Sri Lanka’s state-run utilities to undergo peoplisation 

http://www.asiantribune.com/news/2010/10/10/sri-lanka%E2%80%99s-state-run-utilities-undergo-peoplisation

By Santhush Fernando in Colombo 

Sri Lankan government is considering Peoplisation- issuing stakes of public utilities- Ceylon Petroleum Corporation (CPC) and Ceylon Electricity Board (CEB), following the probable listing of Shell Gas Lanka on the Colombo Stock Exchange (CSE).

The government, in a bid to transform public utilities, which are a great burden to the Treasury and the public at large, into viable and productive ventures, is considering the possibilities of listing the CEB and CPC on the share market, which had been advocated for a long time. 

This week, Minister Keheliya Rambukwella said that the 51 percent stake of Shell Gas Lanka (Pvt) Ltd., the local Liquid Petroleum Gas (LPG) retail unit, and the 100 percent stake of its subsidiary -Shell Lanka Terminal Ltd., held by Royal Dutch Shell (RDS) of Netherlands, would be bought by the government at cost of US $ 63 million (nearly Rs. 6,993 million). 

Minister Rambukwella added that once government has the majority stake it will infuse private sector participation by selling a 49 percent stake to the public at an Initial Public Offering. 

Peoplisation

It is much commendable that the government had decided to broad-base the ownership of public ventures through listing a process that had been earlier referred to as ‘peoplisation’, which is of much benefit to the public, in comparison to nationalisation of the 1950s and 1960s and to privatisation of the 1980s and 1990s.

In its Annual Report for 2009, Central Bank of Sri Lanka (CBSL) advocated move of quoting minority stakes of CEB and CPC to public and pointed out many arguments for doing so. 

CEB and CPC crowding out private sector

“Continuing weak financial position of the CEB exerts pressure on macroeconomic management of the country. The persistently high outstanding liability of the CEB to the CPC has made the CPC to borrow substantially from the banking system thereby crowding out lending to the private sector while impacting on market interest rates. This situation highlights the importance of addressing financial issues of the CEB urgently,” said the Annual Report. 

“It is vital that the power sector is transformed into a sound and a financially viable sector in the economy. To improve the balance sheet, the CEB can introduce distinctive profit centers for key areas of operations such as hydropower, thermal power, transmission, distribution etc. as already have been identified. The profit centre concept will help to improve productivity and achieve maximum efficiency, cost saving and thereby improve the profitability of the CEB. With the improvement of the balance sheet of the CEB and to enhance the accountability and transparency of its operations the authorities may consider listing the CEB in the Colombo Stock Exchange to broad base its ownership and provide the general public the opportunity to hold a minority stake of its share capital,” 

“At the same time, CEB’s financial management system needs to be strengthened with an improved financial management system”

Broad-basing ownership of public enterprises

“The financial position of the CPC registered a marginal improvement in 2009. The CPC reported an operational loss of Rs. 12.3 billion in 2009 compared to that of Rs. 14.7 billion in 2008. The provision of furnace oil at a highly subsidized rate to the CEB and non-revision of retail prices to reflect the cost when prices were rising in the international market during the second half of the year were the main reasons for operational losses of the CPC in 2009. The outstanding bills receivables amounting to Rs. 64 billion by several institutions, particularly a sum of Rs. 52 billion from the CEB, placed a heavy burden on the CPC’s financial situation.”

“Several innovative strategies would need to be implemented to make the petroleum sector a dynamic and viable sector in the economy. A realistic pricing formula needs to be developed to price petroleum products in the local market and the prices should be adjusted at reasonable intervals based on movements in the international oil prices. Profit centre concept covering various key activities of the CPC, such as refinery, agro chemicals, aviation fuel supply may be implemented to improve the financial viability of the CPC. With a view to improving the accountability and transparency of operations, these business units could be diversified, through a possible offering of certain minority stakes of shares to the general public, in order to broad base the ownership through a listing in the Colombo Stock Exchange.”

