By Shivanthi Ranasinghe Courtesy Ceylon Today
Hypocrisy has smacked us hard this Christmas. A whole bandwagon got into social media to defend an artificial Christmas tree – at a time real trees in Wilpattu are felled at an alarming rate. The same defenders who saw opportunity in investing millions of rupees in a temporary structure fails to appreciate the permanent investment made in the Magampura Port in Hambantota. That project was a white elephant to social media and mainstream alike.
Today, that white elephant is to be leased for 99 years to a Chinese company that can be extended to another 99 years. Thus, that white elephant that is paid by us will not be ours for the next 198 years. If this was indeed a white elephant, with a rock in the middle that no ship can sail through as was purported, why would the Chinese be so interested in it?
Two Chinese companies had tendered proposals, which have been considered without defining the criteria for selection. One proposed one-time payment of U.S. $ 1080 for a 99-year lease. The second proposed an initial payment of approximately U.S. $ 730 million, but for a 50-year period. Throughout that period, a payment structure, similar to a royalty, had been proposed for the wharfage – i.e. accommodations provided at a wharf for the loading, unloading, or storage of goods and all the other port charges that comes to the Port. Thus the value of the second proposal is in fact approximately U.S. $ 1,500 million.
Revenue
Thus the two proposals were U.S. $ 1,080 million and U.S. $ 1,500 million respectively. Naturally, the Sri Lanka Ports Authority (SLPA) was interested in the second proposal as revenue is earned throughout the period – thus benefitting both the SLPA and the country.
However, the first proposal had been accepted. The objective of leasing the port was fuelled by the need for immediate funds. Therefore, though the accepted proposal offers actually less than the rejected proposal, it is an upfront lump sum payment. It shows the government’s disinterest in the long-term return.
In accepting the proposal, the existing systems had been bypassed. Normally, proposals are subjected to the approval of Technical Evaluation Committee (TEC) and Cabinet Appointed Negotiation Committee, which then would be sent to the Attorney General’s approval and to the Cabinet for its approval.
However, on this matter, a committee chaired by the PM had invited the investors for a discussion and a decision had been reached thereupon. Thus, though the framework agreement had been signed, proper technical evaluation reports and negotiation reports had been bypassed.
Furthermore, a proper valuation for the facilities, infrastructure and land that even includes a man-made 110-acre island had not been conducted. Thus, the deal is finalized at just the construction cost, discounting the fact that even a basic house appreciates in value after construction.
The one billion dollars would not be used to repay the loan. It will be deposited in the Central Bank of Sri Lanka (CBSL) to be used for other projects. It is still not clear who will be servicing the loan.
The government was voted in to prevent the country from becoming a Chinese colony under the previous administration’s watch. The controversial Colombo Port City Project caused much hyperventilation among environmentalists and others. The 99-year lease to the Chinese for that landmass to be artificially created on our seas generated much concern.
Disturbingly, not even a fraction of that concern is visible for an entire stretch of land amounting to 20,000 acres, that is inclusive of our port and its lands, given to the Chinese. However, it must be noted that a FaceBook post with nearly 600 viewers had commented ‘2’ when asked to comment as such if against the selling of the port.
Unfortunately, mainstream media’s attention was hijacked by a carefully orchestrated sequence of events. It started with the trade union action by the Hambantota Port Workers Guild to pressurize SLPA to absorb them in the wake of selling the port to a Chinese company. Generally, when trade unions even get a whiff of change of management – especially to privatization, their fight is to stop that change, not accommodate that change.
Meek acceptance
Hence, the violent protestors’ meek acceptance of the new owners is indeed a rare experience in Sri Lanka. They went to unnecessary lengths to keep the focus on their quest. This led to the involvement of the Navy. Then, to everyone’s surprise the Navy Commander most unnecessarily got involved in a fracas with a journalist quarter his size.
Immediately, social media got into action to defend the Navy Commander, who is actually a highly decorated officer, much respected by his peers. Throughout the two past years, the Navy came under a number of harassments such as:
• A team from the UN illegally conducted a tour of inspection in the Trincomalee Navy Base;
• The strategic Somapura (Sampur) Navy Base was removed;
• Nilaweli Navy Base was removed;
• A senior navy officer was publicly abused by the Eastern Province Chief Minister;
• Three Navy intelligence officers were severely assaulted by Tamil extremists.
When Vice Admiral Ravi Wijegunaratne had stayed tactfully out of all these controversies, it is indeed questionable why he got involved in this mess as he did. Either way, our attention was firmly locked into the drama. Journalists also joined in the fray by protesting over the assault just as vehemently as it was being defended in the social media.
Excitement
With all the excitement, we forget to ask whether a small country like ours can afford to give 20,000 acres to a foreign company for 200 years. It has equally rolled off our heads why the Chinese are so interested in our Port.
The Magampura Port was successfully marketed as an ego project of Mahinda Rajapaksa, that people are genuinely unaware of its real worth. Many actually believed that a huge rock made the Harbour untenable. The government changed, but we were not shown the rock, which is really a man-made fictional rock.
The 2015 CBSL annual report gives a clue to the real worth of an infrastructure that was designed to bring much investment to the country.
