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Power plant: Ministry ignores AG’s advice, seeks go ahead from Cabinet
View(s):Disregarding the Attorney General’s (AG) advice, a Cabinet paper will be submitted this week seeking to authorise the Ceylon Electricity Board (CEB) to issue a letter of intent to Lakdhanavi Ltd to build a 300mw combined cycle dual fuel natural gas power plant at Kerawalapitiya.
The paper from Power and Energy Minister Dulles Alahapperuma will also solicit Cabinet intervention to obtain “relevant regulatory and legal clearances to ensure expeditious implementation” of the build-own-operate-and transfer (BOOT) project.
Earlier this year, Cabinet granted approval to rescind the Yahapalana Government’s decision to award the LNG plant to a consortium of the Chinese independent power producer GCL, Sri Lanka’s WindForce (Pvt) Ltd and RENEWGEN (Pvt) Ltd.
An expert committee was then appointed to determine the most appropriate terms and conditions for a power purchase agreement (PPA) with Lakdhanavi. The AG nominated officers to the team to provide legal advice.
In the meantime, the CEB negotiated the project documents–implementation agreement, PPA, fuel supply agreement and land lease agreement–with Lakdhanavi Ltd. However, at these negotiations, certain changes were introduced by Lakdhanavi based on the concern of its lenders.
The AG’s Department held that the request for proposals (RFP) for this tender did not provide for amendments to be proposed and made to project agreements after bids were closed.
“In the circumstances, the applicable legal principles do not permit amendments to be made subsequent to the draft agreements based on which the bidders were evaluated and selected,” they said. “Upon careful scrutiny of the amendments proposed, it is noted that almost all the amendments have significant cost implications and provide for the imposition of additional liability and risks on the GOSL (Government of Sri Lanka) and the CEB, which amount to material deviation from the bid submitted.”
Lakdhanavi’s price proposal was a levelised tariff of Rs 14.9 per kilowatt hour (kWh). It also agreed to the unconditional withdrawal of all pending court cases on this matter.
But the CEB wrote to the Power and Energy Ministry last month stating that it agrees with the changes proposed by Lakdhanavi, that they were warranted and “will not alter the materiality of the clauses in respective original draft agreements substantially”.
The utility said it was “imperative” to issue a letter of intent to Lakdhanavi and to enter into a PPA after obtaining the approval of the Public Utilities Commission of Sri Lanka (PUCSL) for the agreement.
In the draft Cabinet paper to be submitted this week, Minister Alahapperuma upholds the CEB’s position. He says Lakdhanavi had informed the Government in August this year that lender conditions had changed since the bid submission in 2017. In particular, the export credit-backed facility expected from the financer is now revised.
Therefore, Lakdhanavi had proposed changes to the original project agreements provided with the RFP while claiming that such changes would not affect the tariff approved for this project or the cost of power to be bought from the plant.
The Minister says he understands Lakdhanavi’s concerns (arising from a delay in awarding the contract) but that certain concerns it expressed “could lead to material changes to the PPA and other Agreements”.
“There is no provision in the already issued tender documents to accommodate any material change after closing of bids and neither the Project Committee nor the Cabinet Appointed Negotiating Committee has mandate to evaluate such proposal,” he says, in the draft Cabinet paper.
Mr Alahapperuma says the CEB agrees with the changes proposed to the agreements, believes they are warranted and will not alter the materiality of the clauses. The utility has pushed for the letter of intent and PPA to be signed, offering various other justifications.
Consequently, the Minister has called for Cabinet endorsement, saying “urgent measures need to be maintained to avert a possible power crisis in the future”. “Also, the necessity of procuring low cost electricity at the earliest is vital to ensure lowering the electricity cost and avoid high cost energy purchases under short-term contracts,” he maintains.
The Minister wants the Cabinet to authorise the CEB to sign the PPA with Lakdhanavi at the agreed levelised tariff and to accommodate changes in future RFP documents.