Shell Gas Lanka is engaged in importing, storing, filling, marketing and selling LPG in Sri Lanka, since 1995, when the then Chandrika Bandaranaike Kumaratunga administration, sold 51 percent of the then Colombo Gas Company to Shell for US $ 37 million.

Privatisation Vs. Peoplisation

The Shell Gas Lanka privatization agreement is a clear case where privatization had not served the interests of the country and its public. It was criticized as Shell was offered exclusive rights for a limited period of five years from 1995 to 2000. However SGLL says that this monopoly enabled it "to develop the LPG market in Sri Lanka whilst requiring Shell to make further capital investments in order to build an LPG import and storage terminal".

It is speculated that minority stake listing of more loss making state entities like SriLankan Airlines and even highly profitable National Savings Bank, Peoples Bank is on the cards.

Nationalisations and acquisitions in Sri Lanka

• 1956- Trincomalee harbour, which was formally a British Naval Base, was taken over by the Sri Lanka Freedom Party Government led by Prime Minister S W R D Bandaranaike, to be developed as a Commercial Port.

• 1957, Bandaranaike removed all the British Military airfields from Ceylon (Sri Lanka), the Katunayake airfield so taken over was later re-named Bandaranaike International Airport.

• 1958 The Government nationalized bus transport (creating the Ceylon Transport Board). The Colombo Port was also nationalized the same year.

• 1961- The local subsidiaries of the foreign owned petroleum companies- Caltex, Esso and Shell had formed a cartel, and in order to break, they were nationalized. The Insurance companies and the Bank of Ceylon were also nationalized in the same year.

• 1971 Graphite mines nationalized.

• 1972 Locally owned Tea and Rubber plantations were nationalized under the Land Reform law.

• 1975 Sterling plantation companies (owned by British plantation companies) were nationalized.

• 2009 Seylan Bank taken over to prevent its collapse. Waters Edge, Sri Lanka Insurance Corporation (SLIC) and Lanka Marine Services were taken over by the government following Supreme Court judgements.

• 2010 government announced that it had finalized talks for the re-purchase of the remaining 51 percent stake of Shell Gas Lanka (Pvt) Ltd.- held by Royal Dutch Shell of Europe.

- Asian Tribune -

 

Sri Lanka’s first semiconductor plant deal to be sealed soon

By Santhush Fernando in Colombo

Sri Lanka’s first semiconductor manufacturing industry project to exploit a super-quality vein quartz deposit in Mahagama, Moneragala, is to be concluded in the very near future.

It is believed that Toyota Japan, which had submitted the proposal for a total investment of Rs.18bn (US$ 160) will secure this strategic project- which is slated to become South Asia’s first semi-conductor fabrication plant.

“The deal will be finalized within the next few weeks. A fully-fledged semiconductor fabrication plant would undoubtedly accelerate Sri Lanka’s growth

Ministry of Environment and Natural Resources called for Request for Proposals (RFPs) on December 9, 2009, "from reputed manufacturers, as well as those having experience in mining and processing of Vein Quartz (Silica) to set up manufacturing plant(s) for value added high-tech products such as fused silica, poly-silicon for semiconductors, solar cells and micro chips". The deadline ended last January 25.

“Earlier, Mahaweli Authority posed a problem saying that the land belonged to it. But we managed to resolve by having one of its members on board the panel,” outgoing Secretary to the Environment Ministry, M.A.R.D. Jayathilake earlier said.

Asked as to why there was no ‘opening’ of proposals in the presence of the bidders, he said that since this was not a formal call for tenders or Expressions of Interest (EoI), the process was ‘not governed by government’s tender procedures and guidelines’. He added that he could not comment on the number of proposals received, off hand.

“They were just proposals and so there are no financial commitments indicated or any deadlines involved as such. However, there’s no secrecy and we are fully transparent.”

Jayathileke added that although there had been a previous cabinet memorandum to develop the quartz deposit, only one party had responded then, and furthermore there was no clear cabinet decision reached.

“A cabinet paper was submitted over six years ago. However, when Minister Champika Ranawaka was appointed as Minister of Environment, he wanted to go for fresh proposals as the requirements had changed,” he said.

