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The LNG Saga – Some unanswered questions! Urgent responses needed

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By Eng. Parakrama Jayasinghe

E Mail: parajayasighe@gmail.com

There is euphoria in the government circles about the deal with New Fortress Energy of USA, (NFE) for the sale of 40% share of the West Coast Power Ltd., which currently operates the 300 MW power plant in Kerawalapitiya for a princely sum of US $ 250,000,000. The present ownership of this company stands as

Treasury 50%

Employers Provident Fund 27%

Lanka Electricity Company 18%

Lanka Transformers Ltd 05%

The plant is operated by Lanka Transformers Ltd.

At a time when Sri Lanka is scraping the bottom of the barrel to pay for the imported essentials including fuel, this would appear to be manna from heaven, even though it is not clear when this money will be received. Looking at the share ownership, there does not seem to be any impediment to the Treasury’s right to sell the 40% share although this may be considered as the sale of a national asset, which the current leaders vowed not to do.

Has anyone taken the trouble to check on the financial strength of NFE? Can the company raise not only this $ 250 million but what might also be another $ 150 million required for the setting up of the FSRU and the pipelines?

However, the icing on the cake seems to go sour when the conditions attached to this sale are looked at in detail. The only source of information is the copies of the Cabinet papers submitted by the Ministry of Finance, which are reported to have been approved by the Cabinet without any division. Considering the complex nature of the NG supply market and, moreover, the most convoluted presentation as seen in this Cabinet paper, the rest of the Cabinet may be excused for taking the easy path of just raising hands instead of courting a massive headache by trying to wade through this document to get some sense.

But the Cabinet decisions, if implemented, will affect every citizen adversely and, as explained below, and it could be a disaster for Sri Lanka. It is very unfortunate that none of the government ministers or MPs or those in the Opposition commenting on this deal has gone beyond the mere sale of shares and the fact that the agreement has been signed at midnight, which is the least of our problems.

I would like to pose some questions that are not answered clearly in the Cabinet memo:

 

1. Cabinet approval is sought to enter into a Share Sale and Purchase Agreement and to amend the conditions of the already signed Frame Work Agreement signed in July 2021. But no details of this FA and the proposed amendments are known.

2. Approval is also sought to enter into a Gas Supply Term Sheet (GSTS) as per paragraph 5.3 to be a part of the SSPA. This is where the hidden problems lie as described later.

3. Providing extensive tax relief which was not given for the open tender called for by the CEB and is under evaluation

 

There has been an attempt to compare the numbers quoted for the eventual cost of gas from NFE, with the current tender under evaluation. But as pointed out by the engineers of the CEB, this is comparing oranges with apples and the ethic of using such data for this comparison is also being questioned. The fact that there is a difference between the two does not qualify for either to be accepted without due consideration of the realities and their impact on Sri Lanka.

However, to come to the crux of the matter, the government of Sri Lanka, which approved the construction of a 350 MW LNG powered power plant, without a clue as to how the gas is to be supplied, has painted itself in to a corner. The lack of foresight in approving this project which was tendered for as far back as 2016, without many changes in the parameters applicable being taken into consideration, the cost of LNG being the primary issue, is a matter for a separate discussion. The NFE offer was apparent ly pounced upon to get out of such an embarrassing situation, with scant attention to the underlying dangers.

But the most worrisome element of the proposed gas supply agreement is the acceptance of the Take or Pay (TOP) condition without due consideration of its implications which are horrendous as explained below. However, it is the duty of the buyer or the lessee to carefully evaluate the ability or the need for the purchase of such agreed amounts.

The condition stipulates that the buyer should pay for the entire agreed amount of gas even if it is not needed or not possible to be used. This is exactly what would happen to us with a massive financial loss if this agreement goes through.

However, Sri Lanka is in a disadvantageous position in that our need for LNG falls far below the amounts considered viable by the reputed companies in the field thus limiting the possibility of reliable competitive tender. Even though less than what would be expected by the big players, the amount claimed as TOP by NFE is well beyond our ability to purchase and we will be falling into a trap from which there is no means of extracting ourselves.

