ඔන්න මාලිමා ජෙපි ආණ්ඩුව එකත් cancel කරලා battery storage පෙන්නලා . එකනේ මම කියන්නේ ඔය CEB engineers union-LTL මාෆියා එක කවදාවත් LNG infrastructre හදන්න දෙන්නේ නැහැ. LNG වලින් දුවනවා කියල plant හදලා diesel වලින් දුවන්නේ 
Minister U-turns on LNG deal
The long-delayed billion-rupee Liquefied Natural Gas (LNG) terminal and pipeline project off Kerawalapitiya, which was finalised last year to be awarded to a Chinese contractor, is now facing cancellation, with the decision expected to be communicated to the Cabinet shortly, The Sunday Morning reliably learns.
The Energy Ministry is planning to shift away from LNG towards battery-powered Renewable Energy (RE), it is learnt. Although the contract was awarded last year, the Government has been re-evaluating whether to proceed with the project due to the inclusion of a take-or-pay clause, which could expose the country to substantial financial losses given Sri Lanka’s current limited LNG demand, according to sources.
When contacted, Ministry of Energy Secretary Prof. Udayanga Hemapala confirmed that the Minister had decided to cancel the tender but noted that the decision had not yet been made official, as the ministry was required to formally communicate it to the Cabinet of Ministers.
Implementation delays
The deal – initially tendered in February 2021 and closed in June the same year – is structured under a Build-Own-Operate-Transfer (BOOT) model and has once again reignited debate over the controversial take-or-pay component. The Government finalised the tender in July last year, following years of delays. However, even after the finalisation, the primary concern remained the inclusion of the take-or-pay clause in the LNG supply agreement.
A senior official close to the matter told The Sunday Morning that while take-or-pay clauses were standard practice in global LNG contracts, applying such terms in a relatively small market like Sri Lanka carried significant financial risks. “Even if the system has cheaper sources such as hydro or coal, we would still be obligated to pay for LNG volumes that we do not require,” the official warned.
Nevertheless, the official claimed that LNG was essential for the country’s energy requirements, particularly during periods of low hydropower availability and high demand.
Meanwhile, RE suppliers have raised concerns over the agreement, cautioning that long-term LNG commitments could restrict the integration of clean energy into the national grid and potentially undermine Sri Lanka’s broader transition to RE.
According to a feasibility study conducted in 2014, the Colombo North Port was initially identified as the most suitable location for an LNG terminal. However, Kerawalapitiya was subsequently selected due to its proximity and suitability for natural gas-fired power generation. Under the proposed plan, a Floating Storage and Regasification Unit (FSRU) with a regasification capacity of 375 million standard cubic feet per day and a minimum LNG storage capacity of 156,000 cubic metres was to be developed.
The FSRU was planned to operate under a 10-year Build-Own-Operate (BOO) model, while the associated pipeline infrastructure was to be developed by the Ceylon Petroleum Corporation (CPC) under BOOT terms.
Global LNG price volatility remains a key factor in the debate. Between 2020 and 2023, LNG prices averaged between $ 8.2 and $ 9.6 per MMBtu. For long-term system planning under the Ceylon Electricity Board’s (CEB) Long-Term Generation Expansion Plan (LTGEP) 2025–2044, a projected LNG price of $ 11.2 per MMBtu has been assumed, excluding infrastructure costs. A sensitivity analysis has also been included to assess potential price fluctuations, it is learnt.
The LTGEP 2025–2044 identifies natural gas as a critical component of a cost-effective and environmentally sustainable power system. Under the base case scenario, LNG availability was projected by mid-2027. According to the sensitivity analysis in the plan, a delay of an additional three years could increase the present value of total system costs by approximately $ 304 million.
In line with this strategy, the CEB has planned the development of a 130 MW gas turbine power plant at the Kelanitissa Power Station through international competitive bidding. The plant is expected to improve operational flexibility, enhance grid stability, and support rapid system restoration in the event of islandwide power failures. However, implementation delays mean the plant is now expected to become operational only by 2030.
CEB statistics show that fuel costs account for approximately 85% of the board’s total electricity generation expenditure. In 2023, the CEB spent around Rs. 109 billion on fuel oil, while expenditure declined to Rs. 81 billion in 2024. Engineers estimate that achieving just a 10% saving through competitive fuel procurement could result in annual savings of Rs. 8–10 billion, easing financial pressure on the utility and benefiting electricity consumers.
Ad hoc changes?
However, as reliably learnt by The Sunday Morning, CEB engineers are opposed to the Minister’s reported decision to move away from LNG, maintaining that LNG is critical not only for electricity generation but also for the shipping industry and other economic sectors.
“Shifting to battery-powered RE is good in principle, but it is expensive for a country like Sri Lanka,” claimed a senior engineer attached to the CEB, who wished to remain anonymous. “The cost of decisions made based on poor or incomplete studies will ultimately have to be borne by future generations,” he claimed.
The CEB official warned that even with battery-powered RE, the overall cost of energy would remain extremely high. “We have already planned and commissioned several power plants designed to operate on LNG. Policies and long-term planning frameworks have been developed based on LNG integration. When ad hoc changes are made to such policies, it becomes unbearable for the power system and extremely damaging to the country’s economy,” he said.
On the other hand, the Public Utilities Commission of Sri Lanka (PUCSL) expressed support for integrating battery-powered RE into the national grid. “If the Minister has taken such a decision, it would be a welcome step,” PUCSL Director General Damitha Kumarasinghe said.
However, when questioned about the LNG power plants already committed under existing plans, Kumarasinghe attributed the situation to shortcomings in past energy policy formulation.
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https://www.themorning.lk/articles/CTV4NIC9fo7p1ET4NE7x