Sri Lanka’s mining industry watchdog- Geological Survey and Mines Bureau had previously called for proposals by its advertisement dated November 20, 2008 but the process was later halted.

When inquired on the potential Sri Lanka would have in the semiconductor industry, an expert said on grounds of anonymity that, if the country was to become a commercial and knowledge hub, the government should opt for a high-yielding silicon fab project plan.

“Under the normal extraction and disintegration process only a powder can be obtained between the range of 15 and 18% of the raw vein quartz input whereas for higher returns we should target the manufacture of micro-powder which has a return of over 25% of the raw material,” he said.

It is learnt that Toyota Japan’s proposal anticipates achieving value addition levels of up to 1,700% and purity levels of 99.99999% essential for the manufacture of high-quality semi conductors.

Although a certain interested party had requested Toyota Japan to consider two other silica mines, one in the Matale District and another in the Ratnapura District, Toyota has reportedly turned down the alternate sites due to their small magnitude of less than half an acre, and had ruled out that the two sites were feasible. It is learnt that the party in question had also submitted a proposal with a mere Rs.200 as the total investment.

The Mahagama Vein Quartz deposit is located east of Embilipitiya and in close proximity to the Burusita Weva in the Udawalawe area within the Moneragala District and is about 270km from Colombo, about 75km from Hambantota and about 153km from the Port of Galle.

At present, only one company based in Kandy claims to be ‘the sole legitimate quartz processing industry in Sri Lanka’ with ‘the industrial infrastructure to practice a systematic and professionally managed operation.’ The company purports to export nearly 6,000 tonnes of processed quartz to Japan, South Korea, Singapore and other markets. Sri Lanka is recognised as a rich source of quartz and the company estimates the country to contain over 20 million tonnes of quartz deposits.

“It is shame that we are exporting very valuable quarts at a meager sum of Rs. 3,600 (~US $ 32) a ton whereas one kilo gram of the purified product is worth nearly US $ 50,000,” an expert said.

Despite the global financial crisis, the semiconductor industry grew from US$ 249 bn in 2008 to US$ 260 bn by 2009 and is dominated by USA, South Korea, Japan and the European Union.

- Asian Tribune -

http://www.asiantribune.com/news/2010/09/23/sri-lanka%E2%80%99s-first-semiconductor-plant-deal-be-sealed-soon

Sri Lanka to strike an LNG deal with Qatar

President Mahinda Rajapaksa meets Sheikh Hamad bin Khalifa Al-Thani Emir of the State of Qatar

By Santhush Fernando in Colombo

Colombo, 22 September

President Mahinda Rajapaksa during his meeting with Head of State of Qatar Kalifa Altani, has discussed the possibility of commencing a Liquefied Natural Gas (LNG) power project in Sri Lanka, in a bid to make the island nation an energy hub.

The head of state of Qatar has agreed to extend his fullest support to commence an LNG project of Qatar in Sri Lanka a press statement issued today (September 21) reported.

“The government of the state of Qatar has expressed fullest support to the development programme carried out by the President Mahinda Rajapakse following dawn of peace in the country,” said the statement.

“Emir of Qatar Kalifa Altani expressed his appreciation to President Rajapakse, who is currently in New York city to attend the 65th general session of the United Nations. The meeting between the two head of states took place at dawn today (September 21). The Emir extended his congratulations to the President for ending long standing terrorism in Sir Lanka and added that the President has set an example to the entire world. The head of state of Qatar has agreed to extend fullest support to commence L.N.G. Gas project of Qatar in Sri Lanka,”

Sheikh Hamad bin Khalifa Al Thani led the development of Qatar's oil and natural gas resources.

LNG is natural gas (predominantly methane – CH4) that has been converted into liquid form for ease of storage and transport, as it takes up only about 1/600th the volume of natural gas in its gaseous state. The most difficult and costliest operation in an LNG process is the liquidation process before storage or transportation and re-gasification at the end-point.

Qatar- the best country

Speaking to the Asian Tribune, Secretary to the Ministry of Power and Energy, M M C Ferdinando said that an Inter-ministerial Committee on Energy had been discussing the viability of LNG, and agreed that Qatar was the best country to partner when it came to LNG.

