YAHAPALANA AND HAMBANTOTA Part I
Posted on March 4th, 2017

KAMALIKA PIERIS

Hambantota port is located on the Southern tip of Sri Lanka. It is ideally located at the intersection of the major international shipping routes.  It is within 10 nautical miles from the world’s busiest maritime lanes.  Approximately 200 to 300 ships sail along this route daily. Experts agree that Hambantota port has the   potential to be a key port in South Asia,  functioning as a logistical hub between Singapore and Dubai.

With Mattala airport located just 20 minutes away, Hambantota is an ideal location for a sea/air hub and a Free Trade Zone (FTZ),   similar to Jebel Ali port and Dubai World Centre airport in Dubai, UAE. FTZ are ideally located near a sea port or an airport and Hambantota is a fine location. Hambantota is well positioned domestically as well.  It in the Southern province, but it is also directly linked to the Central and Eastern Provinces through roads.

In 1997, the Southern Development Authority was looking at projects for the Ruhunupura development campaign. This included an international seaport projecting into the ocean at the Hambantota bay. There was plenty of land available, a good geographical location, road network  and water supply.

Mahinda Rajapakse, then Minister of Ports, Shipping and Fisheries recognized the importance of this project. The proposed Hambantota Port was brought under the Sri Lanka Ports Authority (SLPA) by Gazette notification on 8 November 2001, and a project office opened. SNC-Lavalin, a Canadian consultancy firm did the feasibility study almost free, in 2003, as part of a Build-Operate-Transfer (BOT) project to be undertaken by the investor. SNC-Lavalin suggested a container port under a public private partnership.    Tenders were called and Ramboll of Denmark was selected to carry out a feasibility study .The cost was to be borne by the Ports Authority. Ramboll appears to have provided their report in 2006.

A master plan for Hambantota port was developed. Hambantota   port was   planned as an industrial port.  It was to be a free port where goods could be manufactured or value added and shipped overseas. It would also offer other services, such as ship repairing and logistic support. A ship which arrived at Hambantota instead of Colombo port saved three days of sailing time and fuel. Hambantota would generate revenue for the state and provide employment. The port would occupy an area of 1,815 hectares. It would have four terminals, 12 berths and the capacity to handle up to 5 million TEUs per annum. There would be railway and highway networks, an oil refinery and associated facilities as well.  When completed it would be the world’s largest port built on land.

Rajapakse said that he did not select Hambantota simply because it was his electorate. Our policy, he said, was to correct the imbalance between the western province and the other provinces, by taking investment and jobs to areas like Hambantota and the East Coast and create another population centre and another development zone.  We are now a nation of 20 million and we need another population centre instead of everyone converging on western province.

Hambantota port provided a much needed boost to the southern district. The rural south had been neglected from colonial times. . The development of Hambantota port meant that Hambantota was not longer a sleepy town. It had acquired ‘serious future importance’ as a port close to the active sea lanes off its shores.

President Rajapakse turned to China for assistance and a contract was signed in 2007. Hambantota became part of China’s ‘necklace of pearls’, a series of strategically placed Indian Ocean ports funded by China. The project was funded by China’s Exim Bank, (85%) and Sri Lanka Ports Authority, (15%) and executed by two Chinese construction firms.

The first phase of the Hambantota port development project commenced in 2008   was completed by 2010 and the harbor formally declared open. The bunkering facility and a tank farm were completed in 2011. Both in-port and off-shore bunkering services were planned for the port. An administrative building, consisting of 14 stories was also built. Hambantota port became partially operational in 2011.

Phase II of the project commenced in November 2012. This phase involved the construction of several berths (main, multipurpose, transition, oil),   feeder, container terminal, an artificial island, coffer dam and other yards, handling facilities and access roads.  The Entrance Channel was deepened from 16m to 17m. The port had 11 berths and about 2,500 hectares of land.

In Phase III the adjacent areas were to be developed. Sri Lanka   Ports Authority (SLPA) had negotiated deals with 11 Chinese firms to set up various ventures, such as cement, fertilizer, warehousing on the port’s 2000 hectares, with guaranteed royalties. Also a contract with China to supply port equipment such as cranes. But phase 3 never got going. The arrangements were halted after the Yahapalana government came into power.

Engineers Association, Sri Lanka Ports Authority (EASLPA) said that the original plan was to establish the country’s largest industrial zone inside the port premises with an extent of 7 square kilometers, through which the government had planned to earn income from multiple sources. The plan was to lease one hectare of land at the rate of Rs.7.5 million subject to 3 percent annual increase.

Rajapakse said the loans taken for the construction of the harbor, were 450 million USD for the first phase, 70 million USD for the bunkering facility and 802 million USD for the second phase bringing the total to around 1,322 million USD. All the necessary feasibility studies were done before these loans were taken and the annual interest plus capital repayments would amount to about 111 million USD.

