Posted on July 17th, 2017


Sri Lanka   has a very valuable asset in its harbours and ports, due to its strategic geographic location. Only Colombo however, has been fully developed as a commercial port. The port of Colombo is a sheltered port with breakwaters. It undertakes oil handling, bunkering, cargo handling and container handling.

Colombo port in 2016 has handled 5.7 million TEUs and has shown a 10 percent compound annual growth rate with a current capacity utilization of 80 percent of the port. The total revenue of the port was Rs.36 billion of which Rs.17 billion was earned from bulk cargo handling. Another Rs.1.8 billion and Rs. 1.9 billion were earned from SLPA’s interests in South Asia Gateway Terminals and Colombo International Container Terminals, the two private sector terminal operators at the Colombo port.

There are four terminals at the Colombo port. ‘Jaya’ and ‘Unity’ are operated by Sri Lanka Ports Authority. South Asia Gateway Terminal (SAGT) and Colombo South Container Terminal by private operators. South Asia Gateway Terminal is operated on a 30 year B.O.T. and is owned by a consortium led by John Keells Holdings, with A.P. Moller Group as the next major partner, followed by Evergreen International SA, Peony Investments SA and the Sri Lanka Ports Authority. Due to the lesser draft available at Jaya and SAGT, they will eventually service feeder vessels.

Colombo International Container Terminals Ltd (CICT) is a joint venture Company consisting of China Merchants Holdings (International) Co. and the Sri Lanka Ports Authority (SLPA). This terminal caters to ultra large vessels (ULVs).  All infrastructure facilities such as electricity, water , roads, security and  maintenance are  provided by the Ports Authority  for the private companies ‘which have got hold of the terminals’. The engineers and trade unions of the Port say Colombo Port could be made profitable without privatization.

Colombo now has a fifth container terminal, the Eastern Container Terminal (ECT) which is nearing completion. The Eastern Terminal will be the biggest terminal of the Colombo Port.  ECT is a deep water terminal to which deep draught ships can enter. It has a depth of 18 meters and can, within limits, handle mega-vessels carrying over 12,000 twenty-foot equivalent units (TEUs).

The Yahapalana government and the Sri Lanka Ports Authority (SLPA) have differed on how to run the ports to achieve profitability, not only for Hambantota but also for the East Container Terminal. In July 2016, SLPA called for Expressions of Interest (EOI) from container terminal operators to build and operate the East Container Terminal (ECT). It would be for a 30-year operating period after which the facility reverts to the SLPA. On the day the bids were due to be opened the Cabinet Appointed Negotiating Committee (CANC) informed the parties who submitted bids that the opening has been postponed indefinitely.

Critics suspected that geopolitics was involved and that additional eligibility conditions were to be introduced for the benefit of a particular firm. In January 2017, Ceylon Association of Shipping Agents (CASA) said it reliably understands that the government is trying to introduce new conditions. The new conditions totally contradict the initial conditions. These new conditions will eliminate all or most of the bidders.

Arjuna Ranatunga, then Minister of Ports and Shipping said in March 2017 that the Ministry had submitted two cabinet papers on ECT. But there was different thinking” by the Yahapalana government on how the ECT should be operated. The government believes that the terminal cannot be operated efficiently unless the terminal is privatized, said Ranatunga.

Ranatunga said the Cabinet Committee on Economic Management (CCEM) planned to introduce tender conditions to suit a single port operator ‘which would be out of line if pursued.’   CCEM has sought the advice of the Attorney General to achieve this objective. The SLPA officials had also met the officials of the AG’s Department and stated their concerns about the matter.

Ranatunga objected to long-term leasing of the ECT, constructed at a cost of Rs 10,800 million. He said the Government should hold on to the terminal and should start operating the ECT immediately . SLPA had planned to start using the terminal by March 2017.   SLPA only needed Rs10 billion to complete the construction of the Terminal. In May 2017, Ranatunga was removed and Mahinda Samarasinghe was appointed Minister of Ports and Shipping. In July    2017, Minister Samarasinghe stated that the terminal would be run as a joint venture project with a shipping line or a private terminal operator with 51 percent of equity owned by the SLPA.

