• Rs. 2.2 b loss linked to overuse of low-grade coal, failed oversight
• Audit finds safeguards dismantled with entry of unqualified suppliers 
• Unlicensed inspectors and ignored warnings weaken quality checks
• Lanka Coal Company accused of breaching procurement norms
• Cabinet-approved relaxations now under scrutiny amid audit findings

The substandard coal procurement for the Norochcholai Lakvijaya Power Plant (LVPP) has become a litmus test for the good governance credibility of the Government, with concerns being raised about it by the media, activists, and the Opposition for months, with the Government resisting calls for accountability thus far.

The coal power plant, itself the source of many previous controversies and multiple nationwide power outages, remains Sri Lanka’s backbone of firm power, with a 900 MW capacity providing the base load required to keep the nation’s grid running. However, beneath its massive cooling towers, a systemic rot has taken hold.

A Special Audit Report has exposed a procurement process in terminal decline, one where strategic oversight was traded for unacceptable compromises. It also reveals damning insights into how the tender for the said controversial coal supply contract was awarded with multiple irregularities and highly questionable practices during the purchasing cycle.

According to the report, the 2025/2026 procurement cycle was not merely a series of administrative errors. It was a comprehensive breakdown of national energy security. 

By relaxing registration criteria, the Lanka Coal Company (LCC) opened the gates to unqualified middlemen and suppliers with documented histories of delivering substandard fuel. From multi-billion-rupee contracts secured with $ 20 registration fees to the use of unlicensed international inspectors, the safeguards designed to protect the national grid were systematically dismantled.

The consequences are both staggering and physical. Financially, the crisis has bled the State of an estimated Rs. 2,237.7 million due to the overconsumption of low-quality coal that undermined the plant’s thermodynamic efficiency.

Operationally, the use of substandard fuel has triggered literal fires within the machinery, forcing emergency shutdowns and threatening the long-term structural integrity of Sri Lanka’s most vital power asset, according to the audit report.

The Special Audit Report was presented to Parliament this week by Speaker Jagath Wickramaratne.

Background of the special audit

The Lakvijaya coal-fired thermal power plant, situated in the Kalpitiya-Norochcholai area of the North Western Province, remains the single most critical asset in Sri Lanka’s energy portfolio. As the nation’s first and only coal-fired power station, it operates with a total installed capacity of 900 MW, distributed across three identical units of 300 MW each. 

The plant’s strategic significance is underscored by its massive contribution to the national grid, supplying between 30% and 40% of the total electricity requirement. Any operational tremor at Lakvijaya vibrates through the entire national economy, affecting industrial output and domestic stability.

The necessity for the 2025/2026 Special Audit Report was precipitated by a series of systemic procurement failures and the subsequent delivery of coal that fell dangerously short of established quality standards.

Following urgent requests from the Committee on Public Enterprises (COPE) and Parliament on 24 February, the National Audit Office launched an intensive investigation into the procurement processes overseen by the LCC. This audit was not merely a procedural review but a response to a looming energy crisis characterised by failing shipments and questionable supplier ethics.

The Lakvijaya plant functions as the ‘base load’ for the national electricity grid, a designation that requires it to operate continuously at high capacity to ensure grid stability. To maintain this output, the facility necessitates a consistent, high-volume supply of fuel, with an established annual coal requirement of approximately 2.25 million MT.

Flaws in supplier selection and registration

The investigation carried out by the Auditor General uncovered a systematic dismantling of procurement integrity. The audit reveals that the LCC established registration criteria that relaxed standards to an unacceptable level, effectively inviting unqualified middlemen and suppliers with a history of delivering subpar fuel into the heart of Sri Lanka’s energy supply chain. This relaxation allowed suppliers with experience in providing coal at or near rejected energy levels to participate in high-stakes bidding.

Procurement was handled through two primary channels: long-term tenders for seasonal base requirements and immediate spot procurements for urgent shortfalls. However, the audit report points to the LCC violating fundamental fairness protocols by sending bid invitations to suppliers who had not confirmed their registration by the official notice date. 