The numbers tell the story

The NFE demands a TOP amount of 175 MMBTU over five years. The standard unit of supply is a Million British Thermal Unit). Although the documents available have not specifically stated amounts, let us assume this amounts to 35 MMBTU per year.

What are our consumption needs? The only use possible in the short term is the conversion of the 300 MW WCPL plant currently operating on Furnace Oil. As such, we can expect it to be converted as soon as the FSRU and the pipelines are installed and operational. But how much can we consume? An expert in the field has quoted a figure of only 13 MMBTU per year. So, until the Sobhadhanavi aplant of 350 MW is completed, we will have to pay for the balance 22 MMBTU of gas even if it is not supplied.

Once the Sobhahdhnavi plant is operational hopefully in two years, it will require a further 12 MMBTU according to the expert, totaling the demand only to 25 MMBTU, and Sri Lanka having to continue to pay for 10 MMBTU for the duration of the five-year project period currently agreed upon with NFE. There are proposals to covert the units at Kerawalapitiya, too. But this would take years and until such time we will be paying out millions of dollars every year with no benefits.

What does it mean in monetary terms, as this proposal provided monopoly rights of supply of gas also to NEF? The numbers here are even more dubious and couched in conflicting statements.

Three different modes of pricing the Gas supplies are stated:

 

= Henry Hub price times 115% + 5.01 $ per MMBTU

= JKM Price + 1.15 $ per MMBTU

= Any other mode of supply to be selected by the buyer

 

There is no firm statement anywhere in the Cabinet Memo as to which system is applicable and when.

These are highly divergent prices with a differential of over 100%. So, let us be optimistic that the Henry Hub Formula will be adopted.

The Henry Hum is the trading exchange for natural gas in the US and is currently running at about $ 5.00 per MMBTU. The JKM price is the Asian market price, which is currently ranging in the order of US$ 27 per MBTU. These numbers can be seen daily on the Internet. The recent predictions of HH prices are illustrated below. (See the graph.) It is on a steep rising trend.

Let us use an optimistic value of US $ 5.00 per MBTU as the HH price

As such the option using HH would yield a supply price of 5 x 115% + 5.01 = $ 10.76 per MBTU

It is not clear if we are to pay the regasification cost of $ 1.45 per MBTU even for the gas we don’t , which will take this up to $ 12.21 per MBTU

As stated above, until the Sobhadhanavi plant is commissioned, we will have to pay for 22 Million M BTU gas, not supplied at a price of $ 10.76 amounting to a staggering $ 236.72 Million in the first year of operation itself and at US $ 109.6 Million for the balance four years, assuming that the HH gas prices do not change.

When these numbers are considered, the offer of US $ 250 Million loses its lustre. It is a case of the Greeks bearing gifts.

I would love to be proven wrong at least on this count, ignoring the many other reasons given below as to why a very serious look has to be taken on the whole equation of the use of LNG.

Impact on the 70% RE target

President Gotabaya Rajapaksa has told the whole world, in his recent address to the UN, that Sri Lanka will achieve a 70% contribution from renewable energy sources by 2030. Let us hope that at least now there will be no further attempts to say that this is not the government policy.

What does this mean on the ground? The Table 1 spells it out:

Therefore, allowing for the retirement of some plants which are reaching the end of their economic life, the only feasible addition of fossil fuel would be the 350 MW Sobhadhanavi LNG plant currently under construction. So, there is no possibility of adding any more LNG plants or even converting the plants at Kelanitissa to LNG to bridge the gap of oversupply, without grossly violating the target of 70 % contribution of renewable energy by 2030.

The CEB has been directed by the Ministry of Power to submit its corrected Long-Term Generation Plan, which meets the 70% RE target. It would be interesting to see what they come out with, and their commitments to national policy, not to mention a genuine effort to get out of the financial mess that it is in. Maximizing the renewables even beyond the 70% target is their only hope.

Barriers to the development of Mannar Gas and Oil resource

This is a matter that cannot be ignored. When there are attempts to attract investors to develop this proven resource, handing over the monopoly of supply of LNG to NFE even for five years is most foolhardy. A developer would first look at the guaranteed offtake of the extracted gas as the greatest incentive and mitigation of risk of the investment. When we are blocking that very option by this ill-conceived deal, we are foreclosing the possibility of developing this valuable resource for ever.

