is implemented, the country will have to incur a loss, thousand times more……than the loss it had to face due to the notorious Hedging deal.

The Government has signed Memorandums of Understanding with both, India and Japan to supply Sri Lanka’s requirement of Liquefied Natural Gas for the next 20 years.

According to these Memorandums of Understanding, India will hold 47.5 per cent of the shares in the Floating Storage Regasification Unit, which is being constructed in Kerawalapitiya, while Japan will hold 37.5 per cent and Sri Lanka the balance 15.

Meanwhile, the Ceylon Electricity Board Engineers’ Union (CEBEU) has requested the Government to focus its attention on this serious decision which cannot be reversed. They had sent a letter regarding this issue, on 20 March, to the President and all Parliamentarians.

The letter states: “Unlike diesel or coal, LNG cannot be purchased in varying quantities depending on the time to time requirement and also cannot be easily stored. Due to that, the LNG supply chain depends on very complex technical trade constraints. In these proposals, including the Indo – Japanese proposal, contracts are expected to be signed for the purchase of a minimum quantity of LNG per annum for a term as long as 20 years (Take or Pay Contracts).

The nature of such contracts is that if you fail to buy the minimum quantity agreed in the contract, you still have to pay for the total quantity. When there are unfavourable terms like this in a twenty-year contract, it is very difficult to avoid the country being pushed into an economic crisis.”

Under these circumstances, they have further stressed in their letter, “We request that arrangements be made to formulate a strategic plan on the supply and use of LNG with the assistance of a group comprising experienced local and foreign experts in this field and to approve proposals for supply of LNG, LNG terminals and LNG power plants only if they are in conformity with the above plan and selected through competitive bidding.”

They point out that to operate the Thermal power plants, which work on diesel and are located close to Colombo, using LNG and when considering that the LNG power plants, proposed by the Ceylon Electricity Board, in their Long-Term Power Generation Plan, the country only needs 0.6 million tons of LNG for a year.

They have calculated that it is only such a quantity that will be required for the entire period of the forthcoming 10 years as well.

However, during a year when there is good rainfalls, this requirement will fall to 0.3 million tons. Similarly, in a year when dry weather prevails it can vary and increase up to 0.8 million tons, they point out.

While the circumstances are thus, they ask who those experts were who recommended that such a massive supply, of up to 2.7 million tons is required for this country.

The CEB and the Ceylon Petroleum Corporation had both expressed their opposition to creating such an extensive Floating Storage Regasification Unit to supply energy from Sri Lanka to a country such as India.

The CEBEU further emphasized, in their letter, “The Government’s attention must be focused on possible threats to national security when allowing a company of Indian origin to control the supply of LNG for generation of a larger share of the country’s electricity demand.”

They also stress the fact that, prior to making this decision, the Government had not taken into consideration that the main buyers of LNG would be the CEB, the Ministry of Power and Renewable Energy or the Ministry of Petroleum Resources Development.

The letter finally states that in an instance where there are a lot of investors keen on investing in LNG power plants and the supply of LNG, the most appropriate way of implementing such proposals, is through competitive bidding. If there are concessionary Government to Government loan commitments, it is the responsibility of the Government to channel those funds to other sectors which cannot attract investments.

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