Sri Lanka warns private power producers

June 12, 2010 (LBO) - Sri Lanka has warned private power producers that it could go against deals signed to sell power to a state-run power distributor with the government getting into a new drive to cut the utilities losses.

Though the plants are governed by tight and complex agreements minister Ranawaka says the government could take unilateral action.

"The government did that with hedging deals with petroleum corporation," he said referring to hundreds of millions worth oil derivatives state-run Ceylon Petroleum Corporation has defaulted on.

He says if the contracts are tainted action could be taken.

Ceylon Petroleum Corporation's derivative deals valued at some 600 million US dollars are now in arbitration. They were struck with two local and three foreign banks.

IPPs are run by several local firms including listed Aitken Spence and Hemas Power.

Some have foreign investors and even the Asian Development Bank as shareholders.

Most of the IPPs came after 1997 when power shortages threatened to disrupt the economy and the country was in the midst of a 30-year ethnic war.

The war ended in 2009.

A 300 MegaWatt coal plant which can supply about 40 percent of the country's base load is due to come o