SRI LANKA: GE TURBINES PART OF $90M U.S. CONTENT IN

UNCLAS COLOMBO 000610 SIPDIS SENSITIVE, SIPDIS STATE FOR SCA/INS, EB/IFD/ODF, AND EB/CBA TIM GILMAN COMMERCE FOR BRYAN LOPP AND EROL YESIN MCC FOR D NASSIRY STATE PLEASE PASS TO EXIM BANK E.O 12958: N/A TAGS: EINV ENRG ETRD PREL CE SUBJECT: SRI LANKA: GE TURBINES PART OF $90M U.S. CONTENT IN KERAWALAPITIYA POWER PLANT REF: A) 2006 COLOMBO 1589, B) 2006 COLOMBO 1425 ¶1. SUMMARY: Negotiations continue between the Government of Sri Lanka (GSL) and Lakdhanavi Private Limited (Lakdhanavi) for a 300 megawatt power plant in Kerawalapitiya described in reftels. The project plan anticipates that the Export Import Bank will provide guarantees and insurance for suppliers for this project, which will include around USD 90 million in US content. Plans initially called for a September 2008 completion date. However, the GSL now urges that the plant begin operations in late July 2008 due to anticipated power shortages, which can be partially alleviated with the earlier plant activation. This urgency increases the importance of timely ExIm Bank project approval. END SUMMARY. ¶2. (SBU) Sri Lankan company West Coast Power will build a 300 megawatt combined cycle power plant using U.S. content valued at about $90 million. West Coast will procure turbines from General Electric, a desalinization unit from NELCO, and plant superstructure from Bluescope for the $323 million plant, which will be located at Kerawalapitiya, north of Colombo. West Coast has signed a power purchase agreement and an implementation agreement with the Government of Sri Lanka for the development of the 25-year build-own-operate-transfer (BOOT) plant. Ravindra Pitigalage, Director, Lakdhanavi Limited (a semi-private spin off of the state-owned Ceylon Electricity Board, and 55 percent shareholder in West Coast) told Econoffs April 17 that the Kerawalapitiya plant is due to begin operations in September 2008. ¶3. (SBU) As reported in ref A, the arrangement anticipates that the U.S. Export-Import Bank (Ex-Im) will guarantee and insure the U.S. suppliers of the project. Other national export credit agencies are also participating with similar arrangements for their countries' exports. The entire deal is financed by HSBC in Hong Kong. TIMELINE PRESSURE DUE TO PENDING ENERGY CRUNCH ¶4. (SBU) Although West Coast's agreements with the GSL call for plant operations to begin in September 2008, the Ceylon Electricity Board (CEB) has asked West Coast to try to speed the project toward a July 2008 opening. The CEB seeks to avert a power crunch beginning in early 2008. Sri Lanka's energy needs have outpaced its power sector development over the past several years, as the GSL has been slow to approve needed power projects despite predictions of power shortages. If the Lakdhanavi plant could be operational by late July 2008, Pitigalage explained that the CEB could allocate more hydro power in early 2008, rather than maintaining reserves for late summer 2008. Pitigalage said that West Coast was trying to meet the earlier target date, but that doing so would require that every step of the construction and financing process occur without delay. ¶5. (SBU) COMMENT: The West Coast project will result in significant U.S. exports to Sri Lanka to meet its growing energy needs. Embassy advocacy has already helped keep this project on track. In light of Sri Lanka's need for power generation, the Embassy offers to cooperate with the ExIm Bank in any way to facilitate the Bank's smooth and expeditious entry into this project. BLAKE