The most egregious example of procedural absurdity involved Trident Chemphar Ltd. Despite being selected for a long-term contract, the company had not completed its registration by the deadline, and its eventual balance payment for the registration fee was a mere $ 20, a sign of the chaotic and loosely managed oversight surrounding the selection of a multi-billion-rupee supplier.

The selection process was governed by two primary bodies: the Bid Evaluation Committee (BEC) and the Standing High Level Procurement Committee (SHLPC). The BEC, chaired by Ceylon Electricity Board (CEB) Additional General Manager D.M.R.K.B. Gunaratne and including members like Department of External Resources Director Himali Bogodagedara, was responsible for the technical vetting of bidders.

The SHLPC, chaired by Ministry of Environment Secretary K.R. Uduwawala included high-ranking officials such as Central Bank of Sri Lanka (CBSL) Assistant Governor W.A. Dilrukshini. Despite the professional designations of these members, the audit finds that the committees allowed significant discrepancies in registration timelines and supplier history.

Supplier eligibility and registration discrepancies

Furthermore, according to the report, the selection of Taranjot Resources Ltd. for an immediate procurement of 300,000 MT points to a failure in due diligence. 

Audit records show that in the 36 months preceding its registration, Taranjot had a documented history of failing to meet energy standards. Of the 1,115,900 MT it supplied during that period, more than 880,000 MT fell below the Gross Calorific Value (GCV) mark of 5,000, with significant portions as low as 3,000 GCV. Despite this evidence of persistent subpar performance, the company was awarded a critical contract for the 2025/2026 season.

Unreliable inspectors and failed oversight

The defence against substandard fuel, rigorous quality control, was also compromised, the investigations reveal. The LCC allowed the appointment of independent inspectors who lacked necessary accreditation or were operating under cancelled licences. Mitra SK South Africa Ltd., appointed by the seller at the loading port, was found to lack accreditation for testing vital parameters such as ash content and volatile matter.

The governance breakdown deepened with the involvement of PT Mitra SK Analisa Testama Samarinda, an Indonesian institution. The audit revealed that this entity’s licence had been cancelled as of 29 December 2025. This was not an overlooked clerical error; the General Manager of the LCC explicitly identified this as a material non-compliance in a letter dated 23 December 2025. Despite this red flag, the company management and plant officials reached a conditional decision to proceed, accepting loading port reports that were effectively unreliable for 12 shipments.

The plant’s stability relies on coal meeting strict basis specifications. When coal falls to the rejected level, the LCC maintains a contractual right to refuse the consignment.

Quality parameters subject to rejection as per audit report:

• GCV: 6,150 kcal/kg (base) – Rejection if <5,900 kcal/kg
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• Total moisture: 12% or less (base) – Rejection if >16% by weight
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• Sulphur content: 0.5% or less (base) – Rejection if >1% by weight
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• Ash content: 11% or less (base) – Rejection if >16% by weight
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• Volatile matter: 31% (base) – Rejection if <22% or >39.9%

Analysing the loss of Rs. 2,237.7 m 

The financial impact of these procurement failures is staggering, with a total estimated loss of Rs. 2,237.7 million attributed to the overconsumption of low-quality coal from nine ships supplied by Trident Chemphar. 

This loss is rooted in the thermodynamics of power generation. The LVPP operates on the Rankine cycle, where the GCV represents the chemical energy available for conversion into thermal energy. When the GCV drops, the plant’s thermodynamic efficiency is undermined.

To maintain the required electrical output, the plant must increase its ‘specific coal consumption,’ the grammes of coal required to generate one kilowatt-hour (kWh) of electricity. While the plant’s historical average is 375 g/kWh, the use of substandard coal forces this rate significantly higher, leading to the rapid depletion of coal stocks and increased auxiliary power consumption by the mills.

The audit identifies two critical scenarios for calculating losses when the plant cannot achieve its full 300 MW capacity per unit due to poor fuel:

• Option 1: Assumes the national grid requires full capacity 24 hours a day. Under this scenario, the energy deficit that must be sourced from alternative, expensive fuel oil or diesel plants is 114,531,131 kWh.
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• Option 2: Accounts for the availability of solar power during daylight hours (specifically from 8 a.m. to 2 p.m.). Under this scenario, full coal capacity is only required for 16 hours a day, resulting in a deficit of 76,354,087 kWh to be met by other sources.

