Posted on August 6th, 2017

BY RAVI LADDUWAHETTY Courtesy Ceylon Today

Former President Mahinda Rajapaksa,in a special interview with Ceylon Today Sunday Edition, alleged that the Unity Government has accepted the bid from China Merchant Port Holdings Ltd, been accepted in a backdrop where the other company China Harbour Co. Ltd which had submitted the bid in a much more favourable one to lease the free port on a 65-35 equity sharing basis for 50 years with an upfront payment of USD 750 million plus the payment of all the charges they had earlier agreed to with regard to the container terminal management contract.

The former President, who also retained the Cabinet portfolio of Ports and Shipping himself during his tenure which was earlier allocated to his brother Chamal, prior to the latter’s appointment as Speaker of Parliament and where over 70 per cent of the National Budget was allocated to himself and the family, alleged that the government has chosen the least favourable bid despite (according to information available to him and the JO) the Sri Lanka Ports Authority having recommended the other bidder.

“Details of how the two proposals were evaluated have not been disclosed,” he said.

Sovereign rights

He also alleged that a 99-year lease impinges on Sri Lanka’s sovereign rights because a foreign company would enjoy the rights of the landlord over the 2,000 hectare free port while operating the entire harbour as well.

“This is not an issue between Sri Lanka with China or with foreign investors. It is about getting the best deal for Sri Lanka. The agreement that my government negotiated with both China Harbour Co and China Merchant Co to manage the Hambantota Container Terminal for 40 years is the best deal yet,” he told Ceylon Today.

The bid made by China Harbour Co Ltd for a 50-year lease is obviously more favourable than the bid made by the other company. As a matter of principle, I am against the leasing of the entire harbour for 99 years and giving the rights of the landlord over the industrial zone to a foreign private company, the former Head of State and Head of Government told Ceylon Today.

The industrial zone and the harbour should be controlled by the Sri Lanka Ports Authority (SLPA) while harbour operations may be given on management contracts to the private sector. For example, the Colombo Port is run by the SLPA and two private operators – South Asia Gateway Terminals Ltd (the Queen Elizabeth Quay) and Colombo International Container Terminals Ltd (the Colombo South Port).

Privately run terminals

The SLPA has full control over the Colombo Harbour as well as equity in the two privately run terminals. I believe this should be the approach to the Hambantota Port as well, he said.

A framework agreement has been signed by the government with China Merchant Port Holdings Ltd to lease out the entire free port for 99 years for a payment of 1.08 billion USD on a 80 per cent–20 per cent equity sharing basis. No other income will accrue to the SLPA for 15 years, after which they will receive dividends for their 20 per cent stake only if dividends were declared.

The lease will be extendable for another 99 years and a 44 hectare artificial island outside the port has been included in the deal. There is provision for the construction of another 20+ berths and the rights over these too have been given to the lessee, he alleged.

The amount of the lease seems to have been based only on the construction cost of the port without an accredited international valuation reflecting the strategic location value of the port, the value of the 99 year period, its 2,000 hectare land, the oil tank farm and the value of its present commercial operations.

This is not an issue that can be resolved by baton-charging or tear gassing protestors or having them assaulted by thugs and remanded, he said.

Financial benefits

There are real issues relating to the financial benefits that will accrue to the country from this deal and issues of control and sovereignty over the free port and possible environmental issues that need to be addressed, he said.

Apart from the entire Hambantota free port, he alleged that the government had decided to lease a further 15,000 acres outside the free port to a foreign company for 99 years. In a situation where even the 2,000 hectares within the free port have not been utilized yet, on what grounds can we justify the leasing of another 15,000 acres to a foreign company, he asked.

The total land area of all the Board of Investment (BOI) economic zones in the country at present put together do not amount to 2,000 hectares. A 15,000-acre zone in Hambantota will be disproportionate to our country’s economy, he said.

Furthermore, the disruption caused to the people of the area will be immense if 15,000 acres of land were to be acquired for this purpose.


The government should fill the free port with investments first before opening more zones. Furthermore, the government should have supervision over the kind of factories that will be opened in the industrial zones, the fuel they use and the waste they produce.