It is alleged that Yahapalana government is planning to give the East Container terminal to an Indian company. Yahapalana says it would like to see an investor from India take a stake in building a container terminal in Colombo port. More than 60% of Colombo transship comes from India. In March 2017 it was reported that the state-run Container Corporation of India (Concor) had formed a consortium with APM Terminals, John Keells Holdings and Maersk Line to bid for the development of East Container

The Ports Protection Union Front (PPUF) is against the sale of the Eastern Terminal to a foreign company.”  They say the terminal could be made profitable without going for privatization. Government should hold the major share in    this terminal.  The Engineers Association of Sri Lanka Ports Authority (EASLPA) says the terminal could be easily turned into a profitable one with just about US$ 70 million investment on machinery. Importing and installing the machinery, would take around 11 months. From the 12th month, the terminal would make profits. Once the machinery is installed, the terminal would make a huge profit. The ECT should be made a terminal which handles bulk cargo for larger vessels. Some local banks had offered to fund the terminal, but Yahapalana government ‘shied away.  ‘

If the ECT is given to a private firm, the Colombo Port will lose business within five years, since the shipping lines which currently use the other terminals will move away, said Engineers Association of Sri Lanka Ports Authority. By offering the ECT to the private sector, the SLPA will lose future business from vessels, they stressed. It will also put the jobs of its employees at risk. Workers have been constantly carrying out protests against the sale” of the ECT and other issues pertaining to management decisions. Port workers are aware of the value of the ECT terminal.  ‘Employees are concerned because we won’t get as much revenue as we would like’ said the engineers.

Engineers Association of Sri Lanka Ports Authority announced in a statement released to media that the East Container Terminal (ECT) of the Colombo port, Hambantota port and the proposed industrial zone are money spinning assets of the SLPA but the government is trying to sell them. Arjuna Ranatunga as Minister of Ports said that the SLPA can work the Hambantota port and the ECT, adding I’m confident because I have done business around the world.  In the past too, SLPA had shown that it was capable of beating the private sector given the right management.

Shipping experts point out that India is developing two new transshipment hubs, namely Vizinjam in Kerala and Enayam in Tamilnadu, Both of which have less deviation, compared with Colombo, from the main East-West shipping route. These two ports are strategically geared to cater to Indian as well as regional transshipment cargo.  Unless the SLPA moves fast, the traffic would be attracted by such new regional ports. After that it will be difficult to lure the ships back.

But it will not be that easy to displace Sri Lanka. When you look at the shipping lanes on a world map you straightaway see that the best place for a ship to stop is a port on Sri Lanka’s ample bottom. This is definitely the best location when coming in from the east and also from the west. Hambantota port was created for this reason.

In March 2017, Cabinet unanimously approved the Hambantota Port Joint Venture and setting up of an industrial zone attached to it.  Hambantota port would be developed as a leading international port in the region.  Yahapalana also plans to sign agreement with China on proposed special economic zone in Hambantota.

Hambantota would be a joint venture agreement, China Merchant will hold 80 percent stake, while the balance 20 percent will be held by the Sri Lankan Government. However, after the lapse of five months, 20 percent of equities will be available in the share market. Within five months, we can reduce 80 percent stake of the China Merchant company to 60 percent. We can up our stake upto 40 percent. The Joint Venture will be operated by a locally registered company. Security related activities in the port will be handled by the Sri Lanka Navy, The current framework agreement also allows the SLPA to buy back a further 20 percent stake in the venture after 10 years of operation, taking the Sri Lankan stake at the Port to 40 percent.

Ranatunga noted that the terms of handing over the port to the Chinese company were changed four times. The Sri Lankan government has asked for a further renegotiation of the lease period in the Agreement. We have asked that it be reduced from 99 years and the China Merchant Port Holdings Company is looking into whether they can achieve the same results with the current model or change it to a different one if the time period of the lease is to be changed, said Minister Samarawickrama in April 2017.

Yahapalana has stated firmly, that Hambantota port will not be sold to anyone under any circumstances. The ongoing discussions are aimed at leasing of the port for a specified period while keeping a certain share of the ownership with the government under terms and conditions acceptable to the country, as indicated above. Hence, this will be a joint venture with the long term leasing of the port, which will involve a company registered in Sri Lanka and operating under this country’s laws. By no means, this will be a sale of the Hambantota port to any private sector company.

Vasudeva Nanayakkara filed a Fundamental Rights petition seeking an order to quash the Framework Agreement entered into by the Government of Sri Lanka with two Chinese companies. The Petitioner states that this petition relates inter alia to the infringement and imminent infringement and continuing infringement of the Petitioners fundamental rights guaranteed in terms of Article 12 (1) of the Constitution, by the arbitrary, capricious, mala fide and illegal and unlawful decision of  Yahapalana (respondent) to enter into an agreement with the People’s Republic of China for the promotion of investment in Sri Lanka by Chinese investors and lease and convey and enter into an agreement or in any other manner dispose approximately 15,000 acres of land and/or 50 Square Kilometers. Chinese ambassador observed, There is still no contract, no agreement. It is only with reference to the port still. So how can anyone go to courts on this?   The case was thrown out. But it can return to court once the agreement is signed.

