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LVL Energy Looking to South East Asia

Sri Lanka’s LVL Energy Fund will invest in South Asia and Africa due to limited growth potential in the island due to the lack of stable policy and transparent energy pricing.

LVL Energy Fund raised Rs1.2 billion with a public offering of a 20.6% stake in the company in December 2017. A share was priced at Rs10, which was 2.04 times net asset value as at end March 2017.

The share traded on the Colombo Stock Exchange for the first time on Tuesday, closing 10 cents higher at Rs10.10.

“We love investing in Bangladesh and Nepal because they make it easier to invest, and energy pricing is clear and transparent,” says Sumith Arangala, Chief Executive at LVL Energy Fund.

“We’re exploring investment opportunities in hydropower in East Africa.”

The Company already operates two 50 MW thermal power plants in Bangladesh.

“The thermal power potential there is around 150,000 MW, it’s huge. Nepal has a hydropower potential of 40,000 MW and we’re investing 465 million rupees on a 10 MW plant there,” he says.

The company operates five hydropower plants through joint ventures in Sri Lanka with a combined capacity of 17 MW and two wind power projects with a combined capacity of 15.6 MW.

It will invest IPO funds on two new hydropower plants in Sri Lanka with a combined capacity of 4MW, and also retire debt.

However, potential to invest more in the island seems bleak.

“We like to invest in new hydro and wind power plants in Sri Lanka. We may even submit bids for a solar-power generation. However, the prospect isn’t attractive because CEB’s pricing policy is not transparent,” Arangala says.

“In Bangladesh and Nepal, everybody knows the energy price. But here, companies have to bid on price and this may not make it economically viable because we have to ensure decent shareholder returns,” he says.

“Bangladesh is bureaucratic but they’re also investor friendly. There is a lot of investor protection and approvals are not as stringent like in Sri Lanka.”

Arangala says LVL Energy is not positioned to bid on larger power generation projects here, which could give the company economies of scale.

“There is tremendous potential for wind power in Kalpitiya and in the Northern peninsula, but the available opportunity is limited,” Arangala says.

“All hydro projects here are less than 10 MW. It’s too expensive to go in for anything larger because of land restrictions and the unattractive pricing dynamics,” he says.
“CEB is our paymaster, so we need to diversify that risk by investing overseas. Sri Lanka’s grid is not able to handle fluctuations either which is another risk.”

Commenting on Sri Lanka’s renewable energy drive, particularly in solar energy with the government proposing a 150 MW solar energy park, Arangala suggests some restraint.

“Renewable power alone cannot solve Sri Lanka’s energy needs. We will need standby thermal power plants to avoid blackout because renewable energy can be unpredictable,” Arangala says.

The company is a unit of Lanka Ventures PLC, which is controlled by Acuity Partners.

LEF will use the IPO funds to settle debt amounting to 440 million rupees, retire preference shares worth 180 million rupees and the balance on new hydropower plants.

The company reported a non-recurring non-cash gain of 108 million rupees and a recurring net profit of 316 million rupees for the financial year to end March 2017, according to the prospectus.

“We made profits despite the drought because we had diversified the energy mix and ventured overseas,” Arangala says.

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