Focus/Spotlight

Northern renewable energy projects short-circuiting diplomatic ties?

Sri Lanka and India have long-enjoyed mutually beneficial economic and diplomatic ties, but the strategic bilateral partnership is under pressure at present as China is further expanding its footprint on the island nation by securing yet another lucrative energy deal in outlying islands off the Jaffna peninsula.

The energy deal won by the Chinese company to set up three hybrid renewable energy systems mixed with solar, wind, and other renewables in three islands in the Jaffna peninsula came to light amid creeping signs of deterioration in relations between India and Sri Lanka due to the cancelation of the long-awaited East Container Terminal (ECT) deal by the Sri Lankan Cabinet recently.

Furthermore, with growing tensions between India and China over their disputed border in the Himalayan region, security concerns have been raised by India over the country’s recent decision, as the islands concerned – Delft, Analativu, and Nainativu – are in close proximity to the Indian coast, separated by the Palk Strait. The Delft island is only 48 km away from the Indian coastal town of Rameshwaram.

Responding to diplomatic concerns raised, the Ceylon Electricity Board (CEB), the local partner of the Chinese renewable energy projects, claimed that the projects have been awarded to the Chinese company after following an internationally approved bidding process.

As learnt by The Sunday Morning, the Indian company that had submitted bids for the projects was not qualified, as it had not fulfilled the bidding conditions.

“This is not anybody’s money and we have not favoured a country when choosing the right bidder to award the project contracts,” CEB Chairman Eng. Vijitha Herath said.

He went on to say the projects have been approved by a Cabinet-Appointed Standing Committee on Procurement and therefore, the entire process was transparent.

Eng. Herath told The Sunday Morning that the decision to award such projects to develop a hybrid renewable energy system was taken considering the success of a pilot project conducted in Eluvaitivu, an island off the coast of Jaffna peninsula, located approximately 22 km west of the city of Jaffna.

Responding to the allegation that the project has been awarded to the Chinese contractor whose bid was around Rs. 1 billion higher than the lowest bidder, the CEB Chairman denied the allegation, claiming it was impossible to award a contract to a higher bidder overlooking a lower bidder and, in this case, such an incident never occurred.

“We have never awarded a bid to a higher bidder ignoring the lowest bidder. The sole purpose of the tendering process is to award the contract to the lowest eligible bidder,” he continued.

The $ 12 million project has been awarded to MS/Sinosar-Etechwin Joint Venture in China. Under the project, international competitive bids were called to install hybrid renewable energy systems in the three islands utilising the accessible energy resources to improve the efficiency of the prevailing energy network. The project is to be funded by the Asian Development Bank (ADB), it is learnt.

Meanwhile, it is reported that India has lodged a strong protest with Sri Lanka on awarding a tender to a Chinese company. Quoting diplomatic sources, a local newspaper last week reported that India’s protest was on the grounds that such a move would raise security concerns for it.

India’s opposition was confirmed to The Sunday Morning by a senior cabinet minister who stressed that the issue would be handled by diplomatic missions through the Foreign Ministry.

However, when contacted, Co-Cabinet Spokesman Minister Keheliya Rambukwella described the ongoing issue as a commercial diplomatic issue which would be handled by Foreign Minister Dinesh Gunawardena.

“This is not normal diplomacy. It is commercial diplomacy. This is happening all over the world with the new wave of economic development. International relations have now become commercial international relations,” he said, adding that being an island, everybody has concerns and that the country needs to manage the situation.

When asked whether any negative impact occurred due to the ongoing rift between Sri Lanka and India, Rambukwella said Sri Lanka is maintaining constant relations with its neighbours including India.

“We haven’t ignored any party. Being an island, a lot of commercial diplomacies are going around. Each one wants to have a piece of the cake. So, we need to manage it,” he said.

While maintaining the non-aligned foreign policy, Rambukwella said that Sri Lanka will manage the current situation.

China is dominating foreign direct investments (FDIs) in Sri Lanka; according to statistics of the External Resources Department (ERD) of the Ministry of Finance, by 30 September 2018, Sri Lanka had obtained a total of $ 1,968.8 million by way of loans from China. The next highest foreign loan provider is the ADB with a total of $ 1,696.8 million.

