China look to muscle in on Sri Lankan and Bangladesh power projects

China may wrest power projects away from India in Sri Lanka and Bangladesh, thwarting its bid to exert economic and strategic influence in the neighbourhood by developing infrastructure.

One such instance is Indian state-run power utility NTPC Ltd’s stalled plan to build a 500 megawatt (MW) plant in Sri Lanka. The island state is now said to favour a Chinese tie-up for the project.

Also uncertain is NTPC’s plan to set up coal-based power projects in Bangladesh. While NTPC may go ahead with the Khulna project having a final capacity of 2,640MW, the Chinese are keen to develop the 1,320MW Chittagong project.

India and China are in a race for the world’s resources as they seek to fuel economic growth. Indian efforts to step up energy diplomacy by engaging with Myanmar, Bangladesh and Sri Lanka aren’t having the desired result though. China is becoming increasingly influential by wielding its growing economic might without being constrained by the need to consider its own local constituents.

The Sri Lanka project has been indefinitely delayed in part because of protests by the Tamil Nadu state government against the Sri Lankan government. On Tuesday, this looked even further away from fruition as the Dravida Munnetra Kazhagam (DMK) pulled out of the United Progressive Alliance (UPA) to protest against the coalition government’s inaction on its demand that India vote against Sri Lanka in the United Nations Human Rights Council hearings in Geneva on 21 March over alleged war crimes.

The Indian government is caught in between, wary of antagonizing the Sri Lankan government, given the increasing involvement of strategic rival China in the island nation. However, India’s external affairs ministry said there was no such blip in projects.

“Both the statements relating to Sri Lanka and Bangladesh are entirely incorrect,” said Syed Akbaruddin, spokesman for the external affairs ministry. Prasad Kariyawasam, Sri Lanka’s high commissioner to India, also said there were no hurdles to the project. “Your information is absolutely false. The project documents will soon be finalized; negotiations are on its very last phase.”A team from NTPC is expected to visit Sri Lanka shortly.

Before the DMK move, India’s largest power generation utility had already told Sri Lanka’s Ceylon Electricity Board (CEB) that it can’t accept fresh terms proposed by the island nation.

A top executive, who didn’t want to be named, said the change in conditions was on account of “back-seat driving” by the Chinese. “Sri Lanka wants to reopen the earlier agreement to which we are not ready. It is a strategic project and not a commercial one. They want to give it to China, which has set up power projects there,” the executive said.

An NTPC executive close to the projects, who also didn’t want to be identified, said, “The Chinese are present in Sri Lanka and are vying for a strategic foothold. They are interested in developing the project there that we have planned as an equal joint venture (JV) between NTPC and CEB.”

NTPC and CEB signed the joint venture agreement in 2011. While a detailed feasibility report, which will form the basis for setting up the project, was submitted to CEB early last year, it is yet to get CEB’s nod. 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.

A third person also said the Sri Lankans wanted the Chinese to set up the plant. Sri Lanka had awarded a 300MW coal-fired plant in 2006 to China National Machinery Import and Export Corp.

The original plan was to start generating power from the $500 million (around Rs.2,715 crore) power project 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.

A power ministry official, who didn’t want to be identified, said, “Every country wants to get the best deal for itself.” Chinese firms are building Sri Lanka’s Hambantota port, an ambitious project that will service the busy east-west shipping route.

Ties that have traditionally been considered strong by India have also been fraying. India’s support for former Maldives president Mohamed Nasheed has seen the current regime regarding it with suspicion. India’s GMR Group recently lost a contract to run the Male airport. The Indian Ocean atoll nation spans some of the busiest sea lanes connecting Asia, Africa and West Asia.

In response to queries about China trying to wrest away power projects from India, an NTPC spokesperson in an emailed response said, “In Sri Lanka, NTPC is going ahead with the proposed 2x250MW coal-based JV project in Trincomalee, Sri Lanka. A JV company (Trincomalee Power Co. Ltd) has already been incorporated and the project agreements for the project like power purchase agreement, etc., are expected to be signed soon.”

“Regarding Bangladesh, it may be noted that NTPC is going ahead to develop a 2x660MW imported coal-based project at Khulna division of Bangladesh in joint venture with Bangladesh Power Development Board (BPDB). NTPC and BPDB have already signed a JV agreement in January 2012. Feasibility report for the project has been finalized. The project agreements like PPA (power purchase agreement), etc., are expected to be signed soon,” the spokesperson said.

In Bangladesh, even the India-friendly Sheikh Hasina regime hasn’t stopped the Chinese from making their presence felt. Mint reported on 18 November 2011 about India’s plan to develop the Khulna power project hanging in the balance after differences emerged between the two sides over tariffs and the use of Chinese equipment. While BPDB does not want the power tariff to exceed 4 taka (Rs.2.80) per unit, NTPC is of the opinion that the project will become unviable at less than Rs.3.50 per unit. Bangladesh also wants Chinese power generation equipment to be used in the coal-based project.

“Also, of the Chittagong and Khulna power projects planned to be developed in Bangladesh, the Chinese are keen to develop the Chittagong project,” said the first NTPC executive cited above.

Khulna is the parliamentary constituency of Prime Minister Sheikh Hasina and the plant will have a total capacity of 2,640MW, making it one of the largest power generation projects in the country. The project is to start before the one in Chittagong, which is planned with an initial capacity of 1,320MW that may later be expanded.

“NTPC does not have any information on any Chinese intention to develop a 1,320MW project at Chittagong,” the NTPC spokesperson said. Queries sent to the Chinese embassy and Bangladesh high commission in New Delhi last week remained unanswered.