Sri Lanka to cancel Indian coal plant deal; proposes LNG instead

Sri Lanka will cancel plans for a 500 megawatt Indian-built coal-fired power plant at its strategic eastern port city of Trincomalee and will instead opt for a liquefied natural gas (LNG) power plant, a cabinet minister said late on Tuesday. 

Chandima Weerakkody, Sri Lanka`s petroleum minister, said President Maithripala Sirisena told Indian Prime Minister Narendra Modi of the decision at a meeting on Saturday during Sirisena`s visit to the island nation`s larger neighbour.

"We do not want to hurt India. So President Sirisena in his visit has offered an LNG plant instead of the coal plant," Weerakkody told Reuters. "This has been discussed at the highest level and there is consensus." 

Sri Lanka is trying to increase its power generation capacity after a recent blackout that was the worst in 20 years, government officials say. 

B.M.S. Batagoda, the energy ministry secretary said the switch to LNG was proposed after ten years of opposition to a coal-fired power plant by the residents of Sampur, a village near Trincomalee, where India has already proposed to build South Asia`s largest petroleum hub. 

Area residents and environmental groups have resisted the coal power plant ever since it was originally proposed in 2006 due to worries about land clearance and pollution. 

Plans for the $500 million coal power plant project were finalised in 2011, when state-run Ceylon Electricity Board (CEB) and India`s state-run National Thermal Power Corporation Ltd (NTPC) agreed to form a joint venture for its construction. 

It is not clear which Indian companies would be considered as partners on the proposal to build a gas-fired power plant. Natural gas is a cleaner burning fuel than coal, but there would be the added hurdle that Sri Lanka has no LNG import infrastructure. 

Sri Lanka`s only coal-fired power plant with 900 MW capacity was built with a $1.4 billion loan from China in two phases. However, the Chinese plant has faced frequent repairs. 

India and China have been increasingly loaning funds to Sri Lanka over the last few years, mainly for infrastructure projects. Since the island`s civil war ended in 2009, the two rivals have been competing for influence in Sri Lanka, which sits right off one of the world`s busiest shipping routes.