The financial penalties for individual shipments further illustrate the haemorrhage. For Ship No. 456 (Ceylon Breeze), the audit calculated a total penalty of $ 2,079,633 (approximately Rs. 644.7 million) based on deviations in GCV, volatile matter, sulphur, ash, and grain size.

Technical impacts on plant machinery

Beyond the balance sheet, the use of substandard coal has caused severe operational degradation. The plant’s control unit reported a spike in the ‘heat ratio’ – a technical measure of the efficiency of the boiler-turbine cycle, resulting in reduced overall plant efficiency.

Several technical factors contributed to this increase in specific coal consumption:

• High pyrite content: Pyrites are hard mineral impurities that the coal mills cannot grind. High concentrations lead to accumulation in the mills, creating overheating and fire hazards in the reject system.
• 
  
• Wet coal conditions: Increased moisture content causes coal to stick to internal mill surfaces, causing choking and reducing grinding efficiency. This forces the use of higher primary air temperatures, which can be difficult to maintain.
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• Air Preheater (APH) leaks: High ash content in substandard coal leads to blockages in the APH, increasing flue gas temperatures and reducing air flow. This prevents the mills from operating at their design capacity.

A harrowing operational event occurred on 5 March involving Unit 3. Due to excessive pyrite discharge from low-quality coal, a fire erupted in the pyrite hopper of Mill E. This forced a reduction in the coal feed rate and required the temporary use of expensive oil burners to stabilise combustion until the affected mills could be cleaned. 

Such events demonstrate that substandard coal is not just a financial liability, but a physical threat to the power plant’s machinery.

Missed windows and contractual failures

The LCC failed to exploit the optimal window, the period between October and March when the sea is calm enough to land coal at the Puttalam anchorage. The audit notes a critical 40-day failure from 13 November to 30 December 2025, where no coal shipments were procured despite ideal landing conditions. This failure forced the company into emergency, high-cost spot procurements during adverse weather.

Legal oversight was equally deficient, the report indicates. While the procurement process was well underway, the draft coal agreement for the 2025/2026 season was only sent to the Attorney General for legal review on 13 November 2025. Formal clearance was not received until 20 November 2025, by which time contracts had already been progressed without final legal sanction. Furthermore, actual arrival dates – laycans – consistently lagged behind schedules, causing logistical bottlenecks and risking stock-outs.

Responsibility of the Cabinet

The Cabinet of Ministers holds the ultimate authority and oversight responsibility within the coal procurement framework, serving as the primary body for policy direction and high-level approvals. 

On 21 July 2025, the Cabinet reviewed a pivotal memorandum that established the strategy for the 2025/2026 season, which included a decision to invite bids for 2.320 million MT of coal to ensure competitive pricing and long-term energy security. To encourage broader participation from international suppliers during a period of economic sensitivity, there had been a relaxation of standard procurement requirements, such as those related to bid bonds and specific qualification criteria.

Beyond mere approval, the Cabinet functioned as a critical monitoring body that identified significant deviations from the original mandates. During a high-level meeting on 13 October 2025, ministers observed that the LCC had unilaterally reduced the bidding quantity to 1.5 million MT without providing a formal explanation or seeking prior consent. This discovery prompted the Cabinet to raise urgent questions regarding the risk of operational disruptions at the Lakvijaya Power Plant and the potential for a future reliance on expensive emergency procurement methods, according to the report.

In an effort to mitigate these risks and verify the integrity of the selection process, the Cabinet exercised its power to appoint specialised sub-committees to scrutinise recommendations and evaluate the financial implications of the proposed contracts. Despite these internal oversight efforts, the Cabinet eventually granted the final authorisation on 27 October 2025 to award the long-term supply contract to Trident Chemphar.

Furthermore, when the regular procurement mechanism failed to meet the plant’s immediate needs, the Cabinet was forced to intervene again in January this year to approve emergency shipments, illustrating a complex cycle of administrative approval followed by reactive crisis management.

