Sri Lanka currently possesses nearly 680 MW of operational power generation capacity designed to run on Liquefied Natural Gas (LNG) – a cleaner, more efficient, and cost-effective alternative to traditional fossil fuels.
However, due to prolonged delays in developing the required LNG infrastructure, including import terminals and regasification facilities, these modern plants continue to operate on costly interim fuels such as diesel and naphtha.
According to officials within the power sector, this situation has not only undermined the nation’s energy security but also burdened the economy with avoidable financial and environmental costs.
According to data provided by the Ceylon Electricity Board (CEB), Sri Lanka currently holds approximately 680 MW of LNG-capable generation capacity. This includes the Sobadhanavi Combined Cycle Power Plant in Kerawalapitiya with a capacity of 350 MW, the Kelanitissa Combined Cycle Power Plant with a capacity of 165 MW, and the Sojitz Kelanitissa Power Plant with a capacity of 163 MW, the latter of which was acquired by the CEB in 2023.
Despite these facilities being constructed or upgraded with LNG compatibility, none of them are currently operating on LNG due to the absence of the requisite terminal and regasification infrastructure. As a result, the country is compelled to run these facilities on diesel and naphtha – significantly more expensive fuels in both financial and environmental terms.
A senior engineer attached to the CEB, speaking on condition of anonymity, described the situation as a “costly paradox” where “plants designed for clean, affordable energy are running on fuels that cost the country far more than necessary, both economically and environmentally”.
Generation statistics
According to the CEB’s daily generation report for Thursday (24), the country’s total net electricity generation stood at 51.65 gigawatt hours (GWh). Of this, 27.58 GWh, or 53.4%, was generated from renewable sources, while 24.07 GWh or 46.6% was supplied through fossil fuel-based plants.
In terms of meeting the day’s peak electricity demand of 2,694.4 MW, renewable sources contributed 1,297.6 MW (48.2%), while fossil fuels provided 1,396.8 MW (51.8%). Within the fossil fuel category, coal-fired plants were the single largest contributor, supplying 19.43 GWh for the day, followed by Independent Power Producer (IPP) thermal oil plants at 2.42 GWh and CEB-owned thermal oil plants at 2.22 GWh.
The total gross electricity generated for the day amounted to 53.76 GWh, of which 2.11 GWh was consumed internally for plant operations (auxiliary consumption), as per the CEB’s system control records.
Stalled projects
Plans for the development of a dedicated LNG import and regasification terminal in Kerawalapitiya have been in discussion since 2018 but have faced continuous setbacks.
According to CEB sources, the most significant recent development is the proposed second 300 MW LNG power plant in Kerawalapitiya, awarded to Lakdhanavi Ltd. through an international competitive bidding process in April 2022.
However, three years on, the project remains stalled.
Delays have largely stemmed from the prolonged finalisation of the Power Purchase Agreement (PPA), which has been subject to renegotiation due to policy changes, the removal of Value-Added Tax (VAT) exemptions on imported machinery, and the introduction of the Social Security Contribution Levy (SSCL). These adjustments, according to CEB officials, have raised project costs, leading to a revision in the proposed levelised tariff from Rs. 19.73/kWh to Rs. 20.15/kWh.
The revised draft PPA, though endorsed by the Standing Cabinet-Appointed Procurement Committee (SCAPC) and Public Utilities Commission of Sri Lanka (PUCSL), remains pending approval from the Attorney General’s Department as of April.
A senior official attached to the CEB, speaking off the record, attributed the holdup to a “fragmented institutional approach” and noted: “We have several authorities – the CEB, PUCSL, Energy Ministry, Ceylon Petroleum Corporation (CPC), and Board of Investment (BOI) – all involved in parallel without a single coordinated management framework. Until that changes, LNG infrastructure will remain a concept on paper.”
An unaffordable delay
According to estimates provided by CEB engineers, running Sobadhanavi and other LNG-ready plants on diesel is 30-50% more expensive per unit of electricity generated than if LNG were available. These operational inefficiencies translate into hundreds of millions of dollars in additional costs annually for fuel imports, exacerbating Sri Lanka’s foreign currency challenges.
A senior CEB engineer also noted that if the infrastructure had been completed as initially scheduled between 2022 and 2024, the country could have reduced its annual fossil fuel import bill by over $ 350 million while achieving a 25-30% reduction in emissions from the power sector.
“We cannot afford to delay any longer. Every additional day we burn diesel in a plant built for LNG is a financial and operational liability that this country does not have the luxury to bear.”
The environmental toll is equally significant. With coal and diesel continuing to dominate thermal generation, Sri Lanka risks missing its international commitments under the Paris Agreement and falling behind on domestic renewable energy targets.
Negotiations ongoing
Meanwhile, the CPC has been tasked with negotiating a Liquid Fuel Supply Agreement (LFSA).
However, according to the CEB’s internal assessments, LNG procurement itself is likely to take at least 18-24 months following the commissioning of the import terminal – a milestone that remains unscheduled.
Experts within the CEB and Energy Ministry agree that unless decisive action is taken to fast-track the LNG terminal and finalise pending agreements, the country risks being locked into high-cost, high-emission power generation for the foreseeable future.
A senior Energy Ministry official, when contacted, confirmed that there was no finalised decision on the unit cost for the second LNG plant as negotiations were ongoing: “The Cabinet authorised negotiations to proceed because re-tendering would cause further delays. There have been unavoidable adjustments in financial parameters, so we advised the CEB to negotiate with the bidder. However, no final unit cost has been determined yet.”
The official further clarified that while discussions with foreign parties, including India, had taken place under the previous Government, the current administration chose to resume the existing tender process rather than invite new unsolicited proposals.