The Harbour’s annual income:
For 2011 – Rs. 11 million
For 2012 – Rs. 135 million
For 2013 – Rs. 565 million
For 2014 – Rs. 1,277 million
For 2015 – Rs. 2,145 million
Yet, the government sought a foreign entity to take over 80 per cent of a Private-Public Partnership.
Bunkering operations
In July 2014, the Port began its bunkering operations. From August-October, there was a profit of Rs. 580 million. However, during November-December, there was a loss due to drop in world oil prices. For November, the oil is taken in October. So when price drops, there is a loss. Likewise, for December, oil is taken in November. When prices drop, a loss is incurred. This is the bunkering physics experienced world over.
The present administration, looking at the final figures, concluded that bunkering was not profitable and stopped it. However, even a small shop cannot make profit from day one. It needs to be marketed, developed and promoted before becoming profitable.
Even the Colombo Harbour was struggling until 2014. In 2009, the revenue was Rs. 22 billion, which was a loss. The year 2010 also recorded a loss. In 2014, revenue reached to almost Rs. 37 billion and made a Rs. 8 billion profit after loan interest and foreign exchange loss.
Japanese loan
Loans taken to build the Hambantota Harbour had drawn much concern. However, the Colombo Harbour in 1985 needed a Japanese loan to meet its development plans. The yen then was around 0.25 – 0.30 cents. Since then it has risen to Rs 1.40-1.50. Still, these are necessary developments a country needs, though not small investments. It does take years, perhaps more than 10, just to make a dent in the bottomline – especially if starting from zero.
With regard to the Hambantota Port operations, two other scenarios were planned – the industrial zone and the container terminal. For the industrial zone, a marketing strategy was developed and Request for Proposals was called to which around 70 parties worldwide responded. This was narrowed to 27 and then to 11. The agreement was that these 11 investors to pay a minimum guarantee revenue. That means, whether they operate it or not, they pay the minimum guaranteed revenue. The total investments from these 11 investors were around US $ 1.1 billion. Furthermore, there was a lease rental, throughput charge, and all port handling charges.
For the container terminal, a joint venture with the Chinese of 65:35 was developed – 35 for SLPA and 65 for China and this was on the basis of a SOT – Supply Operate and Transfer – only. China puts equipment and that is their share. Thus, the entire container terminal equipment they were supposed to supply, and SLPA contribution only being the basic infrastructure. In addition, they agreed to give SLPA a royalty for box move. That means loading and discharging. Load or discharge, SLPA takes it as one move, so one container discharged and then loaded means two moves.
SLPA royalty
The agreement was to pay SLPA royalty starting from U.S. $ 2.56 per move, actually per TEU and that increase every year by one per cent. This was to be a 40-year agreement, but with a five-year grace period for the investors to complete their construction.
These two – the industrial zone and the container terminal operation model itself was projected to yield a reasonable revenue for SLPA to pay the major component of the loan. At the time, the loan was Rs. six billion per annum. However, due to rupee devaluation, it has gone up to about Rs eight billion.
Recently, Ports and Shipping Minister Arjuna Ranatunga charged that the SLPA incurred a loss of Rs 18 billion. However, again it is not because of the loans as is evident from the SLPA 2015 accounts. It is because of the rupee devaluation. The loan value was
U.S. $ one billion. Rupee devalued by more than
Rs 20, resulted in a Rs 20 billion loss. In turn, it has resulted in a foreign exchange loss of U.S. $18 billion in SLPA accounts.
The operational cost for Hambantota was very low. It had a different model compared to Colombo with less than 500 people, paid according to the company payment structure. Thus it was possible to earn an operational profit.
Annual revenue
Bunkering revenue was a totally different scenario. To minimize any burden to the Colombo Harbour, the East Terminal was built and container cranes were ordered. With these in place an annual revenue of Rs. 15 billion can be easily generated. The operational costs are only Rs Three billion. That additional revenue was to be used to pay the balance part of the Hambantota loan. Therefore, the project never really had any payment issues.
The cranes were supposed to arrive in Colombo terminal in 2015. Yet, despite the forecasts and plans, the bunkering operations were stopped and so were the cranes. As a result, there is a terminal in Colombo Harbour idling for the past two years. Unfortunately, the revenue lost for the country as a consequence has not caught anyone’s attention yet. Except for the agreement with the Laugh Gas, other 10 had also been cancelled.
The reason being the administration really believed these to be corrupt deals. In their assumption, they failed to verify the agreements that have been ratified by the aforementioned committees. TEC took two years to evaluate the companies. The agreements were only signed after the Cabinet’s and Attorney General’s approval.
At the end of the day, our blind faith in politicians’ rhetoric, social media’s fancy posts and mainstream media’s failure to be true investigative journalists have resulted in the most treacherous act of our times – the outright selling of our most strategic investment. This was poised to take us to the big leagues, surpassing Singapore and Dubai. Americans and Indians who lent their unstinted support to dislodge the Rajapaksa administration, so as to weaken the Chinese presence must be banging their heads on the wall. However, their bruised heads are of little comfort to us, for our self-inflicted wounds are much graver.
ranasingheshivanthi@gmail.com
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