Sri Lanka in talks on $600 mln Japan loan for coal power plant

COLOMBO, June 7 Fri Jun 7, 2013 7:36am EDT

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COLOMBO, June 7 (Reuters) - Sri Lanka is in discussion with Japan about a $600 million loan to fund the construction of a 600 MW coal power plant, the power ministry secretary told Reuters on Friday, as the island nation aims to lower power generation costs.

Sri Lanka raised its electricity tariff sharply in April in as part of efforts to reduce losses at the state-run power company. Extended droughts have cut hydro power generation and forced it to use more expensive oil.

"We are considering a super critical coal power plant which produces no ash and smoke. We have had discussions with the Japanese government and JICA (Japan International Cooperation Agency)," Power and Energy Ministry Secretary M.M.C. Ferdinando told Reuters.

Super critical refers to the latest generation of coal-fired power plants which are more efficient than conventional designs.

"The cost is estimated at $600 million. This will be from a 40-year concessional loan. We have proposed a 600 MW capacity plant. But all will be decided after the feasibility study."

Ferdinando said a Japanese team is scheduled to visit Sri Lanka for the feasibility assessment in two weeks.

He said the new plant was expected to be built in the south, which is a popular tourist destination: "We want to emulate plants in Japan where there are tourist hotels above the coal plants."

The government is caught between trying to keep power prices in check and helping the state-run electricity board, which officials expect to post a loss of roughly $355 million this year.

The use of coal is cheaper than natural gas for generating electricity and Sri Lanka has built a 300 MW coal plant with a $455 million loan from China's Exim Bank in the northwestern coastal town of Norochcholai.

The bank has loaned a further $891 million to expand the plant to a generation capacity of 900 MW.

India's National Thermal Power Corporation and Sri Lanka's state-run electricity board are also in talks regarding construction of a 500 MW coal power plant on the east coast. (Reporting by Shihar Aneez; editing by Jason Neely)

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