Yugadanavi Power Plant and economic patriotism By Harsha Gunasekara

The thinking of Sri Lankans is influenced by the thinking of the old left and false patriotism, especially false economic patriotism. Trade unions are concerned about their job security and are covering behind this false economic patriotism which promotes inefficient large public sector and idling public assets. This is a sure recipe for an economic disaster for a country like Sri Lanka

There is a strong protest staged by the 11 constituent parties of the Government and the trade unions of the Ceylon Electricity Board (CEB) along with affiliated trade unions against the recent agreement with respect to the Yugadanavi Power Plant reached by the Government with the US company, New Fortress Energy (NFE), a Liquefied Natural Gas (LNG) company founded in 2014.

Eleven constituent parties of the Government have staged a protest against the Government under the banner Mahajana Manthrana Sabhava – MMS (People’s Council). This in fact is not a people’s council, rather a council of frustrated politicians since there were no people involved there. MMS came into the limelight with the real participation of the people during the former autocratic regime of Mahinda Rajapaksa where the Opposition had no say. 

Yugadanavi power plant, which is having a capacity of 300MW, was constructed by Lanka Transformers Ltd. (LTL – a joint venture between CEB and Bonar Long of Scotland) and owned by West Coast Power Ltd., of which the owners are the Treasury (51%), EPF (27%) Lanka Electricity Company – LECO (18%) and LTL (4%). When Yugadanavi was completed in 2010 the intention was to use LNG but since the inception the plant was using diesel.  In the past neither the CEB nor the Government took successful initiatives to use LNG in this plant.

There are several advantages of using LNG against diesel.  LNG burns efficiently which is highest energy content fossil fuel. LNG burns cleanly, it has lower maintenance costs and low emissions of carbon dioxide and other greenhouse gases.  LNG is attractively priced which means more power for the same money. In order to liquidise the gas, it has to be brought under minus 160 degrees Celsius. There are special storage facilities in the ships to transport this.
Agreement with NFE

The Government signed the agreement in July with NFE. It was signed at midnight without getting proper approval from the Cabinet of Ministers. According to the agreement NFE will built a floating storage in the sea to store LNG and they also will build a pipeline to transfer LNG in the form of a gas from that storage to Yugadanavi. In turn it is mandatory that the Government should buy gas 35 trillion BTUs (British Thermal Units) per year. Even if the Government does not buy gas to that extent the payment should be made.

The capacity of Yugadanavi is only 15 trillion BTUs. Therefore, the Government will have to pay NFE for the additional unused 20 trillion BTUs which would amount to around $ 215 million per year. Even if the new power plant under construction in Kerawalapitiya is completed the Government will have to pay around $ 90 million to NFE for unused BTUs.

This minimum buying quantity is fixed since probably otherwise it would be uneconomical to maintain a floating storage and a pipeline for NFE. Therefore, in order to reduce the losses, the Government will have to build an additional pipeline to Kelanitissa as well. Moreover, when there is heavy rains and hydropower stations are running in full capacity the intake may have to be reduced from these LNG power plants since Norochcholai Coal Power Plant cannot be stopped. 

The Government also agreed to sell a 40% stake of West Coast Power Ltd., which owns Yugadanavi, to NFE for $ 250 million. When the agreement was signed CEB has already called for tenders for the floating storage and the pipeline.

All so-called patriots including the unions of CEB are mainly against this 40% sale. Even if a company is selected from the tender procedure the monopoly of supplying LNG should have been given to that company because the country does not have the capacity to have several floating storages. If this company were a Chinese company, these patriots probably would have agreed to it. Their problem is that the monopoly of supplying LNG to the country is vested with an American company. 

However, the main issue is neither the 40% sale nor the monopoly given to NFE but the unfavourable condition to buy over the requirement LNG of the country. If the arrangements can be done to fix that by increasing the usage enabling Kelanitissa as well to use LNG, the agreement can be converted to an advantageous one. 

Not following the tender procedure and not informing the Cabinet were major flaws. Previously, the contract of developing the Port City was granted based on an unsolicited bid submitted by China Communications Construction Company Ltd. in 2013. Thereafter the then Government did not follow the Public Procurement Guidelines and called for other interested parties to bid for the project whilst offering a first right of refusal to the original proposer. 

This issue was not raised sufficiently at that time by the persons who opposed the agreement and the main opposition at that time was to the environmental issues. However, following a wrong procedure in one instance does not justify following the same for other instances as well.

False patriotism

When running an economy especially at this juncture giving too much priority for this silly type of patriotism is a menace. When the Government tried to sell a less than 50% stake of the Eastern Container Terminal (ECT) of Colombo Port to Indian and Japanese companies based on an agreement reached by the previous Government, there was a stringent protest from the trade unions who kept mum when 85% of Colombo International Container Terminal (CICT) was given to a Chinese company by the previous Mahinda Rajapaksa Government. 

As a result, the Government gave 85% of Western Container Terminal (WCT) which is well above 50% to an Indian company to which the trade unions were in agreement. Now the Government does not have funds to develop the ECT. This time also the trade unions of CEB has threatened that they would take strong trade union action if the Government did not move out from this agreement. 

These 11 constituent parties are keeping mum on the wrong decision taken by the President banning chemical fertiliser. The President reiterated his decision at UN and then at a side event of the UN Climate Change Conference. Several blunders were made after the initial decision. Now the Government is trying to accommodate the questionable Chinese company which tried to supply substandard organic fertiliser. The Chinese Embassy is trying to undermine our legal and banking system. This is interference to our sovereignty and the 11 constituent parties have no issue with it.

The main Opposition should not fall into the situation J.R. Jayewardene adapted soon after the Bandaranaike-Chelvanayakam Pact was signed in 1957. Bandaranaike came to power with Sinhala Buddhist sentiments. He used that only to come to power. 

After realising the repercussions of the Sinhala Only Act, he signed the B-C Pact to mitigate it. JRJ opposed it taking the argument that Bandaranaike should follow the principles by which he came to power. As a result of the Kandy march and several other protests by the Buddhist clergy the B-C Pact was withdrawn. Had it been there we would not have to face a 30-year-long war. 

Privatisation

The present regime came into power by giving false promises to the people that they would not privatise any Government asset. Now facing the ground reality, they work against their own promises. However, the SJB and UNP should stick to their principles of privatisation of Government assets for long-lasting economic benefits to the country rather than asking the Government to work according to their promises. 

If one example is given, we now reap the benefits of privatising the telecommunication department during the time of Chandrika Kumaratunga. Hence the main Opposition should not follow the precedence of JRJ in 1957.

The thinking of Sri Lankans is influenced by the thinking of the old left and false patriotism, especially false economic patriotism. Trade unions are concerned about their job security and are covering behind this false economic patriotism which promotes inefficient large public sector and idling public assets. This is a sure recipe for an economic disaster for a country like Sri Lanka.

(The writer acknowledges the contribution made by Keerthi Godigamuwa in writing this article.)