By Dr. Asoka Bandarage

On September 17, New Fortress Energy (NFE), a US-based energy infrastructure company, signed a momentous legal agreement with the Government of Sri Lanka (GOSL). The signing apparently took place in the dead of the night, at 12.06 a.m., and the foreigner who came for the signing swiftly returned to the US on a flight at 2 a.m.

The back-door deal allows NFE to build a terminal for liquefied natural gas (LNG, natural gas kept in a liquid form for ease of transport) off the coast of Colombo. It also enables NFE to purchase, for USD 250 million, the Sri Lankan Treasury’s 40 percent stake in West Coast Power (WCP), which owns the 310 MW Power Yugadanavi Plant in Kerawalapitya, a contributor to the national electricity grid. NFE would have the right to build a new LNG terminal aiming to increase output to 700 MW, with a target of 350 MW by 2023. NFE will initially supply an estimated 1.2 million gallons of LNG a day to the GOSL, with expectations of significant growth as new power plants become operational.

This complex deal, involving a floating LNG terminal (also known as a Floating Storage Regasification Unit, or FSRU), power plants and energy sales estimated at six billion USD, is likely the largest contract the GOSL has ever made with a private company. It also threatens Sri Lanka with a loss of hundreds of millions of dollars and a serious compromise of the country’s energy security.

Interestingly, the Chairman and CEO of New Fortress Energy is Wes Edens, the American billionaire deemed the ‘new king of sub-prime lending’ by the Wall Street Journal in 2015 (and a ‘slumlord’ by community protesters in Milwaukee). He is also a big donor to the Democratic Party and a co-owner of the Milwaukee Bucks basketball team. Celebrating his deal with pandemic-ravaged, debt-ridden and economically desperate Sri Lanka, Wes Edens said:

“This is a significant milestone for Sri Lanka’s transition to cleaner fuels and more reliable, affordable power. We are pleased to partner with Sri Lanka by investing in modern energy infrastructure that will support sustainable economic development and environmental gains.”

Local Opposition

In Sri Lanka, however, the united trade union alliance, other mass organisations, as well as several Ministers and Members of the Parliament, are protesting the agreement. They are calling for its abrogation on grounds that it threatens national political, economic and energy security.

The Ceylon Electricity Board Engineers’ Union (CEBEU) is championing the resistance and points out that the agreement violates the government’s own National Energy Policy, approved in August 2019. The policy clearly states in strategy 3.1.2 that “considering the impact to the national energy security, operation of the first LNG terminal and LNG procurement shall be kept under state control.” The policy also states in 3.8.2 that the “procurement of plant, equipment, crude oil and other fuels as well as power purchase agreements and similar concessions, will be made through a streamlined competitive bidding scheme ensuring transparency and accountability.”

The CEBEU argues that the NFE’s ‘unsolicited proposal’ contradicts “the procurement policies and principles” of the National Energy Policy and the Sri Lanka Electricity Act. As CEBEU President, Saumya Kumarawadu explains, the signing of the NFE agreement during the ongoing bidding process has completely disrupted the transparent and formal procedures to procure an LNG terminal facility and pipelines through competitive offers from other parties, more favourable to Sri Lanka.

The CEBEU fears that the agreement would result in the Ceylon Electricity Board, the long-time provider of electricity to the country, losing its ability and mandate to supply the cheapest source of power under its least-cost operating guidelines. The CEBEU has extensively examined the pricing formulas for LNG supply in the NFE agreement, and considers them “very much disadvantageous to Sri Lanka.” They cite offensive conditions of the agreement, including:

• “Inclusion of very high Take or Pay (TOP) gas volumes than the actual minimum requirement of the country with strict conditions that NFE should be paid irrespective of whether the contracted volumes are consumed or not.
• Contract term initially for five years with almost definite compelled further extensions.
• Exclusive rights of supplying LNG to Sri Lanka electricity generation.
• NFE being granted all tax exemptions/benefits/investment incentives available under Sri Lankan law.”

