Sri Lanka, India ink MoU for LNG infrastructure in Kerawalapitiya power plant
Daily FT: A Memorandum of Understanding (MOU) was signed recently between LTL Holdings Ltd., Sri Lanka, and Petronet LNG Ltd., India, to develop infrastructure for the storage, regasification and supply of Liquefied Natural Gas (LNG) to the ‘Sobadhanavi’ Combined Cycle Power Plant in Kerawalapitiya.
The agreement marks a significant step in modernising the country’s energy sector and reducing reliance on fuel sources.
The MoU was signed by LTL Holdings CEO Nuhuman Marikkar and Petronet LNG CEO and Managing Director Akshay Kumar Singh, with Power and Energy Minister Kanchana Wijesekera highlighting the initiative as a crucial component of President Ranil Wickremesinghe’s broader energy strategy.
“This initiative is a key part of the Government’s efforts to ensure a continuous, high-quality electricity supply at minimal cost, benefiting electricity users across Sri Lanka,” Minister Wijesekera stated.
He emphasised that the partnership represents progress toward a more sustainable and cost-effective energy future for the country.
The Sobadhanavi plant, developed and operated by Lakdhanavi Ltd., the power development arm of LTL Holdings, will significantly enhance Sri Lanka’s energy generation capabilities.
The first phase of the plant is set to be commissioned in August 2024, with the second phase scheduled for early 2025
As an interim solution, LNG will be imported from Petronet’s terminal in Kochi, India, using cryogenic ISO containers. These will be transported from Colombo Port to the Kerawalapitiya storage and regasification terminal, which will be built adjacent to the Sobadhanavi plant.
Minister Wijesekera also addressed the challenges faced by the energy sector in recent years, including difficult policy decisions such as increasing electricity tariffs.
He noted that these measures have enabled the Ceylon Electricity Board (CEB) to become a debt-free, financially stable institution, which has in turn attracted new investments in the energy sector.
“By signing these agreements, we aim to reduce electricity costs by 40% to 50%. We plan to pass these savings on to electricity users, thereby reducing energy costs in Sri Lanka. However, it’s important to recognise that this is a challenging task,” he added.
The Minister also said that the Government aims to begin power generation at the Yugadhanavi and Sobadhanavi power plants in early 2026, with the Sobadhanavi plant expected to be operational by 28 August.
“This timeline is due to the need to run the plants on diesel and fuel oil during the first year before transitioning to liquefied natural gas. As a result of the agreements signed, electricity users in Sri Lanka will see significant benefits in the future, not only financially but also in terms of reducing environmental impacts,” he explained.
Wijesekera said the Government has established a policy to phase out the use of diesel, crude oil and naphtha, with a goal of meeting 70% of the country’s electricity needs through renewable energy and the remaining 30% through LNG. “We are working to build the necessary infrastructure to integrate renewable energy into the electricity grid,” he said.
OSL take:
Sri Lanka and India enjoy strong bilateral and trade ties that have been strengthened by an operations free trade agreement (FTA). The trade ties are on the path to be further strengthened by the proposed ETCA agreement between Sri Lanka and India. However, India is also a key development partner of Sri Lanka and India has many business transactions with Sri Lanka as well. There are many Indian businesses/investors operating in Sri Lanka with many such businesses showing growth and profits as well. It is in such a backdrop that Sri Lanka and India have inked an MoU on supplying LNG. With Sri Lanka on an economic expansion path with a target of becoming an emerging business destination in the South Asian region, there’s an overall expansion in business/investment opportunities in Sri Lanka. Given the success of Indian businesses operating in Sri Lanka, more Indian businesses/investors could confidently explore the expanding business/investment opportunities in Sri Lanka. Indian businesses could also look at forming partnerships or joint ventures with local businesses with the aim of further expanding operations locally and internationally. The close ties between Sri Lanka and India also makes the country a perfect destination for foreign businesses/investors to set up bases to engage with India.