Features
The LNG Saga – Some unanswered questions! Urgent responses needed
By Eng. Parakrama Jayasinghe
E Mail: parajayasighe@gmail.com
There is euphoria in the government circles about the deal with New Fortress Energy of USA, (NFE) for the sale of 40% share of the West Coast Power Ltd., which currently operates the 300 MW power plant in Kerawalapitiya for a princely sum of US $ 250,000,000. The present ownership of this company stands as
Treasury 50%
Employers Provident Fund 27%
Lanka Electricity Company 18%
Lanka Transformers Ltd 05%
The plant is operated by Lanka Transformers Ltd.
At a time when Sri Lanka is scraping the bottom of the barrel to pay for the imported essentials including fuel, this would appear to be manna from heaven, even though it is not clear when this money will be received. Looking at the share ownership, there does not seem to be any impediment to the Treasury’s right to sell the 40% share although this may be considered as the sale of a national asset, which the current leaders vowed not to do.
Has anyone taken the trouble to check on the financial strength of NFE? Can the company raise not only this $ 250 million but what might also be another $ 150 million required for the setting up of the FSRU and the pipelines?
However, the icing on the cake seems to go sour when the conditions attached to this sale are looked at in detail. The only source of information is the copies of the Cabinet papers submitted by the Ministry of Finance, which are reported to have been approved by the Cabinet without any division. Considering the complex nature of the NG supply market and, moreover, the most convoluted presentation as seen in this Cabinet paper, the rest of the Cabinet may be excused for taking the easy path of just raising hands instead of courting a massive headache by trying to wade through this document to get some sense.
But the Cabinet decisions, if implemented, will affect every citizen adversely and, as explained below, and it could be a disaster for Sri Lanka. It is very unfortunate that none of the government ministers or MPs or those in the Opposition commenting on this deal has gone beyond the mere sale of shares and the fact that the agreement has been signed at midnight, which is the least of our problems.
I would like to pose some questions that are not answered clearly in the Cabinet memo:
1. Cabinet approval is sought to enter into a Share Sale and Purchase Agreement and to amend the conditions of the already signed Frame Work Agreement signed in July 2021. But no details of this FA and the proposed amendments are known.
2. Approval is also sought to enter into a Gas Supply Term Sheet (GSTS) as per paragraph 5.3 to be a part of the SSPA. This is where the hidden problems lie as described later.
3. Providing extensive tax relief which was not given for the open tender called for by the CEB and is under evaluation
There has been an attempt to compare the numbers quoted for the eventual cost of gas from NFE, with the current tender under evaluation. But as pointed out by the engineers of the CEB, this is comparing oranges with apples and the ethic of using such data for this comparison is also being questioned. The fact that there is a difference between the two does not qualify for either to be accepted without due consideration of the realities and their impact on Sri Lanka.
However, to come to the crux of the matter, the government of Sri Lanka, which approved the construction of a 350 MW LNG powered power plant, without a clue as to how the gas is to be supplied, has painted itself in to a corner. The lack of foresight in approving this project which was tendered for as far back as 2016, without many changes in the parameters applicable being taken into consideration, the cost of LNG being the primary issue, is a matter for a separate discussion. The NFE offer was apparent ly pounced upon to get out of such an embarrassing situation, with scant attention to the underlying dangers.
But the most worrisome element of the proposed gas supply agreement is the acceptance of the Take or Pay (TOP) condition without due consideration of its implications which are horrendous as explained below. However, it is the duty of the buyer or the lessee to carefully evaluate the ability or the need for the purchase of such agreed amounts.
The condition stipulates that the buyer should pay for the entire agreed amount of gas even if it is not needed or not possible to be used. This is exactly what would happen to us with a massive financial loss if this agreement goes through.
However, Sri Lanka is in a disadvantageous position in that our need for LNG falls far below the amounts considered viable by the reputed companies in the field thus limiting the possibility of reliable competitive tender. Even though less than what would be expected by the big players, the amount claimed as TOP by NFE is well beyond our ability to purchase and we will be falling into a trap from which there is no means of extracting ourselves.