“I am not aware of this matter (President Rajapaksa’s meeting with Emir of Qatar). However there was a proposal that Sri Lanka must explore the viability of LNG and it was pointed out that Qatar was the best country when it came to LNG. Two months back a group (of officials) was entrusted to study its potential and report back. I assume that President Rajapaksa discussed this matter in that context,” Ferdinando said.

High-level Committee on LNG

Earlier Asian Tribune on September 4, 2010, reported exclusively that the Sri Lankan government in a bid to exploit eco-friendly fuels and to ensure energy security set up a high-level Committee on LNG.

“The committee is represented by officials of Treasury, Ministries of Power and Energy and Petroleum Resources and Petroleum Resources Development, Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), and Westcoast Power (Pvt) Ltd, who were entrusted with the task of exploring possibilities of using LNG and report back,” a high-ranking Petroleum Resources and Petroleum Resources Development Ministry official told the Asian Tribune.

He added that the government had identified the potential of LNG and understood that it was very beneficial in the long term. The LNG Committee is to conduct a presentation on its findings to the government in the very near future.

LNG highly beneficial

However in another exclusive story that appeared on Asian Tribune on September 15, a local agent of a UAE-based investor consortium contemplating to start an LNG project in Sri Lanka, was quoted to have stated that LNG would “be highly beneficial to an emerging nation like Sri Lanka, which anticipates in becoming a mega global hub in energy”

“LNG is one of the cleanest, safest, and most useful of all energy sources. If you take United Kingdom they are using LNG in a major way both for domestic as well as industrial purposes. We have been studying about the scope in Sri Lanka for the last four to five years and were waiting for just the right time,” said the 25-year old Sri Lankan agent of the consortium, who had been right throughout educated in United Kingdom but has now returned to his motherland to serve her.

“We have already conducted the pre-feasibility study and the results are very positive. From hotels to homes, from garment factories to power plants, lot of businesses will benefit. When you use LNG you don’t have to convert it to electricity but use it directly… for example for cooking and air conditioning,” he said.

Qatar- World’s largest LNG producer

Meanwhile gulf news reports stated that Qatar is set to achieve a milestone of 77mn tonnes annual liquefied natural gas production capacity and take a vantage position in the global energy stage as the world’s largest LNG producer and transhipper.

"With the imminent completion of two super trains (7.8mn tonnes capacity each) at Qatargas, Qatar will have an installed LNG capacity of 77mn tonnes per year (tpy).

Qatar’s two LNG producers – Qatargas and RasGas – currently operate liquefied natural gas facilities with a combined production capacity in excess of 55mn tonnes per year (tpy). At the peak of production, some 14 LNG trains will be in operation; seven each at Qatargas and RasGas,"

"The liquefied natural gas sector has become a key driver of the national economy. According to QNB Capital, the oil and gas sector is expected to account for QR145.5bn of Qatar’s total GDP of QR291.1bn in 2010. Of this, the share of the gas sector is expected to be QR81.3bn compared with QR64.2bn from the oil sector."

- Asian Tribune -

Sri Lanka to go for nuclear power

Sri Lanka to go for nuclear power 

By Santhush Fernando in Colombo

 Colombo, 21 September, (Asiantribune.com): Sri Lanka is hopeful of having its first nuclear power plant to go online within the next two decades, in a bid to go for lesser-cost power generation plants.