‘My government had planned to raise that money through the Ports Authority itself.’ His government had set up a joint venture between China Harbour Co and China Merchant Co to operate the Hambantota container terminal for 40 years. Our plan was to break even within ten years. These are investments that last centuries and a new harbor cannot be expected to produce large profits in the first few years, Rajapakse observed.

However, the Hambantota port project has met with heavy criticism. In January 2017 at a seminar on investment in Hambantota, one speaker said, we need Hambantota but it is a bit too early. It was cart before horse. We should have got the logistics in place first. The port should have been built after the industries were set up, as had been recommended in the 2003 feasibility study.

Another critic said that no one is interested in Hambantota. Sri Lanka called Request for Proposals, RFPs three times but there were no takers Hambantota lacked the additional infrastructure needed, such as   energy and power, schools, hotels. There was no business base to support the port. Hambantota’s only hope is to become a ‘maritime industrial development area’ MIDA. Hambantota is not a strategic port for commercial shipping business, the critic added. Hambantota is useful only for port based industries. The port had earned Rupees 750 million through fuel bunkering in 2014, but this critic said it was a mistake to get into bunkering in Hambantota. Vessels can be fed by Colombo or Singapore. The 2003 feasibility study was very cautious on the subject of bunkering, but its recommendations were not followed.

Walkers Colombo Shipyard Managing Director Sarath Obeysekera said, on a separate occasion, that port officials and influential politicians had blocked several local and foreign entrepreneurs from investing in the Hambantota Harbour during the Rajapakse regime. If they allowed the local companies interested in Hambantota to invest, it would not have been necessary to seek Chinese assistance. If the local investors, with or without foreign collaboration had been allowed to proceed, Hambantota Port would have been a self funding and a viable venture.

Obeysekera said SLPA had called RFPs for various industries, bottling plants, sugar bagging factories, ware housing but they were never processed.    A few other investors were keen to install refineries and oil tank farms and both governments were not interested. One local entrepreneur wanted a piece of land in the harbor to install a grain processing plant and the SLPA turned this down as well.  “After the change of the regime, the SLPA again called RFPs for bunkering. Those too were not processed due to influence from the current regime.

Cosco Ship Builders, China Harbour Corporation and a local investor was ready to invest US$ 400 million to build a 300,000 DWT Dry Dock (with four berths, Quay Length 1.5 km, land occupation on a 50 hectare land) and also a Floating Dock. The project proposal also included a ship repair and conversion under the first phase and ship building facility under phase II. The Sri Lankan company even placed the order for a floating dock to be placed in Hambantota for ship repairs.  SLPA turned down these proposals. A company which operates a mega oil tank farm in the Middle East wanted to have a private public partnership in the oil storage and bunkering operations. But due to the influence of a young politician in the area it too was shelved by the Chairman.”

Japanese, South Korean and Indian car makers have used the port for transshipment of vehicles.  In the first nine months of 2014, the number of vehicles handled at Hambantota crossed the 100,000 mark. Tata and Maruti sent its vehicles. The biggest user of the port was the Hyundai plant near Chennai. All Hyundai vehicles made in South Korea, China and India would in future be transshipped through Hambantota. MV Hoegh Tracer, the world largest car and truck carrier will call at Hambantota port in March 2017. Hoegh will use the Hambantota port as a major transshipment hub for their cargo.

Ambassador for the Republic of China,   delivering the Sujata Jayawardene Memorial lecture, in February 2017, said Hambantota is a really good project.  Hambantota is the best location for international navigation.  An industrial Zone in Hambantota is perfectly natural. This is standard today. There are special zones all over the world. Hambantota will be very important for Sri Lanka in the future.  Experts pointed out that when completed,   Hambantota Port project would bring in a non-debt creating, non out-flowing FDI of US$1 billion. FDI projects affiliated to Mattala Airport could also bring in US$ 300-400 million.

One Response to “YAHAPALANA AND HAMBANTOTA Part I”

  1. aloy Says:

    The money we owe to China should not be the reason to sell the port and give a large extent of land around it to China for two hundred years. That country is a world super power and going to have clashes with USA in the near future. Making Hambanthota a Chinese base is inviting trouble to our country

    Reduce the import of expensive cars and increase the price of fuel in such a way that would not affect the low income earners. Also reduce the import of unnecessary luxury items. I am sure GOSL can then save enough money to pay these loans.
    As Dr. Sarath Obeysekera has said allow local companies go into partnership with foreign companies with proven records to manage this port.
    In order to give confidence to investors and business community remove the economic management committee that is mishandling every thing along with PM.

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