The numbers tell the story
The NFE demands a TOP amount of 175 MMBTU over five years. The standard unit of supply is a Million British Thermal Unit). Although the documents available have not specifically stated amounts, let us assume this amounts to 35 MMBTU per year.
What are our consumption needs? The only use possible in the short term is the conversion of the 300 MW WCPL plant currently operating on Furnace Oil. As such, we can expect it to be converted as soon as the FSRU and the pipelines are installed and operational. But how much can we consume? An expert in the field has quoted a figure of only 13 MMBTU per year. So, until the Sobhadhanavi aplant of 350 MW is completed, we will have to pay for the balance 22 MMBTU of gas even if it is not supplied.
Once the Sobhahdhnavi plant is operational hopefully in two years, it will require a further 12 MMBTU according to the expert, totaling the demand only to 25 MMBTU, and Sri Lanka having to continue to pay for 10 MMBTU for the duration of the five-year project period currently agreed upon with NFE. There are proposals to covert the units at Kerawalapitiya, too. But this would take years and until such time we will be paying out millions of dollars every year with no benefits.
What does it mean in monetary terms, as this proposal provided monopoly rights of supply of gas also to NEF? The numbers here are even more dubious and couched in conflicting statements.
Three different modes of pricing the Gas supplies are stated:
= Henry Hub price times 115% + 5.01 $ per MMBTU
= JKM Price + 1.15 $ per MMBTU
= Any other mode of supply to be selected by the buyer
There is no firm statement anywhere in the Cabinet Memo as to which system is applicable and when.
These are highly divergent prices with a differential of over 100%. So, let us be optimistic that the Henry Hub Formula will be adopted.
The Henry Hum is the trading exchange for natural gas in the US and is currently running at about $ 5.00 per MMBTU. The JKM price is the Asian market price, which is currently ranging in the order of US$ 27 per MBTU. These numbers can be seen daily on the Internet. The recent predictions of HH prices are illustrated below. (See the graph.) It is on a steep rising trend.
Let us use an optimistic value of US $ 5.00 per MBTU as the HH price
As such the option using HH would yield a supply price of 5 x 115% + 5.01 = $ 10.76 per MBTU
It is not clear if we are to pay the regasification cost of $ 1.45 per MBTU even for the gas we don’t , which will take this up to $ 12.21 per MBTU
As stated above, until the Sobhadhanavi plant is commissioned, we will have to pay for 22 Million M BTU gas, not supplied at a price of $ 10.76 amounting to a staggering $ 236.72 Million in the first year of operation itself and at US $ 109.6 Million for the balance four years, assuming that the HH gas prices do not change.
When these numbers are considered, the offer of US $ 250 Million loses its lustre. It is a case of the Greeks bearing gifts.
I would love to be proven wrong at least on this count, ignoring the many other reasons given below as to why a very serious look has to be taken on the whole equation of the use of LNG.
Impact on the 70% RE target
President Gotabaya Rajapaksa has told the whole world, in his recent address to the UN, that Sri Lanka will achieve a 70% contribution from renewable energy sources by 2030. Let us hope that at least now there will be no further attempts to say that this is not the government policy.
What does this mean on the ground? The Table 1 spells it out:
Therefore, allowing for the retirement of some plants which are reaching the end of their economic life, the only feasible addition of fossil fuel would be the 350 MW Sobhadhanavi LNG plant currently under construction. So, there is no possibility of adding any more LNG plants or even converting the plants at Kelanitissa to LNG to bridge the gap of oversupply, without grossly violating the target of 70 % contribution of renewable energy by 2030.
The CEB has been directed by the Ministry of Power to submit its corrected Long-Term Generation Plan, which meets the 70% RE target. It would be interesting to see what they come out with, and their commitments to national policy, not to mention a genuine effort to get out of the financial mess that it is in. Maximizing the renewables even beyond the 70% target is their only hope.