It is heartening to hear that Minister of Energy Udaya Gammanpila has already objected to the proposal to give monopoly on gas imports to NFE even for five years. We hope that his views will be taken on board.

This is an appeal to all politicians on both sides as well as the professionals to evaluate the validity of the above concerns and prevent the impending disaster.



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Features

A legend who rewrote Sri Lankan history: Eulogy for Dr. Deraniyagala

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By Tharindu Muthukumarana

(Tharindu Muthukumarana Author of the award-winning book “The Life of Last Proboscideans: Elephants” tharinduele@gmail.com)

On Tuesday, 05 October, 2021, as the sun rose above the horizon it may have felt like a usual day in Sri Lanka. But the morning broke a tragic news as it gloomed the nation and it left a deep void in the field of archeology. It was for none other than to the demise of Dr. Siran Upendra Deraniyagala.Anyone who has an interest in the history of Sri Lanka doesn’t need an introduction to Deraniyagala and his service. I find him, that rather than investing his energy on archaeology he invested his soul. This set an example for every human to work hard with integrity on what you had embarked on.

Budding of an archaeologist along with his father

When thinking about Paleoanthropology in Africa the renowned Leakey family comes to our head where the parents and their children had done remarkable research in that criterion. If that so, in Asia it would be the Deraniyagala lineage that had the astounding research on Paleoanthropology.

On 1st March,1942, Siran Deraniyagala was born in Ratnapura as the third son of parents, Dr. P.E.P Deraniyagala and Prini Molamure. His grandfather was Sir Paul Edward Pieris Deraniyagala alias, Sir Paul E. Pieris who served as a District Judge in Matara, Kegalle, Kandy and Kalutara. Though Sir Pieris was professionally linked to the legal field, he had a passion on doing research on 16th -19th century history in Sri Lanka and made notable publications related to those. His work was well reputed that he received various awards and honours from western countries including the Knight Bachelor on Queen’s Birthday Honours 1952.

Siran’s father, Dr. P.E.P Deraniyagala was a zoologist who also specialied in paleontology. After the brief discoveries in 19th -20th century on paleolithic remains by Paul Sarasin, Fritz Sarasin, Charles Hartley and Edward James Wayland, it was Dr. P.E.P Deraniyagala that did intense research on the paleontology of Sri Lanka. It was his research that opened the door to the prehistoric chapter in Sri Lanka. Young Siran used to accommodate on his father’s research expeditions which inspired the youngster to follow his father’s footsteps.

As a passionate youth after completing his education at S. Thomas’ College, Mount Lavinia, he was admitted to the University of Cambridge, where he obtained a BA and MA in Architecture and Sanskrit. He completed a postgraduate diploma at the Institute of Archaeology, University of London. He passed with distinction and was awarded the Gordon Childe Prize.

Sri Lankan statesman the late. Lakshman Kadirgamar once said in his speech at the Oxford Union, describing himself, that “Oxford was the icing on the cake… but the cake was backed at home”- referring to Sri Lanka. I think this quote also applies to Deraniyagala as well, since his first experience with archeology is linked with his father’s expeditions prior to university education.

Embarking on great expeditions

Deraniyagala joined the Archaeological Department in 1968 as Assistant Commissioner in charge of excavations. His functioning in the latter capacity was primarily research-oriented with emphasis on Sri Lanka’s prehistoric period (beyond 1000 BC) while pioneering in its protohistoric (1000-500 BC) and early historic (500 BC-300 AD) archaeology as well. The substance of his contribution to knowledge is set out in the abstract to his PhD at Harvard University in 1988. Doctoral dissertation was based on his research excavation in ancient shore dunes at Iranamadu Formation which trace back to more than 130,000 years ago. The thesis has been hailed as a landmark in the archeology of South Asia, and it has transformed Sri Lankan prehistoric studies. In later time he was awarded with honoris causa doctorates from Sabaragamuwa and Peradeniya Universities.

He was well known for research on Anuradhapura citadel and at Fa Hien cave. Deraniyagala’s work continued as Adviser in Research Excavtions (1983-92) and as Deputy Director-General and the Director-General (1992-2001) to Archaeological Department. Deraniyagala’s position as the Director General marked a milestone in the Archeology Department, which it was the only time where father and son had served that position. Even after retirement Deraniyagala never gave up his work-related to archeology; instead, he did continue and at most time he had a busy schedule.

