Sri Lanka’s energy demand is expected to grow at about eleven percent each year to keep pace with economic growth of eight percent, but in the short term, has no new power projects coming on board.

“For that requirement, we have embarked on dual fuel based power plants, which we have also been planning for some time,” P B Jayasundera, Sri Lanka’s treasury secretary told marketing professionals this week.

“We have planned two power plants at Kerawalapitiya, one at a cost of 500 million dollars and another project with 300 million dollars and to back that, a terminal also in Kerawalapitiya.”

The projects can run on thermal fuel as well, while the terminal, which will be an unloading and storage facility for LNG, is being built in parallel.

“The terminal will be designed such that, once the project is commissioned in 2009 to provide power to the national grid, the country will also see about 600 megawatts fuel based power plants that can be converted into LNG based power generation in the country,” Jayasundera said.

Japan has agreed to fund one 300 megawatt project together with the terminal, Jayasundara said and will be the first project to be switched over to LNG.

The Japanese company selected for the project will first have to submit a detail feasibility study on building the power plant.

A second combined cycle plant run on furnace oil, also at Kerawalapitiya and with the option of being switched to LNG, will be built by local company Lanka Transformers, an official of the state power utility, the Ceylon Electricity Board (CEB) said.

“That investment pipeline (for both power plants) is also a done deal and is no longer a pipeline project,” Jayasundera said.

A single 300 megawatt power plant at Kerawalapitiya has been on the cards for a long time, but was repeatedly shelved after an opaque procurement process and terms being changed mid way through.

The new LNG plant will expand Sri Lanka’s energy mix and play a supporting role to an upcoming 300 megawatt coal power project in Puttalam, to bring down costs of generation.

Cost of electricity generation now ranges between 10-12.00 rupees per unit, but the CEB sells a unit at an average price of about 9.00 rupees.

“Our investment objective is that by 2010, to have a third of hydro power, a third of coal power and a third of LNG. This will be supported by all other alternative power in the country,” Jayasundera said.

“This will create a more risk diversified, low cost, internationally competitive power generation plan in the country.”

Sri Lanka generates nearly 60 percent of electricity through expensive diesel fired thermal plants, with the balance coming from low cost hydro plants.

But no new power plants have been lined up for 2007 or 2008 though demand for electricity is growing at between eight and ten percent.

If monsoon rains also fail to fill hydro reservoirs, as has happened in previous years, Sri Lanka may well be headed for blackouts next year.