Barriers to the development of Mannar Gas and Oil resource
This is a matter that cannot be ignored. When there are attempts to attract investors to develop this proven resource, handing over the monopoly of supply of LNG to NFE even for five years is most foolhardy. A developer would first look at the guaranteed offtake of the extracted gas as the greatest incentive and mitigation of risk of the investment. When we are blocking that very option by this ill-conceived deal, we are foreclosing the possibility of developing this valuable resource for ever.
It is heartening to hear that Minister of Energy Udaya Gammanpila has already objected to the proposal to give monopoly on gas imports to NFE even for five years. We hope that his views will be taken on board.
This is an appeal to all politicians on both sides as well as the professionals to evaluate the validity of the above concerns and prevent the impending disaster.
by Dr Gotabhya Ranasinghe
Senior Consultant Cardiologist
National Hospital Sri Lanka
When we sought a meeting with Hon Dr. Ramesh Pathirana, Minister of Health, he graciously cleared his busy schedule to accommodate us. Renowned for his attentive listening and deep understanding, Minister Pathirana is dedicated to advancing the health sector. His openness and transparency exemplify the qualities of an exemplary politician and minister.
Dr. Palitha Mahipala, the current Health Secretary, demonstrates both commendable enthusiasm and unwavering support. This combination of attributes makes him a highly compatible colleague for the esteemed Minister of Health.
Our discussion centered on a project that has been in the works for the past 30 years, one that no other minister had managed to advance.
Minister Pathirana, however, recognized the project’s significance and its potential to revolutionize care for heart patients.
The project involves the construction of a state-of-the-art facility at the premises of the National Hospital Colombo. The project’s location within the premises of the National Hospital underscores its importance and relevance to the healthcare infrastructure of the nation.
This facility will include a cardiology building and a tertiary care center, equipped with the latest technology to handle and treat all types of heart-related conditions and surgeries.
Securing funding was a major milestone for this initiative. Minister Pathirana successfully obtained approval for a $40 billion loan from the Asian Development Bank. With the funding in place, the foundation stone is scheduled to be laid in September this year, and construction will begin in January 2025.
This project guarantees a consistent and uninterrupted supply of stents and related medications for heart patients. As a result, patients will have timely access to essential medical supplies during their treatment and recovery. By securing these critical resources, the project aims to enhance patient outcomes, minimize treatment delays, and maintain the highest standards of cardiac care.
Upon its fruition, this monumental building will serve as a beacon of hope and healing, symbolizing the unwavering dedication to improving patient outcomes and fostering a healthier society.We anticipate a future marked by significant progress and positive outcomes in Sri Lanka’s cardiovascular treatment landscape within the foreseeable timeframe.
by Fr. Emmanuel Fernando, OMI
Jesuit Fr. Aloysius Pieris (affectionately called Fr. Aloy) celebrated his 90th birthday on April 9, 2024 and I, as the editor of our Oblate Journal, THE MISSIONARY OBLATE had gone to press by that time. Immediately I decided to publish an article, appreciating the untiring selfless services he continues to offer for inter-Faith dialogue, the renewal of the Catholic Church, his concern for the poor and the suffering Sri Lankan masses and to me, the present writer.
It was in 1988, when I was appointed Director of the Oblate Scholastics at Ampitiya by the then Oblate Provincial Fr. Anselm Silva, that I came to know Fr. Aloy more closely. Knowing well his expertise in matters spiritual, theological, Indological and pastoral, and with the collaborative spirit of my companion-formators, our Oblate Scholastics were sent to Tulana, the Research and Encounter Centre, Kelaniya, of which he is the Founder-Director, for ‘exposure-programmes’ on matters spiritual, biblical, theological and pastoral. Some of these dimensions according to my view and that of my companion-formators, were not available at the National Seminary, Ampitiya.
Ever since that time, our Oblate formators/ accompaniers at the Oblate Scholasticate, Ampitiya , have continued to send our Oblate Scholastics to Tulana Centre for deepening their insights and convictions regarding matters needed to serve the people in today’s context. Fr. Aloy also had tried very enthusiastically with the Oblate team headed by Frs. Oswald Firth and Clement Waidyasekara to begin a Theologate, directed by the Religious Congregations in Sri Lanka, for the contextual formation/ accompaniment of their members. It should very well be a desired goal of the Leaders / Provincials of the Religious Congregations.