This layered involvement highlights that while the Cabinet provides the necessary legal and policy architecture for procurement, it also serves as the final line of defence when procedural irregularities are detected within the State’s energy supply chain.

Auditor General’s mandate for reform

The findings of the Auditor General reveal a procurement system failure, where short-term convenience and relaxed standards have superseded national energy security objectives. The strategic failures of the 2025/2026 season have not only cost the taxpayer billions in overconsumption losses and penalties but have also placed the long-term health of the Lakvijaya plant at risk.

The Auditor General mandates the following reforms to secure the grid:

• Stricter internal controls: The LCC must enforce rigid supplier evaluation protocols. No bidder should be invited to participate if their registration and full fee payment are not confirmed by the published notice date.
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• Mandatory inspector accreditation: The practice of using unaccredited or unlicensed inspectors is a gross violation of quality assurance. The LCC must verify the standing of all loading port inspectors with relevant international bodies before shipments commence.
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• Strategic alignment: Procurement and arrival schedules must be strictly aligned with the pre-monsoon weather window to avoid the necessity of emergency spot tenders that invite predatory pricing and low-quality fuel.

If these systemic irregularities are not corrected through immediate legislative and administrative intervention, the Lakvijaya plant will continue to suffer from operational degradation, leading to an inevitable, and perhaps irreversible, failure of one of Sri Lanka’s most vital energy assets in a period where the nation has failed thus far to diversify its energy generation ecosystem adequately to have a functional alternative. 

The slow progress of energy policymaking and implementation, and the failure to pursue strategic alternatives, have placed Sri Lanka’s energy security in a vulnerable position, especially as global conflicts and disruptions to energy supply lines persist while the country’s economic standing to weather them remains subpar.

COPE inquiry into LCC

A Committee on Public Enterprises (COPE) inquiry held last week into the Lanka Coal company (LCC) exposed a series of structural, technical, and financial failures in Sri Lanka’s coal procurement process for the Lakvijaya Power Plant. Detailed data revealed the scale of inefficiencies and their direct cost to the public.

The investigation, which examined the operations of the LCC, found that governance lapses were compounded by operational weaknesses. The LCC is currently functioning with only 22 staff members against an approved cadre of 38, leaving 16 vacancies, including critical roles such as legal officer and procurement officer. Notably, the accountant position has been held in an acting capacity for two years. These shortages have raised concerns about the company’s ability to manage multi-billion-rupee procurement processes effectively.

Administrative delays were also flagged, with the LCC’s 2023 annual report submitted nearly two years late and the 2024 report only reaching the Cabinet in February this year. COPE warned that such delays rendered oversight mechanisms ineffective and directed that the 2025 report be completed by May this year.

At the core of the issue is the quality of coal being procured. The Lakvijaya plant was designed to operate optimally with coal of a Gross Calorific Value (GCV) of 6,310. However, the LCC has been procuring coal within a lower range of 5,900–6,150 GCV. When coal quality drops below 5,900 GCV, plant engineers report that it leads to choking in pulverisers, restricting coal flow and forcing a reduction in generation capacity.

Data presented to the committee showed that each unit of the plant, designed to generate 300 MW, has at times been forced to operate at between 150 MW and 170 MW due to these limitations. This represents a generation shortfall of up to 130–150 MW per unit, significantly affecting the plant’s contribution to the national grid.

The financial implications of this are substantial. The Auditor General calculated a loss of Rs. 2,237 million (approximately Rs. 2.23 billion) arising from the overconsumption of low-quality coal. This figure is derived from the plant’s benchmark consumption rate of 375 grammes of coal per kilowatt-hour (kWh), which is based on coal within the acceptable GCV range of 5,900–6,150.

When lower-quality coal is used, more than 375 grammes is required to generate the same 1 kWh of electricity, resulting in excess coal consumption. The additional tonnage required to compensate for the lower energy content directly translates into increased costs.

