Wednesday, August 31, 2011

Sri Lanka - India to sign Sampoor power plant agreement in September

By Rohan Abeywardena | The Island

An Indian delegation headed by the Secretary to their Power Ministry will be in Sri Lanka from Sept. 05 to 07 finally to sign the joint venture agreement with the Ceylon Electrify Board (CEB) to build the country’s second coal power plant at Sampoor, Trincomalee.

Authoritative energy sector sources said the crucial agreement was now tentatively scheduled to be signed on Sept. 06. During their three-day stay the top level Indian delegation is also scheduled to visit the site of the proposed plant at Sampoor.

Despite the Rajapaksa administration taking the bold decision to go ahead with coal power plants to meet Sri Lanka’s growing power demand disregarding protests from certain vociferous sections, the negotiations to clinch the joint venture between the National Thermal Power Corporation of India (NTPC) and the Ceylon Electricity Board dragged on since the signing of the initial memorandum of understanding in December 2006 till finally Power and Energy Ministry Secretary M. M. C. Ferdinando early this month initiated its all-important Implementation Agreement in New Delhi with his counterparts there.

According to sources, out of at least five different agreements pertaining to the 500 MW first phase of the project running to hundreds of pages had been held up since they were finalised more than a year ago, over some terms.

Officials are tight-lipped as to what really caused such a long delay while the country, grappling with serious power shortages, was forced to turn to costly thermal power in the interim to meet the shortfall.

The Island learns that the greater part of the delay was due to the Attorney General’s Department going through all terms with a fine-tooth comb, probably because of the harm that had befallen the country owing to the blind signing by the Ceylon Petroleum Corporation (CPC) of Hedging Deal.

But, CEB officials simply explained it as being due to differences over technical and legal jargon.

The previous regimes of Chandrika Kumaratunga and Ranil Wickremesinghe made matters worse for the country by simply cancelling all previous plans to build coal power plants fearing protests by vested interests.

CEB sources said yesterday immediately after the joint venture agreement with NTPC for the US$ 500 million project was signed early next month, the joint venture company would be incorporated within a week and that company would sign the balance agreements with the relevant parties.

Under the proposed agreement, the NTPC and the CEB each will invest US $ 75 mn as equity capital, while the balance US $ 350 mn would be raised from banks as loan capital.

Although the original target date to commission the plant was in 2016, sources said due to the unexpected delays in finalising the deal it was now expected to be completed in about 2017.

They, however, said there was a slight brighter side to the delay as costs of building coal power plants had since come down slightly and the local plant might now cost anything between US $ 450 mn and US $ 475 mn.

Among the other agreements involved in this deal, The Island learns, are the 500-acre land lease, coal supply pact with Lanka Coal Supply Co, Ltd., power purchase agreement, the BOI status deal, which will assure it, among other things, a 25-year tax holiday and the loan agreement with the funding banks.

CEB sources said negotiations with the lending bodies had already commenced unofficially and once the agreements were signed clinching bank finances would not be a problem

The CEB has already acquired and secured the necessary 500 acres for the project, bulk of which came from state lands in the region, while the balance requirement lying mainly in the periphery is in the process of being acquired from private owners. It is also in the process of getting the other necessary infrastructure in place like building a jetty to unload coal, doing up access roads to the site and the building of the new connecting power lines from the project to the national grid via Habarana.

© The Island

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