- PUCSL reveals Rs. 52/unit cost gap
- Ministry urged to correct Cabinet brief
- Old estimate: Rs. 20.15/unit; projected cost: Rs. 35.81-72.11/unit
- Costs may rise if plant underperforms
The Public Utilities Commission of Sri Lanka (PUCSL) has raised the alarm over a staggering Rs. 52 per unit discrepancy in the projected cost of electricity generation from the second 300 MW Liquefied Natural Gas (LNG) Combined Cycle Power Plant in Kerawalapitiya.
In a letter addressed to the Secretary of the Ministry of Energy on 3 April, the commission has accused the ministry of presenting misleading figures to the Cabinet, calling for immediate clarification and transparency in the interest of public accountability.
According to the PUCSL, the Ministry of Energy, in Cabinet Memorandum No.11/2025/P dated 31 January, has stated that the levelised cost of electricity from the Sahasdhanavi Ltd. project will be Rs. 20.15 per kilowatt-hour (kWh).
However, the commission has pointed out that this figure is based on outdated assumptions from the 2021 bid submission, including a Natural Gas (NG) price of $ 10 per Metric Million British Thermal Unit (MMBtu), diesel at Rs. 110 per litre, and an exchange rate of Rs. 195 per US Dollar.
The PUCSL has stressed that these inputs no longer reflect current economic conditions and energy market realities.
Using the financial model submitted by the Ceylon Electricity Board (CEB), the commission has recalculated the levelised cost of electricity, updating it with current market prices and an exchange rate of Rs. 300.75 per US Dollar. Assuming a plant factor of 46%, the PUCSL has evaluated three scenarios.
In Scenario 1, with NG priced at $ 11.2 per MMBtu and diesel at Rs. 286 per litre, the levelised cost is Rs. 35.81/kWh.
Scenario 2, which includes the terminal costs for LNG at $ 15.5 per MMBtu, brings the cost to Rs. 43.25/kWh.
Scenario 3, where diesel is used exclusively throughout the project’s operational life, shows the cost surging to Rs. 72.11/kWh, as stated in the letter.
The PUCSL has warned that these figures may rise further if the plant operates below the assumed 46% plant factor, stressing that the Cabinet must be made aware of the true financial burden of the project.
Although the PUCSL has approved the draft Power Purchase Agreement (PPA) between the CEB and Sahasdhanavi on 15 April, it has now called upon the ministry to rectify the record and prevent what it describes as a serious misrepresentation of national energy costs.
The Cabinet of Ministers has granted approval for the establishment of a second 300 MW LNG-based power plant in Kerawalapitiya, as part of Sri Lanka’s Least Cost Long-Term Generation Expansion Plan for the 2018-’37 period.
The approval process began in September 2020, when the then Cabinet had authorised the CEB to develop the proposed power plant, as per the Cabinet memorandum dated 25 August 2020. Following this, an international competitive bidding process was initiated on 21 June 2021, with proposals being submitted by 15 December 2021.
After evaluating the bids, the Cabinet-Appointed Negotiating Committee (CANC) had recommended the award of the contract to Lakdhanavi Ltd., the lowest evaluated bidder, in April 2022. In the same month, the PUCSL had approved the draft project agreements, as required under Clause 43 of the Sri Lanka Electricity Act No.20 of 2009.
In October 2023, the Cabinet had authorised the CEB to issue a Letter of Intent (LOI) to Lakdhanavi, approving the construction of a 300 MW combined cycle dual-fuel gas power plant in Kerawalapitiya on a Build-Own-Operate-Transfer (BOOT) basis.
The Cabinet had further authorised the exploration of cost-saving methods, including sharing infrastructure between the two LNG power plants at the site, to reduce capital costs and lower the levelised tariff. This approval was based on the Cabinet memorandum dated 10 October 2023.
However, the project faced several challenges, including changes in tax policies, such as the removal of Value-Added Tax (VAT) exemptions and an increase in VAT rates, which significantly impacted construction costs.
Additionally, fluctuations in diesel prices, the devaluation of the Sri Lankan Rupee, and difficulties in securing foreign financing due to the country’s economic conditions led to adjustments in the project agreements.
As a result, the levelised tariff was revised from Rs. 19.7302 per kWh to Rs. 20.1545 per kWh.
In response to these issues, amendments to the draft PPA have been made, including the introduction of provisions to address diesel price fluctuations and the inclusion of bridging finance as a requirement for achieving financial closure.
The current Cabinet has approved the updated PPA in January this year, ensuring the successful implementation of the project.
Additionally, the Cabinet has authorised the finalisation of other agreements, including the Liquid Fuel Supply Agreement (LFSA) with the Ceylon Petroleum Corporation (CPC) and the Implementation Agreement (IA) with the Secretary to the Treasury.
Furthermore, the Cabinet directed the Controller General of Imports and Exports to grant approval for the necessary advance payments required for importing equipment, machinery, and spare parts for the construction and operation of the power plant.
When asked whether the Energy Ministry would submit the PUCSL’s clarified tariff to the Cabinet, Ministry Secretary Prof. Udayanga Hemapala said he did not have that information yet as he was in Bhutan on work.
This issue was also raised in Parliament on Thursday (8) by Opposition MP Dr. Harsha de Silva.