Sri Lankan activists argue that under the NFE agreement, the supply of LNG may not be limited to just the electricity sector but could also extend to other sectors, such as transport and domestic usage, giving a foreign company enormous control over the country. As the CEBEU points out:

“The main aim of NFE is not the mere USD 250 million investment in shares of WCPL but the securing of multi-billion dollar LNG supply contract without a competition and with exclusive rights of supplying LNG to the whole country with an undefined extended duration beyond five years with massive controlling power on the country’s national security and energy security and with guaranteed exorbitant profits.”

Given the Asia-Pacific Strategy of the US to control the Indian Ocean, including strategically located Sri Lanka, local activists point out the dangers of complete dependence on the US for LNG supply to local power plants. Activists lament: “They [the U.S.] will not let us off the hook once they establish their foothold here. We are in deep trouble.”

A Press Release by the National Joint Committee of Sri Lanka of August 2, 2021, points out that the current GOSL was elected into office with a massive mandate to safeguard national resources and strategic assets from neocolonial exploitation.

The current economic crisis and external political pressure should not be excuses to sell the country for short-term political and economic expedience. This, of course, is the situation for many countries, not only Sri Lanka.

NFE and LNG in global context

NFE is a global company with an expanding “network of liquefied natural gas (LNG) terminals, power generation facilities and natural gas logistics infrastructure,” around the world. With operations in North America, Europe, the Caribbean, Central America, and Africa it has positioned itself to be the leader in the world’s transition to LNG and to “light the world.”

As in Sri Lanka, NFE presents its global LNG projects as “clean, cheap and safe alternatives to coal and oil.” However, activists (and energy experts critical of ‘greenwashing’) question its assumptions and practices. As the Natural Resources Defense Council (NRDC) points out in its report ‘Sailing to Nowhere: Liquefied Natural Gas is not an Effective Climate Strategy’, expansion of US-produced LNG “could have enormous environmental impacts and costs for decades to come.”

LNG production involves extensive use of hydraulic fracturing (‘fracking’), the process of injecting liquid at high pressure into subterranean rocks to force open fissures and extract oil or gas, and LNG processing can increase air pollution and contaminate water supplies, harming human and environmental health.

The fracking-driven expansion has transformed the US from a gas importer to a gas exporter, aggressively seeking overseas markets to sell its oversupply. While natural gas is considered a ‘bridge fuel’ towards sustainability, with lower carbon dioxide emissions than coal or oil, the extraction, processing, and transport of gas emits greenhouse gases, including through leaks and releases from wells, pipelines, storage and processing facilities. Methane, the principal component of the gas, is the second biggest driver of climate change, and gas production systems are the second largest emitters of methane in the US. The NRDC concludes that:

“…using LNG to replace other, dirtier fossil fuels, is not an effective strategy to reduce climate-warming emissions. In fact, if the LNG export industry expands as projected, it is likely to make it nearly impossible to keep global temperatures from increasing above the 1.5 degrees Celsius threshold for catastrophic climate impacts.”

The Public Accountability Initiative, a nonprofit organization that researches connections between corporate and government power, argues that “Financial firms like Wes Edens’ New Fortress Energy are critical players in propping up the fossil fuel industry, which is responsible for our current climate crisis.”

Ecological alternatives

Social and environmental activists also point out that, while NFE and other power companies seek to make huge profits from LNG, flooding energy markets in countries such as Puerto Rico and others in the Caribbean with ‘fracked gas’ will not build resilience. Instead, they call for localised renewable energy sources, such as rooftop and community solar and distributed microgrid technologies, which are more sustainable and more resilient to natural disasters such as earthquakes and hurricanes than centralised fossil-generated power.

Sri Lanka, like Puerto Rico, is an environmentally challenged island that needs to heed these warnings.

The recent environmental devastation, off the coast of Sri Lanka, caused by the explosion of the X-Press Pearl ship carrying toxic cargo, should provoke similar demands for action. For example, strict regulations on the maritime transport of toxic substances, including LNG, are desperately needed to avoid further disasters.

If the Democratic administration in the US is genuinely committed to mitigating climate change, it needs to move away from the global export of dangerous and controversial LNG. Instead, economically struggling countries and regions like Sri Lanka and Puerto Rico need to be allowed, with their sovereignty intact, to develop truly clean, safe, and cheap energy sources, such as solar and wind power, that uphold local and bioregional paths to environmental and human protection.