Besides being a formator/accompanier at the Oblate Scholasticate, I was entrusted also with the task of editing and publishing our Oblate journal, ‘The Missionary Oblate’. To maintain the quality of the journal I continue to depend on Fr. Aloy for his thought-provoking and stimulating articles on Biblical Spirituality, Biblical Theology and Ecclesiology. I am very grateful to him for his generous assistance. Of late, his writings on renewal of the Church, initiated by Pope St. John XX111 and continued by Pope Francis through the Synodal path, published in our Oblate journal, enable our readers to focus their attention also on the needed renewal in the Catholic Church in Sri Lanka. Fr. Aloy appreciated very much the Synodal path adopted by the Jesuit Pope Francis for the renewal of the Church, rooted very much on prayerful discernment. In my Religious and presbyteral life, Fr.Aloy continues to be my spiritual animator / guide and ongoing formator / acccompanier.
Fr. Aloysius Pieris, BA Hons (Lond), LPh (SHC, India), STL (PFT, Naples), PhD (SLU/VC), ThD (Tilburg), D.Ltt (KU), has been one of the eminent Asian theologians well recognized internationally and one who has lectured and held visiting chairs in many universities both in the West and in the East. Many members of Religious Congregations from Asian countries have benefited from his lectures and guidance in the East Asian Pastoral Institute (EAPI) in Manila, Philippines. He had been a Theologian consulted by the Federation of Asian Bishops’ Conferences for many years. During his professorship at the Gregorian University in Rome, he was called to be a member of a special group of advisers on other religions consulted by Pope Paul VI.
Fr. Aloy is the author of more than 30 books and well over 500 Research Papers. Some of his books and articles have been translated and published in several countries. Among those books, one can find the following: 1) The Genesis of an Asian Theology of Liberation (An Autobiographical Excursus on the Art of Theologising in Asia, 2) An Asian Theology of Liberation, 3) Providential Timeliness of Vatican 11 (a long-overdue halt to a scandalous millennium, 4) Give Vatican 11 a chance, 5) Leadership in the Church, 6) Relishing our faith in working for justice (Themes for study and discussion), 7) A Message meant mainly, not exclusively for Jesuits (Background information necessary for helping Francis renew the Church), 8) Lent in Lanka (Reflections and Resolutions, 9) Love meets wisdom (A Christian Experience of Buddhism, 10) Fire and Water 11) God’s Reign for God’s poor, 12) Our Unhiddden Agenda (How we Jesuits work, pray and form our men). He is also the Editor of two journals, Vagdevi, Journal of Religious Reflection and Dialogue, New Series.
Fr. Aloy has a BA in Pali and Sanskrit from the University of London and a Ph.D in Buddhist Philosophy from the University of Sri Lankan, Vidyodaya Campus. On Nov. 23, 2019, he was awarded the prestigious honorary Doctorate of Literature (D.Litt) by the Chancellor of the University of Kelaniya, the Most Venerable Welamitiyawe Dharmakirthi Sri Kusala Dhamma Thera.
Fr. Aloy continues to be a promoter of Gospel values and virtues. Justice as a constitutive dimension of love and social concern for the downtrodden masses are very much noted in his life and work. He had very much appreciated the commitment of the late Fr. Joseph (Joe) Fernando, the National Director of the Social and Economic Centre (SEDEC) for the poor.
In Sri Lanka, a few religious Congregations – the Good Shepherd Sisters, the Christian Brothers, the Marist Brothers and the Oblates – have invited him to animate their members especially during their Provincial Congresses, Chapters and International Conferences. The mainline Christian Churches also have sought his advice and followed his seminars. I, for one, regret very much, that the Sri Lankan authorities of the Catholic Church –today’s Hierarchy—- have not sought Fr.