Over his lifetime, he had been awarded with many local and international awards. On 7th September 2020 the Department of Archaeology opened its research and teaching museum named after Siran Deraniyagala.

Transparency on research

Research involves molding facts out of observations. It is a common thing that some facts that are composed get subjected to criticism. This could be due to various reasons. In 1988 Deraniyagala found potsherds belonging to 600-500 BC with Brahmi inscriptions. Many foreign experts did not believe it because it was known at that time Brahmi inscriptions were absent before the Asokan period (268-232 BC). Deraniyagala invited experts from Cambridge University to come and study the excavation site to check whether he was wrong. As those foreign experts came and researched on that site, even they later agreed on Deraniyagala’s theory. Similar incident happened at Kuruwita Batatotalena Cave excavation by Deraniyagala.

These events signify Lord Buddha’s quote: “Be your own lamp, seek no other refuge but yourself, let truth be your light”.

Farewell of the legend

It is eye-opening to notice that just one day after the 49th death anniversary (October 4th) of Prof. Senarath Paranavithana, Dr. Siran Deraniyagala passed away. He was 79 years old at the time. His funeral was held at his residence “Ekneligoda Walauwwa” on 10/6/2021. The President’s condolence message was read by the Governor of Sabaragamuwa Province Tikiri Kobbekaduwa.

Initially Sri Lankans were mostly proud of their 2,500 years old history but thanks to Siran Deraniyagala and his father a 38,000 years old history got unveiled.

Dr. Siran Deraniyagala, Sir may you attain the supreme bliss of Nirvana!

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Hope that lies in the Pandora Box

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The Pandora Papers have moved away from the focus of politics and the fight against corruption.

We can await the report of the Bribery and Corruption Commission, which has its own way of giving innocence to the guilty; much more than the fighters against corruption ever expect. But that is the stuff of Saubhagya.

The Pandora Papers (PP) have also shown the great delight of Nirupama Rajapaksa – Nadesan, in settling down with her children in London. That is just one big success story of the PP. There will be much more success to follow from the PP, with the Rajapaksa politics moving on to bigger dominance in this Siri Lankava, running in circles of disaster to find foreign exchange, despite the big promises of the Central Bank’s Nivard Cabraal.

It was far away from the PP that President Gotabaya Rajapaksa admitted with courage, of his and the government’s failure to keep up with the promises given to the people and the country. His words at an important military ceremony, where he was proudly draped in a civilian suit, and played some cricket, too, were rich with reality. It was not only him, but all Ministers and Members of Parliament that should accept this failure, he said.

Those words were the stuff of a President, who after nearly two years in office and power, decided to tell the people of the realities of governance.

What these words revealed were not the stuff of the PP. but the very stuff of the Pandora Box. It was the box from which all the evil flew out, when opened by Pandora herself. The President and the Government are certainly the victims today of the Pandora Evil, which is far beyond the great expectations of the Saubhagye Dekma.

The government is just now in a great Pandora Dance. With the removal of all gazette notifications on the price of essentials, it is certainly free of the burdens of price control and support for the people. This began with the new prices of rice. It is not a Gotabaya achievement, but an achievement of Dudley Sirisena and the Rice Mafia.

The Pandora Box has much more to follow. It is the box of business, merchants and dealers – who may be the mafia, too.  Surely, what government would raise the price of gas used in domestic cooking by more than a thousand rupees? It is the stuff of the Pandora Mafia. Just watch out, it can even rise by another thousand rupees very soon — could this be the Gammanpila Pandora Player?

Did Saubhagya Governance ever want to raise the price of bread? What nonsense. The government – ministers and MPs want to keep it down. But the evil that flowed from the Pandora Box made it rise. Who was the Pandora Bread/Flour minister?

Not only bread, milk powder, too. Would any MP, Minister or even a President, want to raise the price of powdered milk, which is part of a child’s daily diet? Never. This price increase is also the work of the Pandora Box – Kiri Piti – Mafia, which is much more powerful than the mafia of political corruption.