Arjuna Ranatunga, then Minister for Ports and shipping, said the plan the SLPA had for Hambantota port was ‘different to that of the government. SLPA wanted to operate the port without handing over the port to a third party. SLPA had raised about 30 concerns on the Yahapalana deal with China. Further, SLPA had called RFP (Requests for Proposals) three times in the past. The first time in 2010 drew 27 proposals, 10 in 2012 and another 10 in 2016 of which four were for bunkering.  Yahapalana has not opened the 2016 proposals. They are kept sealed.

Rohan Abeywickrema, former chairman of the Chartered Institute of Logistics and Transport said repeated attempts to attract investments to Hambantota, had failed. At present, the port’s only business is vehicle transshipment which was not enough to repay loans taken from China to build the harbor. An attempt by the Sri Lanka Ports Authority to do bunkering or ship fuel sales at Hambantota ended up with big losses.

Hambantota made massive losses in the bunkering business, Abeywickrama said. In the first place the SLPA should not have undertaken bunkering which is not their core business. The SLPA lost heavily. Total losses at Hambantota port since 2013 added up to Rs15.6 billion. Despite talks by officials and politicians of the former government of cement factories and sugar refineries none have ‘seen the light of day’. The reasons could be because of lack of infrastructure, the high cost of utilities in the remote dry zone region, the lack of a hinterland to generate business and non-availability of supporting services, Abeywickrama said.

Chinese interest in the Port continue to be viewed with suspicion, especially with regard to its military interests,  Prime Minister Ranil Wickremasinghe speaking at a business forum organized by the Japan External Trade Organization in Tokyo stressed in that the Hambantota Port would not be a ‘Military Port’ with security being strictly handled by the Sri Lanka Navy and law enforcement agencies.

The Agreement on the joint venture between the Chinese company and the Sri Lankan Ports Authority precludes any foreign country from using the harbour for military purposes. It is only a commercial operation. We do not want any of Sri Lanka’s harbours to be used for military purposes other than that of the Sri Lanka Navy, he said.

Law and order at the Port would be handled by the Police, Customs and Immigration of the Sri Lankan government and all internal port security would need to hire Sri Lankan staff. Any warship can come into the Port, provided the Government of Sri Lanka agrees to it,  Wickremasinghe reassured his Japanese audience that any violation of conditions in the agreement would mean that the Sri Lankan government could take over the Port without payment of compensation.

Despite claims that 50 companies, most of them Chinese have come forward to invest in the proposed Hambantota Industrial Zone, there is no evidence that they have done so. State Minister for International Trade Sujeewa Semasinghe said, we are expecting them to invest in various sectors including infrastructure, manufacturing water tanks in the industrial zone, but as of now we are not sure ‘of the comprehensive details of their investment plans’.

Yahapalana also has plans for Galle harbor. Yahapalana proposed to have a Marina at Galle at a cost of $40 million. A proposal has been submitted to Cabinet. Galle port is already a popular port of call for ocean going yachts. However Sri Lanka itself does not have a significant fleet of yachts, or marina or a culture of owning and using yachts despite Sri Lanka being surrounded by the sea.

Sri Lanka will use the ‘Swiss Challenge’ method to identify a developer for a yacht marina in the Southern port of Galle. The Swiss challenge involves giving other parties a chance to better a proposal made by an unsolicited investor. This method starts with an unsolicited bid, other parties are then invited to join in. Critics say that Swiss Challenge may be a way of awarding the contract to a known party, and yet let other contenders have the right to overbid. The original proposer who worked tirelessly hand in hand with the state agency has the right of first refusal.

Sarath Obeyesekera says   ’I am sure that investing in Galle harbour to be developed as a Marina will be viable’.  It would have been more transparent if the state agency calls EOI with basic guidelines and invites the interested parties to come up with their intent to work with the state agency at their own cost .Once a reliable party is selected ,  Yahapalana can work  with this party , prepare the RFP together and advertise so that others can bid..

Arjuna Ranatunga , then Minister of Ports and Shipping stated In  March 2017,  that  the development of    Trincomalee  port is being worked out with the Asian Development Bank (ADB), Japan will work with India on the Trincomalee port, while Singapore is expected to help develop Trincomalee city. The Master Plan for Trincomalee  Includes an industrial zone with areas allocated for leisure, Trincomalee   could also have oil refineries and an LNG plant.  The rail link from the port would be used to transport goods out of the port. Trincomalee   harbor is a unique asset for  Sri Lanka  It is a valuable naval harbor for warships and submarines. America’s Seventh Fleet would love to  move into it. The talk about making Trincomalee  a commercial port is intended to hide its  military  importance  as a naval port.

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