Posted on March 21st, 2018


Former President Mahinda Rajapaksa     issued a statement in January 2017 regarding his much maligned Hambantota project. 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 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. 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 111 million USD. 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% of the vehicles coming into Hambantota being transshipped to other countries. In 2014, 335 vessels called at the Hambantota harbour followed by 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. The Ports Authority was to receive a rental of 35,000 USD per hectare per year for the 56 hectares in the container terminal (a total of 1.96 million USD per year), a royalty of 2.5 USD on every container loaded or unloaded, warfrage of 30 USD per container for cargo coming into Sri Lanka and all other usual harbour charges for navigation, piloting, tonnage, etc.  Other than the container terminal, all other terminals in the harbour and the 2,000 hectare industrial zone was to be controlled by the Ports Authority and they would have derived the income from the cargo of the free port passing through their terminals.

The new 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 Ports Authority had developed the Colombo East container terminal and upon its completion by 2016, this terminal would have produced a revenue of more than 100 million USD 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 50,000 USD 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 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.

A framework agreement has been signed by the govt. with China Merchant Co to lease out the entire free port for 99 years for a payment of 1.08 billion USD on an 80%-20% equity sharing basis. No other income will accrue to the Ports Authority for 15 years, after which they will receive dividends for their 20% stake only if dividends are 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.

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 bid has been accepted in a situation where the other company China Harbour Co. had (according to information available to us) put in a much more favorable bid to lease the free port on a 65-35 equity sharing basis for 50 years with an upfront payment of 750 million USD plus the payment of all the charges they had earlier agreed to with regard to the container terminal management contract. The government has chosen the least favorable bid despite (according to information available to us) the Ports Authority having recommended the other bidder. Details of how the two proposals were evaluated have not been disclosed.

A 99 year lease impinges on Sri Lanka’s sovereign rights because a foreign company will 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 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. The bid made by China Harbour Co for a 50 year lease is obviously more favorable 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 industrial zone and the harbour should be controlled by the Ports Authority while harbour operations may be given on management contracts to the private sector. For example, the Colombo port is run by the Ports Authority and two private operators. The Ports Authority 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.

Apart from the entire Hambantota free port, the government has 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?

The total land area of all the Board of Investment 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. 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 these 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.

The Hambantota dispute is not an issue that can be resolved by baton-charging or tear gassing protesters or having them assaulted by thugs and remanded. 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, said Mahinda Rajapaksa concluding his statement.

Critics added their voice to the Rajapaksa statement. They said that USD 500 out of the USD 1,670 million loan obtained by Rajapaksa had been repaid and the Yahapalana government could have settled the remaining amount over a 20-year-period. Instead Yahapalana leased it to China on terms disadvantageous to the country.

There were others who like Rajapaksa, also saw potential in the Hambantota project. In 2008, David Soysa observed   that as container vessels increase in size, mega carriers currently serving a large number of ports in the far east such as Hong Kong, Shanghai, Yokohama, will be induced to terminate their east west voyages in a port like Hambantota and arrange feeder service to operate from Hambantota to the far east ports, using the 4000-6000 TEU vessels which will eventually become obsolete but are as yet too young to be scrapped.

Hambantota port could then become not only the world’s number one transshipment port but also the centre for the distribution of cargo from East Africa to the Far East including Australia and New Zealand. Both Trincomalee and Hambantota are ideally located to become the oil hub for the region between the Middle East and the pacific as well. Both China and Japan need such a hub, concluded David Soysa.

Ceylon Association of Ships Agents (CASA) organized a seminar on ‘Maritime hub aspirations of Sri Lanka’ in February 2018. Ray Ren, CEO of Hambantota International Port Group and Jack Huang, DGM of Hambantota International Port Group and CEO of CICT spoke on the Port of Hambantota and how it can play a special role. Sri Lanka serves a vast hinterland of 7 countries in South Asia with more than 1.5 billion people. The short transit times from Hambantota to both east and west destinations gives the port the strategic location advantage.

With a current capacity of handling 198,000 TEUs and 950,000 tons of break bulk cargo, the port can also handle 396,000 units of Ro-Ro and 2.5 million tons of bulk cargo. In the first phase of development two 100,000-ton multi-purpose berths and one 100,000-ton oil berth is to be built followed by the second phase which will add two more 100,000-ton berths and two 10,000-ton berths. Phase 2 will also contain two 100,000-ton multipurpose berths and an oil berth of 100,000 tons, they said.

Sri Lanka has established a convenient feeder network between the Port of Colombo and other ports of India, Bangladesh and Pakistan. 90% of the transshipment cargo that is handled here are from India, Pakistan and Bangladesh, while currently the Port of Colombo is only handling 15% of total transshipment cargo for South Asia countries, concluded Ren and Huang.

The first payment from China for Hambantota was done with much publicity. The cheque was handed over at a Ceremony held at the Parliamentary complex. Chinese Ambassador to Sri Lanka Yi Xianling and the officials of the China Merchant Group attended the ceremony. Prime Minister Ranil Wickremasinghe and Chinese ambassador were photographed holding up a huge mock up of the cheque, to the scorn of the public.