All this is certainly far away from the promises that candidate Gotabaya Rajapaksa, and the other Rajapaksas, too, gave to the people before the presidential and general elections. They never thought that the evil of the Pandora Box would hunt them so well.

To go back to the Pandora story of Greek legend, there is still hope for us. While all the evil from the Pandora Box had escaped before it was closed, Hope still remained trapped in the box. That is the Hope that is left for the Sri Lanka people.

Let us not allow this Hope to be trapped in a box at the Rajavasala. We can be glad about Gotabaya’s admission of failure. But our larger Hope will be in a political escape from the wider Rajapaksa governance —  moving next from Basil to Namal. Let’s keep praying for the escape of Pandora Hope for us. Even a little hope can help us a long way!

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Cops, criminals, and cultural contours

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By Uditha Devapriya

In Michael Mann’s Heat, one of the best heist thrillers ever made, the protagonist is a cop called Hanna, played by Al Pacino. The other character, a thief called McCauley, is played by Robert de Niro. Hanna and McCauley meet for the first time at the end of the first half of the movie. Hanna, who works for the LAPD, has been investigating a series of high-profile crimes for days. He guesses McCauley is the culprit, but has no real proof.

Convinced that he is the man they are looking for, Hanna tails him one night and gets him to pull over. Instead of arresting him, though, he offers to buy McCauley coffee. They then go over to a diner, where the two of them sit in front of each other.

What unfolds thereafter is not a conversation, but a charade. The detective and the thief start talking at cross-purposes. Weary, numbed, and tempered by the weight of their work, they engage in casual banter. Like countless conversations from a Jean-Luc Godard film, this doesn’t make sense; they ramble on and on, and then suddenly stop.

It is when we step back and reflect on these two that we realise what the scene is trying to tell us: the detective has come to a point in his career where he depends on the thieves he tails. It’s the same story with the other guy: he’s been involved in so many crimes that he’s almost relieved to talk to a man of the law. Their meeting is thus marked out less by hostility than by empathy. It’s a meeting of the minds.

The face-off is intriguing to me because it reminds me of a similar conversation from a film made 25 years earlier, in Sri Lanka. D. B. Nihalsinghe’s Welikathara also pits a police-officer against a criminal, this time a drug kingpin. In the scene I am talking about, that officer, like Al Pacino’s detective, encounters the kingpin in full form at his office. By this point each of them has realised what the other wants: like the lawyer and his ex-client in Cape Fear, each knows only too well that the other is seeking the upper hand.

The sequence at the police station establishes this relationship. As one salty witticism gives way to another, we sense the revulsion underlying the conversation; the two are talking at cross-purposes, only barely concealing their contempt for each other.

Yet while the scene serves a different function from the diner episode in Heat – whereas the latter sequence shows how dependent the cop has become on the thief, here it reveals the hostility between the two men – it stands out almost like the other does. That has much to do, I think, with the acting: neither Al Pacino nor Robert de Niro had made much of a name for themselves when Welikathara came out, but seeing Gamini Fonseka play the cop and Joe Abeywickrama the criminal, you do tend to compare. To make such a comparison is to acknowledge that Welikathara represented a high point for our cinema.

Welikathara

may well be the most Americanised Sinhala film ever made. Whereas most Sinhala films had been distinctly continental until then, hardly any director had ventured into Hollywood territory. What makes Nihalsinghe’s film fascinating, in that sense, is how far he conceived its story along the lines of a typical American thriller.

My interest in the movie as a critic, however, has less to do with its cinematic merit than the spotlight it throws on an era when such cosmopolitan objets d’art were more the norm than the exception. Since this year marks the 50th anniversary of Nihalsinghe’s film, I felt it apt to ponder why, from achieving such heights then, we have slid down so badly now.

Perhaps it’s best that we restate the problem: how could the kind of acting exemplified in a movie like Heat become the norm there today, whereas the sort exemplified in Welikathara has turned out to be the dismal exception here? I am not just suggesting that our art forms have deteriorated in quality – though this is exactly what has happened – but that there are many reasons that can explain such a decline. Where have our arts gone? Why hasn’t it still realised its potential? What can revive it? Who can revive it?