Aloy’s expertise for the renewal of the Catholic Church in Sri Lanka and thus have not benefited from the immense store of wisdom and insight that he can offer to our local Church while the Sri Lankan bishops who governed the Catholic church in the immediate aftermath of the Second Vatican Council (Edmund Fernando OMI, Anthony de Saram, Leo Nanayakkara OSB, Frank Marcus Fernando, Paul Perera,) visited him and consulted him on many matters. Among the Tamil Bishops, Bishop Rayappu Joseph was keeping close contact with him and Bishop J. Deogupillai hosted him and his team visiting him after the horrible Black July massacre of Tamils.
Sri Lanka-Singapore Free Trade Agreement
By Gomi Senadhira
senadhiragomi@gmail.com
“You might tell fairy tales, but the progress of a country cannot be achieved through such narratives. A country cannot be developed by making false promises. The country moved backward because of the electoral promises made by political parties throughout time. We have witnessed that the ultimate result of this is the country becoming bankrupt. Unfortunately, many segments of the population have not come to realize this yet.” – President Ranil Wickremesinghe, 2024 Budget speech
Any Sri Lankan would agree with the above words of President Wickremesinghe on the false promises our politicians and officials make and the fairy tales they narrate which bankrupted this country. So, to understand this, let’s look at one such fairy tale with lots of false promises; Ranil Wickremesinghe’s greatest achievement in the area of international trade and investment promotion during the Yahapalana period, Sri Lanka-Singapore Free Trade Agreement (SLSFTA).
It is appropriate and timely to do it now as Finance Minister Wickremesinghe has just presented to parliament a bill on the National Policy on Economic Transformation which includes the establishment of an Office for International Trade and the Sri Lanka Institute of Economics and International Trade.
Was SLSFTA a “Cleverly negotiated Free Trade Agreement” as stated by the (former) Minister of Development Strategies and International Trade Malik Samarawickrama during the Parliamentary Debate on the SLSFTA in July 2018, or a colossal blunder covered up with lies, false promises, and fairy tales? After SLSFTA was signed there were a number of fairy tales published on this agreement by the Ministry of Development Strategies and International, Institute of Policy Studies, and others.
However, for this article, I would like to limit my comments to the speech by Minister Samarawickrama during the Parliamentary Debate, and the two most important areas in the agreement which were covered up with lies, fairy tales, and false promises, namely: revenue loss for Sri Lanka and Investment from Singapore. On the other important area, “Waste products dumping” I do not want to comment here as I have written extensively on the issue.
1. The revenue loss
During the Parliamentary Debate in July 2018, Minister Samarawickrama stated “…. let me reiterate that this FTA with Singapore has been very cleverly negotiated by us…. The liberalisation programme under this FTA has been carefully designed to have the least impact on domestic industry and revenue collection. We have included all revenue sensitive items in the negative list of items which will not be subject to removal of tariff. Therefore, 97.8% revenue from Customs duty is protected. Our tariff liberalisation will take place over a period of 12-15 years! In fact, the revenue earned through tariffs on goods imported from Singapore last year was Rs. 35 billion.
The revenue loss for over the next 15 years due to the FTA is only Rs. 733 million– which when annualised, on average, is just Rs. 51 million. That is just 0.14% per year! So anyone who claims the Singapore FTA causes revenue loss to the Government cannot do basic arithmetic! Mr. Speaker, in conclusion, I call on my fellow members of this House – don’t mislead the public with baseless criticism that is not grounded in facts. Don’t look at petty politics and use these issues for your own political survival.”
I was surprised to read the minister’s speech because an article published in January 2018 in “The Straits Times“, based on information released by the Singaporean Negotiators stated, “…. With the FTA, tariff savings for Singapore exports are estimated to hit $10 million annually“.
As the annual tariff savings (that is the revenue loss for Sri Lanka) calculated by the Singaporean Negotiators, Singaporean $ 10 million (Sri Lankan rupees 1,200 million in 2018) was way above the rupees’ 733 million revenue loss for 15 years estimated by the Sri Lankan negotiators, it was clear to any observer that one of the parties to the agreement had not done the basic arithmetic!
