By: Staff Writer
September 10, Colombo (LNW): Sri Lanka’s decision to facilitate the proposed 350 MW Sahasdhanavi combined-cycle power project at Kerawalapitiya represents a potentially significant addition to national generation capacity, but the structure of the investment raises important questions about how the nearly US$291.2 million project will ultimately be financed and how its costs and risks will be distributed.
The Board of Investment agreement, registered on August 13 under Section 17(2) of the BOI Law, envisages total investment of US$291.19 million. Of this, only US$90 million—or roughly 31%—is identified as share capital. A substantially larger US$196.19 million, approximately 67%, is expected to come through loan capital, while another US$5 million will come from other sources.
This means the project is overwhelmingly debt-financed. While leverage can reduce the amount of equity developers must commit upfront, it also introduces financing costs and repayment obligations that ultimately have to be supported by the project’s revenues.
The critical question is therefore not simply how much foreign investment the project attracts, but how the dollar investment enters Sri Lanka, who provides the loans, under what terms, and how the foreign-currency obligations will be serviced.
Under the Build-Own-Operate-Transfer model, Sahasdhanavi will develop and operate the plant before eventual transfer. Such arrangements can mobilise private capital without requiring the Government to finance the entire project directly. However, the long-term economics depend heavily on the power purchase arrangements, tariff structure, fuel prices, exchange rates and financing conditions.
The project initially will operate on diesel, despite being designed for eventual operation on re-gasified LNG. This creates another economic vulnerability. Diesel generation can provide reliability and rapid deployment, but imported petroleum exposes the electricity sector to international fuel prices and foreign-exchange pressures.
The promised transition to LNG could improve the environmental profile and potentially provide more efficient generation. But that benefit depends on national LNG infrastructure and reliable gas supplies being established.
There are also clear advantages. The plant could provide up to 350 MW, strengthen system reliability and support growing electricity demand. Its location would consolidate Kerawalapitiya into a major generation centre alongside the 350 MW Sobadhanavi and 300 MW Yugadhanavi plants, creating approximately 1,000 MW of combined capacity.
The project is also expected to create 1,147 jobs and generate business for engineering, logistics, manufacturing and other supporting industries.
Nevertheless concentration of around 1,000 MW of generation in one area also raises questions about geographic diversification and system resilience.
For Sri Lanka, the central issue is therefore whether this US$291 million investment genuinely expands national energy security at competitive long-term cost—or creates another substantial foreign-currency liability for the power sector.
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