A second layer of financial loss arises from the need to substitute lost generation capacity with more expensive fuel sources. When output drops below the expected 300 MW per unit, the Ceylon Electricity Board (or its successor) must rely on diesel-powered generation to bridge the gap. Given that diesel is significantly more expensive than coal, the cost differential further escalates the overall financial burden.

The broader economic impact was underscored during the inquiry, with officials noting that a Rs. 10 billion gap in the power sector could translate to approximately a 10% increase or decrease in electricity tariffs. In that context, the Rs. 2.23 billion loss represents a tariff impact of around 2.2%, directly affecting consumers.

The committee also highlighted serious irregularities in quality assurance processes. The LCC was found to have accepted laboratory reports from foreign testing facilities despite their accreditation being either expired or insufficient. In one instance, an Indonesian laboratory’s accreditation had expired on 31 December 2025, yet its reports were still used in procurement decisions.

Officials admitted that they were aware of the lapse as early as 23 December 2025 but continued with the process, relying instead on a ‘full responsibility’ letter issued by a primary South African laboratory. This raised concerns about the reliability of quality verification, particularly as real-time plant data frequently showed performance failures despite laboratory certification indicating compliance.

Historical data further reinforced these concerns. In 2014, four out of nine coal shipments were rejected due to substandard quality but were still used because the plant lacked the infrastructure to reload and return coal once unloaded. This structural limitation continues to expose the system to risks associated with poor-quality imports.

Procurement decisions also came under scrutiny. COPE questioned the awarding of contracts to suppliers who were not registered at the time of tender issuance, as well as a Cabinet decision to cancel a tender previously awarded to a globally recognised company and instead grant a 2.25 million MT contract to another supplier not recommended by the procurement committee.

To improve accountability, the committee stressed the need to rely on verifiable datasets, including real-time plant data, system control centre reports detailing daily generation deficits, and cross-checking laboratory results against actual performance metrics.

COPE pointed out that a ‘grey area’ existed in the sampling and verification process between the plant and external laboratories, creating potential space for discrepancies or manipulation. It recommended urgent corrective measures, including filling critical staff vacancies, ensuring all testing is conducted through fully accredited laboratories, and enforcing penalties on suppliers who fail to meet quality and delivery standards.

1

Supplier eligibility  

Supplier

Date of payment

Amount paid (USD)

Date registration completed

Potencia LLC-FZ

18 Aug. 2025

5,000

18 Aug. 2025

A2A Trading FZE

15 Aug. 2025

5,000

15 Aug. 2025

Panacape Trading DMCC

19 Aug. 2025

5,000

19 Aug. 2025

Trident Chemphar Ltd.

19 Aug. 2025

4,980

22 Aug. 2025

Trident Chemphar (Balance)

22 Aug. 2025

20

22 Aug. 2025

Spiriko Ltd.

No payment

–

Not completed

Perseverance DMCC

15 Aug. 2025

5,000

15 Aug. 2025

(Source: Special Audit Report)

2

Calculated losses in imported coal stock 

(Representative ship – No. 456)

Parameter

Value

Coal burned per hour at 287 MW capacity (standard average – MT)

107.61

Coal burned per hour at 287 MW capacity (actual average – MT)

115.86

Additional coal burned per hour (MT)

8.25

Number of days total coal stock can be used at 287 MW capacity

21.5

Total additional coal burned for the stock (MT)

4,259.34

Cost of one metric tonne of coal (rupees)

38,385

Estimated loss due to overconsumption (Rs. million)

163.5

(Source: Special Audit Report)

3

Laycan discrepancies 

(Arrival at Puttalam anchorage)

Ship No.

Ship name

Expected arrival

Actual arrival

Delay (days)

445

Porto Fiscardo

15 Sept. 2025 

21 Sept. 2025 

6

447

Ivy Gold

26 Sept. 2025 

8 Oct. 2025 

12

449

Hua Rong 26

8 Oct. 2025 

25 Oct. 2025 

17

460

Unicorn

12 Jan. 2026 

30 Jan. 2026 

18

466

Yasa Mars

11 Feb. 2026 

3 March 2026 

20

467

Ultra Confidence

16 Feb. 2026 

11 March 2026 

23

(Source: Special Audit Report)