This payment of  US$ 300 million is considered to be the largest foreign payment received after a lapse of four decades and the money will  be deposited in a special fixed deposit account and will add to the country’s foreign reserves , said Yahapalana.  However, we were thereafter told that the money would not be used to settle the nation’s foreign debt as promised, but would be used for the internal expenses of the country.

After Yahapalana   signed the lease with China over Hambantota, suddenly, there was praise for the project. Hambantota is good for the region said Central Bank Governor Indrajit Coomaraswamy in 2017.  We have received investments to set up an oil refinery facility, a steel factory, a liquefied natural gas plant and a cement factory in Hambantota,” he said.    Once Hambantota port comes into full operation, Colombo port will become redundant observed   a leading Chinese officials working in the Port City.

The leasing of Hambantota Port to a Chinese company will create huge business opportunities for the local shipping and logistics sector, said Serendib Logistics President, Niluka Welikala in 2017. Building a port in Hambantota was a step taken in the right direction as it was strategically located in the heart of international shipping routes. the harbor did not ‘take off’ as planned    initially, because after opening the Port the much needed infrastructure and logistics were not being installed at a pace that was needed. Due to this, the true potential of the harbor could not be exploited, she observed.

We saw the potential in the Hambantota Port and opened our warehousing complex in a BOI land site in Mirijjawala, Hambantota, on long-term lease basis a few years ago. Since then, we see a steady growth in our operations,” Welikala said. The local entrepreneur will have a lot of opportunities in the infrastructure development sector and in the services sector. Chinese investors will obviously need a local player to partner them in logistics and local companies can benefit. In addition, there would also be several openings for transport and other services such as supply of essential services to cargo ships that will call at Hambantota Port, continued Welikala.

Several international industries too would be set up in the investment zone, said Welikala and here again local companies’ support would be sought by foreign companies, thus opening up business vistas for Lankans that were not there earlier. In addition, youth also would get high earning employment opportunities.  There would soon be a Personal Cargo segment too introduced at the Hambantota Port allowing people in the South as well as the East to collect their cargo without travelling to Colombo. Serendib hopes to look at that business too. We are also looking at the tourism and cruise shipping sector and will invest in building a three star hotel in Hambantota,    said Welikala on behalf of Serendib.

There is also the opposite point of view. Shalini Mariyathas, Nihal Perera and Mohamed Yehiya have written at length on ‘what development has done to Hambantota town.’ (CCI Bulletin/Construction Review Feb 2018). They are critical of the new developments in Hambantota done under Mahinda Rajapaksa. Hambantota has been compared with Mahaweli, despite the fact that they are two very different projects. The researchers  have done field work at Hambantota town, with participant observation, ethnographies, interviews and long conversations”.

Mariyathas, Perera and Yehiya consider the creation of Hambantota port a ‘disaster.’ It was a monster project and a white elephant, they said. Mattala airport was equally bad. The location and scale are illogical for a small state. Mattala was not conceived as a second national airport but as one tagged to the city. However, the city and the airport are too far apart for a city of 10,000 people. Both  cricket stadium and airport were located far outside the city. Mattala airport is 30 to 40 miles from the city centre, unlike Katunayake airport which is only 25 km from the centre.  Such leapfrog development, has been criticized in planning literature for decades, said Mariyathas, Perera and Yehiya. When the facilities around the airport like hotels develop it would suck the life out of Hambantota town. Airports are never located near bird habitats either, as Mattala was.

The new city is to be Siribopura. The town is for    two million people, this is an over projection.   The most prominent item in the new city at present is the jungle, followed by highways, said Mariyathas, Perera and Yehiya. Highways dominate. These highways are very large, contrasting and imposing on the natural environment.  The city centre stands alone in the jungle,   with cows grazing opposite. The administrative complex is like a palace in this jungle. There is also a massive convention centre on one side with shacks on the others.

The city is sprawled out on flat land. There are no heights, designs ,and one cannot distinguish one  significant building from another. It lacks the  visual interconnections between  buildings  needed to generate an image. There is no concept of space at people’s level, just land allocation and building according to land, said Mariyathas,  Perera and Yehiya .

The city has not been correctly planned. Its hotels, theatre banks golf course, parks, diplomatic enclave, city square, civic square,  are not organized into a cohesive space. The amenities are on one side and the people on the other. It is all splintered. The plan is to shift the business and other sectors to the new town, but the transport needed is lacking.   Cars are needed to get from place to place. One respondent said that he was happy in Hambantota where his customers were and had no wish to move to Siribopura.

The proposed city centre and its activities do not correspond with the way people wish to live, either. The new style may not be how they want to live. Our interview indicated that the ordinary people of Hambantota felt they did not fit anywhere in the mega development of their town. The new city does not have much meaning for the people.  The unfamiliar spaces alienate them. They believe the target population will not be them but an alien community that will be imported to their town in the near future.

The inhabitants of the old town are now displaced, their properties forcibly demolished, businesses ruined,  most jobs have gone to outsiders. The highly commercial old city of Hambantota has been replaced by ‘a place of government where people have no place.  ‘   Hambantota has lost the old town without replacing it, concluded Mariyathas, Perera and Yehiya. (Concluded)

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