Six years later, according to a report published by “The Morning” newspaper, speaking at the Committee on Public Finance (COPF) on 7th May 2024, Mr Samarawickrama’s chief trade negotiator K.J. Weerasinghehad had admitted “…. that forecasted revenue loss for the Government of Sri Lanka through the Singapore FTA is Rs. 450 million in 2023 and Rs. 1.3 billion in 2024.”
If these numbers are correct, as tariff liberalisation under the SLSFTA has just started, we will pass Rs 2 billion very soon. Then, the question is how Sri Lanka’s trade negotiators made such a colossal blunder. Didn’t they do their basic arithmetic? If they didn’t know how to do basic arithmetic they should have at least done their basic readings. For example, the headline of the article published in The Straits Times in January 2018 was “Singapore, Sri Lanka sign FTA, annual savings of $10m expected”.
Anyway, as Sri Lanka’s chief negotiator reiterated at the COPF meeting that “…. since 99% of the tariffs in Singapore have zero rates of duty, Sri Lanka has agreed on 80% tariff liberalisation over a period of 15 years while expecting Singapore investments to address the imbalance in trade,” let’s turn towards investment.
Investment from Singapore
In July 2018, speaking during the Parliamentary Debate on the FTA this is what Minister Malik Samarawickrama stated on investment from Singapore, “Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products. In addition, we have proposals for a steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million), sugar refinery ($ 200 million). This adds up to more than $ 16.05 billion in the pipeline on these projects alone.
And all of these projects will create thousands of more jobs for our people. In principle approval has already been granted by the BOI and the investors are awaiting the release of land the environmental approvals to commence the project.
I request the Opposition and those with vested interests to change their narrow-minded thinking and join us to develop our country. We must always look at what is best for the whole community, not just the few who may oppose. We owe it to our people to courageously take decisions that will change their lives for the better.”
According to the media report I quoted earlier, speaking at the Committee on Public Finance (COPF) Chief Negotiator Weerasinghe has admitted that Sri Lanka was not happy with overall Singapore investments that have come in the past few years in return for the trade liberalisation under the Singapore-Sri Lanka Free Trade Agreement. He has added that between 2021 and 2023 the total investment from Singapore had been around $162 million!
What happened to those projects worth $16 billion negotiated, thanks to the SLSFTA, in just the two-and-a-half months after the agreement came into effect and approved by the BOI? I do not know about the steel manufacturing plant for exports ($ 1 billion investment), flour milling plant ($ 50 million) and sugar refinery ($ 200 million).
However, story of the multibillion-dollar investment in the Petroleum Refinery unfolded in a manner that would qualify it as the best fairy tale with false promises presented by our politicians and the officials, prior to 2019 elections.
Though many Sri Lankans got to know, through the media which repeatedly highlighted a plethora of issues surrounding the project and the questionable credentials of the Singaporean investor, the construction work on the Mirrijiwela Oil Refinery along with the cement factory began on the24th of March 2019 with a bang and Minister Ranil Wickremesinghe and his ministers along with the foreign and local dignitaries laid the foundation stones.
That was few months before the 2019 Presidential elections. Inaugurating the construction work Prime Minister Ranil Wickremesinghe said the projects will create thousands of job opportunities in the area and surrounding districts.
The oil refinery, which was to be built over 200 acres of land, with the capacity to refine 200,000 barrels of crude oil per day, was to generate US$7 billion of exports and create 1,500 direct and 3,000 indirect jobs. The construction of the refinery was to be completed in 44 months. Four years later, in August 2023 the Cabinet of Ministers approved the proposal presented by President Ranil Wickremesinghe to cancel the agreement with the investors of the refinery as the project has not been implemented! Can they explain to the country how much money was wasted to produce that fairy tale?
It is obvious that the President, ministers, and officials had made huge blunders and had deliberately misled the public and the parliament on the revenue loss and potential investment from SLSFTA with fairy tales and false promises.
As the president himself said, a country cannot be developed by making false promises or with fairy tales and these false promises and fairy tales had bankrupted the country. “Unfortunately, many segments of the population have not come to realize this yet”.
(The writer, a specialist and an activist on trade and development issues . )
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