Sri Lanka's plan to connect private LNG power plant is illegal

Oct 09, 2009 02:00 AM

Attempts to connect a private liquefied natural gas (LNG) power plant to Sri Lanka's state-run power utility outside a competitive bidding process is not legal under a new public utility regulatory law, officials said.
Sri Lanka's power sector came under the regulation of the Public Utilities Commission of Sri Lanka (PUC) this April.

Under the regulatory law, all large plants have to face a competitive bidding process and also have to be listed in the long term generation plan of the state-run Ceylon Electricity Board (CEB), which is the only transmission licensee allowed to buy new plants.
LNG plants are not part of the long-term generation plan. But the plant has been pushed by "cabinet approval" and even a foundation stone had been laid. A company called Lanka Aloka, complete with tax concessions, had also been set up to build it.

"Under the current law a plant like this cannot be brought," PUCSL director general Ranjith Perera said. "But the law is in the hands of the parliament and it can be changed."
Adds PUCSL chairman Jayatissa de Costa: "Though there are cabinet approvals, until a bill is passed by parliament it does not become law. But the law has a process for the relevant minister to issue regulations. We have used that provision also."

Critics say in the past, the CEB's generation plan has been repeatedly circumvented by "Cabinet approval". CEB now not only makes losses, but it also sells some of the most expensive power in the region.
Industry analysts have warned that the proposed size of the plant at 488 MW is too large for system stability, it is more expensive than coal, and if pricing is linked to the import price of LNG and not an index, there will be no control over the price at all.

Though originally proposed as a "merchant plant" where it would have been dispatched on a merit order, critics say later negotiations had tended towards minimum dispatch levels for the LNG plant which is similar to paying a capacity charge.
The CEB has been recommendingcoal plants as far back as the 1980s but they were not built for over two decades after being delayed by the highest levels of government.

From this October PUC is issuing licenses to the Ceylon Electricity Board, independent power producers and smaller renewable power plants under the new law.
Industry analysts say ensuring transparent competitive bidding, implementing CEB's long term generation plan of least cost plants under the regulatory law and reducing political interference in the utility is key to reducing power costs in Sri Lanka.

Source / Asia Pulse Pte Ltd.
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