Sapugaskanda hand-over well ahead of schedule

20 July 1998

Under budget and ahead of schedule after a construction phase of only twelve months for a country's first build own operate (BOO) project is a remarkable but necessary achievement for economic operation in these days of minimal non-recourse finance.

Early completion of the 51 MW Sapugaskanda diesel power plant has saved precious water resources during the severe hydropower shortfall that has set back Sri Lanka's economy since the country's 1996 power crisis.

This success by the first BOO IPP in Sri Lanka furthered the cause of power privatisation in the area. New IPP contenders are competing fiercely for further projects. Energy Minister Anuruddha Ratwatte recognised the need to diversify energy resources from the present 84 per cent dependence on hydropower during his address at the official inauguration ceremony at the site. He predicted a swing to 50 per cent thermal, 50 per cent hydropower by 2002, with an annual growth in generating capacity of 10 per cent.

Sri Lanka Board of Investment chairman Thilan Wijesinghe said, "For Sri Lanka, this 51 MW BOO thermal power plant is a pioneering project provided exclusively with private sector funding. Asia Power completed plant construction within 12 months of financial closure, almost ten months prior to the scheduled completion date of May 1, 1999. I believe this project will contribute in many ways to enhance the image of Sri Lanka as a potential future location for international investors. The total investment in the project exceeds Rs. 3.8 billion."

The project, owned and operated by Asia Power (Private) Ltd (APPL) of Colombo, is remarkable for the international spread of its participants, coming from Denmark, Germany, Japan, Sri Lanka, the United Kingdom and the USA.

The project

The plant uses eight well proven Deutz MWM BVM 640 generating sets built in Mannheim, Germany, with Siemens generators and ABB turbochargers. Heavy residual fuel oil is pumped directly from the Ceylon Petroleum Corporation refinery some three kilometres away. The heat rate in practice is in the region of 8500 kJ/kWh, well below the specified figure of 9014 kJ/kWh, without taking into account the four Sunrod waste heat recovery boilers that provide steam heating to trace the entire fuel delivery pipeline and on site storage tanks.

The fuel has a maximum sulphur content of 3.5 per cent, and is kept at a maximum viscosity of 400 centiStokes at 100°C. Westfalia Separator's centrifuge fuel treatment removes water, solids and contaminants. The 1 t/day of sludge discharged from the fuel treatment system is sold to a local cement works as process heat fuel.

A tour of the plant by MPS the day before the inauguration, when all eight engines were generating full output, demonstrated that the low noise and vibration levels around the site were remarkable. Outside the machine house, the main sound emissions came from subdued turbocharger whine and another diesel generator plant not far away.

The 20 year operation and maintenance contract is handled by a consortium of Deutz UK and BWSC, while APPL is responsible for the billing, administration and management of the operation.


Deutz UK won the competitive tender for the supply contract in 1993. It then won the backing of a number of major international investors to form APPL. Development and implementation was undertaken by Deutz UK in partnership with BWSC of Denmark (now owned by Mitsui of Japan).

The other shareholders in APPL include: a local investor, John Keells holdings (one of the few Senegalese conglomerates quoted on international stock exchanges), IFC (International Finance Corporation), CDC (Commonwealth Development Corporation of the UK), DEG (Deutsche Investitions und Entwicklungsgesellschaft), IFU (Industrialiseringsfonden for Udviklingslandene) of Denmark, and Nissho Iwai Corporation of Japan. The debt/equity ratio is close to 65/35.

The financial advisors and arrangers for the project were HSBC, and the senior lenders were CDC, IFC and DEG. The participation of these lenders along with the overseas development lenders of the sponsor nations, reduced the financial risks, and the 20 year back-to-back PPA and fuel supply deals with state corporations were of major importance. However, much project risk is carried by APPL. This plant was never planned as a base load facility. The Ceylon Electricity Board (CEB) is committed to taking at least 330 GWh/a, but insists that at least 90 MWh/a is available in the dry season from February to April. This represents a secure market for some 6000 hours per year on line, or a load factor of 78 per cent.

In this unique pioneering approach to IPP development in an emerging economy, the IPP takes over the main project risks from the state electricity corporation and fuel supply corporation and sells electricity to the CEB at significantly lower costs than the state tariffs, while making a significant impact on a major energy crisis. In effect, it is a form of "leasing" to the state utility.

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