The importance of these questions cannot be emphasised enough. A society’s popular culture is a fairly accurate gauge of its intellectual achievements. It is true that this remains a function of economic position; hence rich countries have more potential for high cultural achievements, whereas poorer countries do not. Yet that is not necessarily the case all the time: the Indian film industry, to give one example, is considerably more diverse, and much richer, than its counterparts in countries like Singapore.

India is a case in point for the view that the greater the size of the population, the more sophisticated a country’s popular culture will be. But that also is not always the case: as the recent resurgence in African cinema shows, a big population does not in itself contribute to the upliftment of a culture to the exclusion of more pertinent factors.

This is not to say that issues of economic development or population are secondary to those other factors. Affluent countries can afford superior works of art, while poorer countries (of which India is a prime example) are able to do so with a public that patronises commercial works of art, which helps subsidise more serious ventures. In that sense, the US enjoys the twin advantage of a powerful economy and a large audience.

But to acknowledge these points is not to deny the relevance of other reasons for the growth or decline of artistic standards. In Sri Lanka’s case, any attempt at diagnosing the problems of its culture must hence start from an appraisal of the post-1980 decline in the arts: a phenomenon reducible to neither economics nor demographics.

Three schools of thought have attempted to explain this decline. The first school views 1956 as the reason: by empowering everyone to enter our schools and universities, so their logic goes, cultural and artistic standards were compromised. That is another way of saying that if schools and universities remained shut to poorer classes, those standards would have been protected and fostered by an elite minority.

The second school argues that with the advent of economic liberalisation in 1978, the government’s hold over artistic quality was loosened, thereby debasing cultural yardsticks, transforming lowbrow into middlebrow art, and raising the latter to the status of highbrow art. To invert Marx’s dictum, what was once profane now became sacred.

I personally think this argument holds more water than the first – not least because the first school tries to frame 1956 as avoidable, which it was not, and fails to distinguish between its progressive and regressive aspects, which should not be done – but it does not explain a point the third school dwells on: the debasement of our education system because of, and paradoxically in spite of, various reforms enacted after 1956.

This is where the line between the progressive and regressive aspects of what transpired that year must be drawn: though there was a need to democratise schools and universities and they were democratised, barring crucial reforms in the second Sirimavo Bandaranaike government (pioneered by a set of brilliant educationists and scholars like Neil Kuruppu and Douglas Walatara) no attempts were made to maintain quality in them.

The results are there for all to see today: while certain schools and universities produce better thinkers than others, one does not come across such thinkers as often as one would want. That these trends have spilled over to the performing arts is a no-brainer: we don’t produce original artists too often either. “Manike Mage Hithe” offers the promise of what Sri Lanka’s popular culture should be, but such ventures are rare.

The third school consolidates the arguments of the first and the second: it acknowledges concerns over the negative aftershocks of 1956, as the first school does, while tracing the trajectory of cultural decline to the period after 1980, when the abandonment of the United Front education reforms multiplied those aftershocks, as the second school does.

Any critique of the country’s less than brilliant cultural scene today should take into account these factors when proposing viable solutions. In particular, it should identify exactly quality has come down and how best we can go about improving it.

It is fashionable to say that Sri Lanka’s cultural standards remained high until 1956. To me though, this is a deeply fallacious argument: a comprador society, which is what prevailed before 1956, does not produce a genuine culture. A culture must dig deep in search of roots. The problem is not that such a search stunted artistic development in the country, as those who idealise the pre-1956 status quo think, but rather that it did not go deep enough. That paved way for a massive flaw in our education system: the delinking of the performing arts from their literary roots, slowly since 1956 and more rapidly since 1980.

What I am arguing here is that as actors, directors, and even scriptwriters, we don’t read as much as we used to. In saying that, I am not denying there are other problems we have to look into with respect to Sri Lanka’s popular culture. But as the central issue, this problem requires immediate resolution. The sooner we realise our priorities there, the sooner we will be able to address a deplorable, though no less reversible, decline in artistic standards. All it takes to confirm the reality of such a decline, of course, is to see Welikathara, see Heat, and then ask why we used to have it so good, and how far back we have fallen today.

The writer can be reached at udakdev1@gmail.com

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