A nuclear power plant in Bangladesh

"Government in its search for lesser-cost fuels, has decided to look into the possibility of tapping nuclear power, and as a result a feasibility study would be conducted soon to see whether we can set up a plant with around 1GW capacity,” Secretary to the Ministry of Power and Energy , M.M.C. Ferdinando, said on Monday (September 20).
However he said that the exact location, precise magnitude and other features will have to be ascertained from the feasibility study, and added while unlike in other power projects, a country had to get green light from the global nuclear watchdog- International Atomic Energy Agency (IAEA) for nuclear power plants.
"But if you were to have a nuclear plant by 2030 you have to start now itself," he cautioned.
According to Ferdinando, with the projects that are in the pipeline, Sri Lanka could cater to the electricity demand until 2017.
In 2009, of the country’s total requirement of 9,882 GWh, nearly 61.7 percent or 5,998 GWh was generated by high-costly thermal power (diesel) while the remaining 39.3 percent or 3,884 GWh was contributed by hydro power. Government is hopeful of reducing country’s reliance on diesel to 25 percent by 2014, and further down to 10 percent by 2017.
“By 2017, nearly 40 percent each of the country’s demand will be contributed by coal and hydro while the remainder would be generated by diesel and renewable energy sources,” he said.
“We need nearly US $ 2bn more investment for generation projects while network upgrade and rural electrification would cost US $ 1 and 4bn respectively,” Ferdinando told the “Sri Lanka Unveiled- Importing Wealth” forum held today (September 20). The forum- one of the top high-profile investor forums to be held up to now, is organised jointly by the Royal Bank of Canada (RBC), Thani Group of UAE, Aimlight, Board of Investment (BoI) of Sri Lanka and Business for Peace Alliance (BPA) will continue until Wednesday (September 22)
The Chinese-funded US $ 1.3bn Norochcholai coal power plant when completed will generate 900MW while country’s second and final coal power project to be constructed- US $ 500 Sampur coal power plant, funded by India, will add 1Gw to the national grid. The US $ 450 Japan-funded Upper Kotmale Hydro power project is expected to generate 150MW upon completion.
A 1,000MW Liquefied Natural Gas (LNG) power plant at Kerawalapitiya and US $ 450mn Uma Oya Hydro Power projects have so far failed to take off the ground.
With Sri Lanka’s supply exceeding demand by 2017, it is hoped that electricity could be sold to energy-hungry India, through the Mannar-TamilNadu under-sea High Voltage Direct Current (HVDC) power link, which is to be finalised next month. (See separate story)
Electricity costs in Sri Lanka were among the highest in the world with all users paying high cost for industrial, commercial and domestic uses while driving away the investors. Average electricity tariff rates to industrial sector is from Rs 7.00 to 7.50 in Sri lanka; Indonesia 1.52 – 3.90; Malaysia 2.63 – 10.52; Singapore 4.32 – 6.78; Thailand 2.89 – 7.01, according to the Central Bank’s Annual Report of 2004.
However over 15 percent of the output goes wasted due to system loss while another 20 percent is wasted due to bad usage practices.
Sri Lanka’s average consumption is 400 kilo Watt hours per person per annum and for the country to elevate itself to that of a middle-income level country like Malaysia, power consumption should be around 2,000 kWh per capita per annum. The drop is said to be short-lived and with the government anticipating 100 percent electrification of the North in two three or years time, the demand is set to be on the rise soon.
- Asian Tribune -

Sri Lanka’s Trincomalee Coal Power Plant deal to be sealed next month

Sri Lanka’s Trincomalee Coal Power Plant deal to be sealed next month 

 By Santhush Fernando in Colombo

(Chinese-funded Norechcholai coal power pant) 

