Friday, November 26, 2010

Sri Lanka Hemas expects govt to honour power deals

Nov 26, 2010 (LBO) - Hemas Holdings group expects Sri Lanka's government to honour power purchase agreements with investors who set up private power plants and helped ward off power cuts despite talk of renegotiating them, a senior official said.

Hemas chief executive Husein Esufally said private power suppliers had not been officially informed the government wants to renegotiate the power purchase deals.

Minister of Power and Energy Champika Ranawaka has repeatedly made public pronouncements that the government will renegotiate deals with private thermal power suppliers to cut the costs of the loss-making state utility, Ceylon Electricity Board.

He has said the high cost thermal power plants will eventually be phased out as the government was switching to cheaper coal and considering nuclear power as well.

"We do not think the government will renege on these agreements," Esufally told LBO in an interview.

In the September 2010 quarter, the Hemas power subsidiary made the second biggest contribution to group profit. The unit has both a thermal power plant and several small hydro plants

Esufally declined to say what impact government moves to renegotiate the power deals would have on the group, saying it was speculative, but added:

"The role of independent power producers is not well understood. Today one of main reasons Sri Lanka does not have power cuts if because the IPPs played a very important role in Sri Lanka's energy story."
Power minister Ranawaka himself told a forum of exporters last week that Sri Lanka is the only country in the region without power cuts.

"Early entrepreneurs in this game who took the risk and went in and should really be rewarded but unfortunately are spoken of in very negative terms largely because early IPPs carried very high tariffs," Esufally said.

Esufally acknowledged that in future the government may not need the thermal plants because of the switch to coal but noted that if not for attractive tariffs offered initially private entrepreneurs may not have invested in power plants.

"There are very water tight agreements in place guaranteed by the state," he said referring to the PPAs. "The government on its own can't change them."

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