China Eximbank provides $300 million preferential buyer’s credit for Phase I of Puttalam/Norochcholai Coal Power Project (Linked to Record ID#33463 and #33452)

Project narrative

On August 30, 2005, China Eximbank signed a $300 million preferential buyer’s credit (PBC) agreement with the Ministry of Finance of the Government of Sri Lanka for the Phase I of Puttalam/Norochcholai Coal Power Project. The PBC (captured via Record ID#33244) carries a 20 year maturity, a 5 year grace period, and an interest rate of 2%. It had disbursed $142,821,238.39 as of December 31, 2007 (Rs. 15,792,886,899) and $168,963,610.51 as of December 31, 2008 (Rs. 18,303,490,000). The borrower made repayments worth $19,978,236.69 in 2014 (Rs. 2,608,894,000). The PBC’s amount outstanding was $270,343,633.50 (Rs. 35,303,310,000) as of December 31, 2013, $210,000,000 as of December 31, 2016, and $100,000,000 as of June 30, 2022. On September 8, 2006, China Eximbank signed a $152,982,428 buyer’s credit loan (BCL) with the Ministry of Finance of the Government of Sri Lanka for Phase I of the Puttalam/Norochcholai Coal Power Project. The BCL (captured via Record ID#33463) carries a 15 year maturity, a 5 year grace period, and a 6% interest rate. The BCL’s amount outstanding was $3,960,517.11 (Rs. 517,191,257) as of December 31, 2013, $130,035,063 as of December 31, 2016, and $45,894,728 as of June 30, 2022. The Ministry of Finance of the Government of Sri Lanka then used the proceeds from the BCL and PBC to on-lend to Ceylon Electricity Board (CEB), which is a state-owned electricity company that controls all major functions of electricity generation, transmission, distribution and retailing in Sri Lanka. This project involved the installation of a 300MW coal power plant, a jetty for coal handling, and transmission lines from Norochcholai to Veyangoda and substation at Veyangoda. China Machinery Engineering Corporation (CMEC) was the contractor responsible for project implementation. A project inauguration ceremony took place on May 11, 2006. Phase I construction began on July 23, 2007. The first 300-megawatt phase was completed and ceremonially commissioned by President Mahinda Rajapaksa on March 22, 2011. However, there are indications that project has encountered debt repayment problems. In 2021, CEB disclosed that the Sri Lankan Treasury had ‘take[n] over [its] repayment obligation[s] due to non-availability of appropriate income based on the tariff approved by [Public Utilities Commission of Sri Lanka].’ Then, on April 12, 2022, the Government of Sri Lanka announced a ‘pre-emptive’ sovereign debt default, noting that it would suspend debt repayments to all external creditors other than multilateral institutions. Its decision to suspend external debt service reportedly affected all China Eximbank loans with amounts outstanding at the time of the announcement. The project has been controversial since the inauguration. The three units have broken down several times after they were put into operation. A recent breakdown happened on August 8, 2023. According to certain Sri Lankan experts, a reason behind the plant’s persistent breakdowns is China’s failure to train Sri Lankan staff in maintenance. Insufficient staffing and funding since its establishment have resulted in inadequate maintenance, exacerbating the plant’s issues. At the same time, the project also has environmental concerns. In 2019, a study conducted by the University of Peradeniya highlighted that sulphur dioxide levels in the air surrounding the Sri Maha Bodhi tree exceeded the recommended limits set by the World Health Organization. The study also found a correlation between sulphur dioxide levels and the number of dead leaves on the tree.