The Independent Power Producers (IPPs) engaged in thermal power generation using furnace oil and diesel in Sri Lanka are likely to suffer a severe blow with the authorities resorting not to renew the power purchase agreements (PPAs) entered into with them.

A highly placed government official who requested anonymity told Mirror Business, a policy decision has been reached at Treasury level not to renegotiate with the IPPs, when their agreements lapse due to the high cost involved and the expansion of coal and mini-hydropower plants.

The Ceylon Electricity Board (CEB) has been buying private power since mid-90s following the introduction of the IPPs to overcome electricity shortages the country was suffering from.

At present, Sri Lanka has eleven thermal power-based IPPs besides many others that produce energy through alternative sources. However, the island’s dependency on thermal power increased by about 36 percent to about 59 percent last year, statistics showed.

The IPPs such as Hemas Power Ltd currently operates a 100 MW thermal power plant, Heladhanavi, a joint venture with Lakdhanavi Ltd, while blue-chip conglomerate Aitken Spence also operates Ace Power Embilipitiya, Matara and Horana with a capacity of 100 MW, 24 MW and 20 MW, respectively.

The other thermal IPPs include Asia Power, Lakdhanavi, Colombo Power, AES-Kelanitissa (stateowned), Aggreko-Chunnakam and West Coast Power.

Meanwhile, Mirror Business reliably learns that two thermal power plants, each having the capacity of 24 MW belonging to blue chip Aitken Spence PLC in Matara and Horana are currently lying idle, following the expiration of the PPAs with state-run Ceylon Electricity Board in March and December 2012, respectively.

The PPA of the largest thermal power generating plant in the Aitken Spence group, Ace Power Embilipitiya, with a capacity of 100 MW is set to expire in 2015. The power sector constitutes a substantial portion of Atiken Spence’s profitability.

As a result, Aitken Spence is currently exploring the possibilities to set up two thermal power plants in Bangladesh with a combined capacity of 200 MW for which timelines are yet to be finalized.

When queried about the financial impact of the possible non-renewal of the PPAs by the authorities, Aitken Spence declined to comment on the matter. They further declined to comment on the two thermal plants that currently lay idling, following the expiration of the agreements.

Meanwhile, the PPA between Heladhanavi, a joint venture between the listed Hemas group and state-owned Lakdhanavi and the CEB is set to expire in 2014.

Once contacted, Hemas Power PLC Managing Director, Kishan Nanayakkara declined to comment, emphasizing the sensitivity of the matter.

According to industry sources, already several thermal power suppliers are currently exploring the possibilities of relocating their existing plants in a few countries in the African continent.

“It is very unlikely for the CEB to renew the agreements as a result of expected lower thermal power generation amidst high rainfall in the latter part of 2012 and increased tariffs for hydro and other renewable energy power plants. Even if they renegotiate, the tariff paid to the IPPs won’t be high as the tariffs of initial PPAs,” an energy sector analyst said.