My government agreed only to the use of LNG gas, even though some potential investors wanted to use coal, he explained.

Sri Lanka’s former President Mahinda Rajapaksa, who built his namesake port in Hambantota with a Chinese loan of US$ 1.4 billion, said he wished to explain his position to the public on the current government’s deal with a Chinese company to transfer 80 per cent stake of the port.

The former President said the government made some unwise decisions disregarding the management contract for the Hambantota container terminal entered into by his government with China Harbour Co and China Merchant Port Holdings Ltd.

Rajapaksa said the government’s decision to set up a 15,000 acre zone in Hambantota will be disproportionate to the country’s economy and the disruption caused to the people of the area will be immense if 15,000 acres of land were to be acquired for this purpose.


He said the government should fill the free port with investments first before opening more zones.

Prime Minister Ranil Wickremesinghe has said only 1,235 acres of land will be given from Hambantota and the rest of the 15,000 acres from other districts in the South and South East such as Moneragala and Matara.

Explaining his stance on the proposed Hambantota Port deal,he said:”Since the future of the Hambantota Port is now under discussion, I wish to explain to the public, my position on this matter. The loans taken for the construction of this harbour was USD 450 million for the first phase, USD 70 million for the bunkering facility and USD 802 million for the second phase bringing the total to around USD 1,322 million. When complete, the harbour would have four terminals and 12 berths. This was meant to be a free port covering an area of 2,000 hectares where goods could be manufactured or value added and shipped overseas. All the necessary feasibility studies were done before these loans were taken and the annual interest plus capital repayments would amount to about USD 111 million. My government had planned to raise that money through the Ports Authority itself.

The first phase of the Hambantota Harbour became partially operational in 2011. The transshipment of vehicles began in 2012 with 70 per cent of the vehicles coming into Hambantota being transshipped to other countries. In 2014, 335 vessels called at the Hambantota Harbour with 295 in 2015. The port made an operating profit of Rs 900 million in 2014 and Rs 1.2 billion in 2015. These are investments that last centuries and a new harbour cannot be expected to produce large profits in the first few years. Our plan was to break even within ten years.

“My government had signed a Supply Operate and Transfer (SOT) management contract with a joint venture between China Harbour Co and China Merchant Co to supply equipment such as cranes and operate the Hambantota container terminal for 40 years.

Container terminal

The SLPA was to receive a rental of USD 35,000 per hectare per year for the 56 hectares in the container terminal (a total of USD 1.96 million per year), a royalty of USD 2.5 on every container loaded or unloaded, a charge of USD 30 per container for cargo coming into Sri Lanka and all other usual harbour charges for navigation, piloting, and tonnage.

Other than the container terminal, all other terminals in the harbour and the 2,000 hectare industrial zone were to be controlled by the SLPA and they would have derived the income from the cargo of the free port passing through their terminals.

He said, “The government made some unwise decisions. Firstly, they disregarded the management contract for the Hambantota Container Terminal entered into by my government with China Harbour Co and China Merchant Co. Secondly, the SLPA had developed the Colombo East Container Terminal and upon its completion by 2016, this terminal would have produced a revenue of more than USD 100 million a year which the Ports Authority had earmarked to pay off the Hambantota loan until the latter generated sufficient income. The Yahapalana government halted the Colombo East terminal development. Thirdly, by the end of 2014, my government had signed agreements with several foreign and local companies to lease out about 80 hectares in the Hambantota Port Industrial Zone at the minimum rate of USD 50,000 per year per hectare with minimum guaranteed volumes of cargo and minimum guaranteed royalties. All those agreements were disregarded by the new government.

Then the current government said the Hambantota Port was a white elephant and that it had to be privatized to raise the money to pay off the loans taken to build it.

They called for bids, not just for harbour operations but for the rights of the landlord over the entire 2,000 hectare free port so that whoever takes the long lease will operate the entire harbour and have complete control over the industrial zone as well. The two companies China Harbour Co and China Merchant Co which made a joint proposal to lease out the Hambantota Container Terminal for 40 years during my government are the same companies that have made rival bids to lease the entire free port under the present government, he said.

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