Sri Lanka asks NTPC to shift planned plant again

In a fresh setback to the government’s neighbourhood-first policy, Sri Lanka has asked India to change—for the second time—the location of a stalled $500 million power project to be built by state-owned NTPC Ltd.

The long-delayed 500 megawatt (MW) power project is part of India’s strategy to wield greater economic and strategic influence in South Asia by helping to develop infrastructure projects.

This is the second such shift suggested by the Sri Lankan government—the first was in 2007—and comes amid tensions between India and Nepal over a trade blockade reportedly imposed by India following disagreements over Nepal’s new constitution.

The South Asia-focused neighbourhood-first policy is an initiative of Prime Minister Narendra Modi and a cornerstone of his government’s foreign policy.

Any change in the project’s location will require new studies to be conducted at the fresh site, potentially delaying the project by another two to three years. With substantial Indian investments already put into the project, there is growing doubt in New Delhi now about the Sri Lankan government’s seriousness to set up the project with India’s support.

According to government officials aware of the development, the island nation has requested India to move the project from Sampur in Trincomalee to Foul Point area in the same district in eastern Sri Lanka. The request was made by Sri Lankan Prime Minister Ranil Wickremesinghe on his first visit abroad to India after taking charge in August, the officials said on condition of anonymity. Sri Lanka’s position was also communicated to India’s high commissioner to Sri Lanka, Y.K. Sinha.

“While it is a strategic project, NTPC has to take a commercial call on the same,” said a person aware of the development, requesting anonymity.

In 2007, NTPC moved the project site from the south of Trincomalee to the north. The project involves an investment of $500 million and is to be set up in a joint venture with the Ceylon Electricity Board (CEB). NTPC signed an agreement with CEB and the Sri Lankan government in December 2006 and the project was initially expected to be commissioned and start generating power in 2011.

It was to be set up on a build, operate, own and transfer basis with a debt-equity ratio of 70:30. It was to have been NTPC’s first overseas project.

An NTPC executive requesting anonymity said, “Nothing is confirmed yet.”

The Sri Lankan government’s concerns regarding the Sampur site include changes in local socioeconomic conditions due to settlements by the displaced Tamil population; its reluctance to give environmental clearance; and expected litigations going forward. The Sri Lanka project has also been indefinitely delayed in part because of protests by the earlier Dravida Munnetra Kazhagam-led Tamil Nadu government against the Sri Lankan government.

The plant is expected to significantly enhance power supplies in the island nation.

While queries emailed to spokespersons for NTPC, the power ministry and the Sri Lankan High Commission in New Delhi remained unanswered at press time, Vikas Swarup, the spokesman for the ministry of external affairs, said, “We are in touch with the Sri Lankan government on this. Environmental clearance for the project is awaited. Both sides agree it should be implemented in a time-bound manner.”

Interestingly, India was initially relieved when Wickremesinghe returned as prime minister. India-Sri Lanka ties during the final years of president Mahinda Rajapaksa were tense due to Rajapaksa’s tilt towards China. Relations soured in particular over Rajapaksa’s move to allow Chinese submarines to dock at the Colombo port—twice. India considers the Indian Ocean region as within its strategic sphere of influence and was upset by Sri Lanka’s perceived lack of sensitivity towards it.

New Delhi was also upset that the Rajapaksa government had given a Chinese firm permission to build the Colombo port city project.

Despite the friction, experts believe that India will always accommodate Sri Lankan interests.

“India and Sri Lanka enjoy a very special relationship which is cultural and economic. India would always like to travel the extra mile. This project would have been the culmination of a concrete action to validate the special relationship,” said Anil Razdan, former power secretary.

During his visit to India in September, Wickremesinghe expressed willingness to conclude a comprehensive economic partnership agreement (CEPA) by next year.

Sri Lanka already has a free trade agreement with India, in place since 2000. CEPA, on the other hand, would cover trade in services and investment. There are fears in Sri Lanka that such a pact with India will result in a flood of Indian professionals into Sri Lanka, reportedly stoked by supporters of Rajapaksa.