According to statistics, at present, around 28 government projects are funded predominantly by Chinese loans worth more than $ 7 billion. The existing projects are spread among the power and energy, roads and transportation, telecommunication, airport and aviation, port, and irrigation and water sectors. They do not include the Colombo Port City project which, in contrast, does not depend on borrowed funds, but is a Chinese investment.

Expanding its investments further in Sri Lanka, China took over operations of the Hambantota Port last year on a 99-year lease agreement, while the Export Import Bank of China (EXIM Bank) provided a concessional loan of $ 989 million, covering 85% of the contract price, for the first section of the Central Expressway Project – stretching from Kadawatha to Mirigama – a few months ago. The estimated cost of the project is $ 1,164 million. This loan is the largest loan approved by the EXIM Bank for Sri Lanka.

Since the implementation of the second section of the Central Expressway – stretching  from Mirigama to Kurunegala – commenced with financial assistance from local commercial banks, this loan facility from EXIM Bank of China will facilitate the speedy implementation of the Kadawatha-Mirigama section, ensuring the connectivity of the expressway network up to Kurunegala.

When analysing the projects mooted from China and India, as well as Sri Lanka’s response over those projects in the past, it is highlighted that when strong opposition came from the masses against Indian projects, such projects would end up being cancelled while the opposition for Chinese projects did not end up in the same manner.

Some examples are an extension to the Chinese Norochcholai Coal Power Plant against the Sampur Power Station, the Hambantota Port deal as against the Colombo Port’s ECT, and several others.

When it comes to the Sampur deal, the Indian Government spent around 10 years to get the project going. But the previous United National Front (UNP)-led Government cancelled the project, offering them a liquefied natural gas (LNG) project.

Nevertheless, the Government has not yet announced the final decision on handing over the LNG power project to India, which was proposed by the then Government when cancelling the plans for a 500 MW Indian-built coal-fired power plant at its strategic eastern port city of Trincomalee in 2016.

Responding to a query by The Sunday Morning, Minister of Power Dullus Alahapperuma said he has received a proposal from India to offer the amount of $ 12 million as a grant or as part of the credit line worth $ 100 million offered by India. He said the proposal would be submitted to the Cabinet soon.

“If we think of the side of our citizens, receiving a grant is an advantage and it will also ease the burden of the Treasury, because if we go ahead with the ADB funds, the Treasury will have to repay those in the future,” he told The Sunday Morning.

Also denying him being subjected to any diplomatic pressure due to the decision taken to award the contract to a Chinese company, Alahapperuma said: “I was not pressured by anybody. We awarded the tender according to the necessary procedures. There might be concerns from other countries which are not relevant to Sri Lanka. Though we have decided to award the tender to the Chinese company, we are yet to receive the Cabinet approval.”

He went on to say that the people who live in the three islands – Delft Island, Analativu, and Nainativu – should be benefitted and also receive uninterrupted power supply throughout the year.

“These islanders were supplied power through generators for a long time by the CEB, which is not a firm energy. If we can give firm energy and enhance their livelihood, we would continue the project by considering the side of the people,” the Minister further noted.

Speaking to The Sunday Morning on a previous occasion, Alahapperuma said the Indian proposal was included in a recent Cabinet proposal from the Ministry, together with other proposals from Japan and Korea.

“The 300 MW LNG power plant project is an agreement between the Governments of Sri Lanka and India in 2016. This is proposed instead of the Sampur Coal Power Project that

was cancelled at the last moment in 2015,” he told The Sunday Morning.

When asked whether the Government would be going ahead with the proposal, the Minister said no decision has been taken as yet.

“We have included this in a recent cabinet paper too as a proposal. There are several other proposals from Korea and Japan, and the Indian one is also mentioned as one such proposal received by the country,” he noted.

“But as a country, we have given a commitment to India, as by the time the Government decided to cancel the Sampur project, the power purchasing agreements (PPA) between the two countries had also been signed,” the Minister said, adding that therefore, there was a government pledge made for the 300 MW LNG power plant to India.

Meanwhile, a well-informed source attached to the Ministry of Power said that several rounds of discussions were held between the two parties under the previous Government, but the new administration is yet to give its consent to the agreements reached between the two parties.

“India was keen on funding an LNG power plant with a capacity of around 500 MW, but under the CEB’s Long-term Energy Generation (Expansion) Plan, the system could accommodate only another 300 MW and therefore, several rounds of discussions were held,” the source said, adding that at present, the negotiations were at a standstill as the CEB has decided to go for project tendering.