SLGTC to enter into joint venture with Inida and Japan to build terminal
The Treasury has set up a subsidiary called Sri Lanka Gas Terminal Company (SLGTC) with a view to entering into a joint venture (JV) with India and Japan to build an LNG terminal.
The SLGTC will have the Sri Lankan shareholding in the joint venture, sources from the Ministry of Development Strategies and International Trade said. India’s Petronet (which was nominated by the Indian Government) will hold a 47.5 percent stake while the Japanese consortium of Mitsubishi and Sojitz Corp will have 37.5 percent and SLGTC will control 15 percent.
The Sri Lanka Ports Authority has, in principle, approved the site of the LNG receiving terminal to be the western breakwater. However, the finer details of the JV agreement--the structure, time period and business model as well as LNG supply and prices--are yet to be finalised. Cabinet appointed nego- tiating committee (CANC) is to be set up for the purpose.
Sri Lanka has emphasised at discussions, however, that there should be international competitive pricing. Supply will have to be done through a single credible agency, which is the Ceylon Petroleum Corporation. The terminal, meanwhile, is to be constructed before 2019. The investment amount has not been specified yet. “The JV has to decide on investment,” the sources said.
Before the JV agreement is signed, there will be a memorandum of understanding among the three companies. The MoU was to have been signed by now but has been delayed as the Sri Lanka Ports Authority is going through some of its provisions. The MoU was drafted by a joint working group.
Meanwhile, the Korean SK E&S proposal suggests the starting date for the LNG sale and purchase agreement (SPA) as the second half of 2020, ending on March 31, 2040. The annual contract quantity is specified as either 500,000mt per annum or one million mt per annum. The primary sources of LNG will be the seller’s global LNG sourcing portfolio.
The floating storage regasification unit (FSRU) will provided free-of-charge; the LNG pipeline will be funded by the Sri Lanka Government and, if necessary, SK E&S will provide technology for pipeline engineering, construction and operation. The LNG price is to be at competitive level, “considering that FSRU is free of charge”.
The terms of the contract will be “Take or Pay”: The buyer either takes the product from the supplier or pays the supplier a penalty. The SK E&S proposal says, “If Buyer fails to take any scheduled cargo, Buyer shall pay Seller an amount equal to the Contract Price multiplied by the quantity which Buyer failed to take”.