(Colombo, 21 September) The severely-delayed agreements on 1GW Sampur Coal Power Plant and the Anuradhapura High Voltage Direct Current (HVDC) under-sea cable link to India, which are nearly two years behind schedule, are to be concluded by end October. “The second power plant will be hopefully finalized by next month. Sri Lanka-India under sea HVDC transmission line, which is linked to the Sampur agreements, will be finalized in October. India wants this to be implemented as soon as possible, since it is interested in purchasing power from Sri Lanka. The Memorandum of Understanding (MoU) on Sampur was entered into way back in 2006 and the projects were to start-off by June 2008,” a high ranking government official close to the deal said.
Although both India and Sri Lanka were very close to finish the deals, in the run up to India’s General Election- 2009, the signing of the agreements were stalled around 2009 March. By then agreements on both projects were almost finalized, and the state-run National Thermal Power Corporation Ltd (NTPC) of India was to give its green light for the project.
However due to severe opposition from both Indian and Sri Lankan Tamil communities against the plant with the Tamil Nadu factor weighing heavily in the April / May 2009 Elections, and with Sri Lanka’s war against LTTE reaching its peak the projects were put on hold.
The 1GW Sampur Power Plant, will provide 500MW to the national grid by 2012 under its Phase One, while the construction is to be carried out by NPTC under the supervision of Ceylon Electricity Board (CEB). The first stage is budgeted at nearly Rs.56.5 billion (US $ 500mn), out of which 70 percent will be covered by foreign aid while the rest would be jointly funded by NTPC and the CEB.
Meanwhile, the proposed 400 KV High Voltage Direct Current (HVDC) transmission line which would connect Madurai in Tamil Nadu to Sri Lanka’s Anuradhapura via Talaimannar, will be built by India’s central transmission utility- PowerGrid Corporation. This will include HVDC overhead lines from Madurai to the Indian coast (near Rameshwaram) (139 km), a 400 KV HVDC cable from the Indian coast to the Sri Lankan coast (39 km), a 400 KV HVDC overhead line from the Sri Lankan coast to Anuradhapura/Puttalam (125km).
Although was India suffering from severe power shortage overall, and though both governments attached top priority to this two projects, the projects were put on hold due to Tamil Nadu’s influence over the central Government.
However again around November 2009, although Power Purchasing Agreement (PPA), Implementation Agreement and Joint Venture Agreement, were ready there were few unresolved terminology issues between Indian and local officials.
Construction of the coal loading jetty is to be executed by the government and it has already allocated funds under the budget to the Sri Lanka Ports Authority (SLPA) for the purpose. CEB will also call for tenders for the construction of transmission cable network.
The Sampur Power Plant and undersea cable link projects were to commence work way back in 2008 June.
- Asian Tribune

 

 

Sapugaskanda project cost soars close to quarter trllion rupees

Sapugaskanda project cost soars to Rs 249bn
By Santhush Fernando
The Inter Ministerial Committee discussing the interim report on the feasibility study of the Sapugaskanda Refinery Expansion and Modernisation (SOREM) Project has indicated that the project cost, which soared close to nearly a quarter trillion rupees or Rs. 248.6bn, was not within the reach of the country’s economy and therefore needed to look for alternatives.
United Kingdom-based KBC Advanced Technologies PLC, which is conducting the feasibility study for Ceylon Petroleum Corporation (CPC), handed over the interim report to Ministry of Petroleum Resources and Petroleum Resources Development, early September, a high ranking Ministry official told The Nation.
The final reports are to be submitted by November 2010.
“During the meeting it was brought to the notice of the Treasury that this project is nearly impossible without the intervention of highest levels of the government,” said a Ministry official.
“If the reports are right, this would be the costliest project Sri Lanka would ever undertake. (See graph) However, the status of the project is still uncertain. The cost indicated previously was US $ 2bn (Rs. 222bn) but recent-most projection was to the tune of $.2.2bn (Rs.244.2bn) which is an increase of ten percent. Everything is still undecided and it is still very difficult to comment on what exact course will be taken,” he added.
“That’s why we say there needs to be a national level approach on this, as it is not possible for CPC to handle this on its own,” the official added.
During this week’s meeting ministry officials had intimated that they were still exploring possibilities of obtaining Iranian funding, although the process came to a virtual standstill during the recent past.
“It was informed that the government was trying to raise its component of 30 percent funding through a new agency. They were also open for private sector funding, we were told.”
He said Sri Lanka was open for alternative fuels like Liquefied Natural Gas (LNG).
“A high-level committee comprising of representatives of the Treasury, Ministries of Petroleum Resources and Petroleum Resources Development and Power and Energy, Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB), and West Coast Power (Pvt) Ltd, was set up with the task of exploring the commercial viability of LNG,” he added.

Last May, KBC Advanced Technology handed over two vital documents – the Market Overview and Refinery Configuration reports on the project and had recommended that the 40-year-old refinery plant be given a 100 percent upgrade, bringing it up to regional standards based on the forecast of petroleum demand for 2011 and beyond.

(http://www.nation.lk/2010/09/19/news5.htm)