Huge LNG contract deadline now extended after ST exposure

From as early as 2005, the Board of Investment (BOI) had received several proposals to set up liquefied natural gas ( LNG) power plants and regasification units, but there was no progress till Cabinet approved a US$ 500mn plant by China Machinery Engineering Corporation (CMEC) in May this year.

There is renewed interest in the subject after the Sunday Times exposed last week that, amidst serious political tur moil, the Government had floated a Swiss challenge for an offshore floating storage and regasification unit (FSRU), pipeline and LNG contract. International bidders were granted just five weeks to apply for the complex, multibillion dollar project. This week, the Power and Energy Ministry extended the deadline for submission of proposals to January 31, 2019.

At least three bids received by the BOI had fizzled out due to the Ceylon Electricity Board (CEB) not issuing letters of intent or power purchase agreements to the companies. One is a 2005 proposal by Lanka Aloka A B (Pvt) Ltd to set up a 488 megawatt LNG plant with an investment of US$ 550mn.

The second is a 2008 offer by M/s Energy World International Ltd for a 600mw LNG power plant and intake terminal with an input of US$ 750mn. The third is a bid in 2011 by M/s Sithe Global Power Ventures LLC for an LNG storage as well as regasification unit and 500mw power plant with an outlay of US$ 1000mn.

In 2016, Energy World put forward a fresh proposal to build 140mw LNG power plants for BOI zones and an LNG intake facility at Kerawalapitiya. An official document lists the status of this project as “site identification/ allocation pending”. It says that a policy decision is required from the BOI Board of Directors for the setting up of captive power plants for these zones.

Also in 2016, M/ s Shapoorji Pallonji & Company ( Pvt) Ltd offered an LNG intake and processing facility for an investment of US$ 400mn. This is held up due to the Sri Lanka Land Reclamation & Development Corporation notifying the BOI that Cabinet approval is required to release l and. Concurrence of the Ministry of Petroleum Resources Development is also pending.

It is only CMEC’s 2016 proposal for an LNG receiving terminal and a 400mw combined cycle power plant in Hambantota that has seen any movement. But on November 5, 2018, just eleven days after the sacking of Prime Minister Ranil Wickremesinghe,

the Power and Energy Ministry unexpectedly published an advertisement seeking counter proposals under Swiss challenge procedure for the establishment of an FSRU, pipeline infrastructure and supply of LNG for the CEB.

A Swiss Challenge usually grants an advantage to the original proposer with an opportunity to match whatever anybody else tenders. The first bid was put forward by the South Korean Governmentbacked SK E& S Company and presented to Cabinet in December 2017 by President Maithripala Sirisena.

This is to be Sri Lanka’s largest single Government tender: a 20-year LNG contract costing more than an estimated US$ 10bn (although a figure closer to US$ 20bn is being cited in some quarters). Industry experts pointed out that preparation for such a tender would take at least six to eight months. But the deadline for submitting bids was December 12, just five weeks after the advertisement was published.

A Joint Cabinet Memorandum submitted in 2017 by the Ministry of Power and the Ministry of Special Assignments outlines some details of the SK E&S proposal. “A company backed by the Government of Korea has agreed to provide an LNG terminal free of charge subject to the condition that compulsory purchase of 500,000 MT per annum during first 5 years and 1,000,000 MT per annum during subsequent 20 years under prices prevail [sic] in the international market,” it said.

But the pipeline will be funded by the Sri Lanka Government with SK E&S providing technology for engineering, construction and operation if necessary