by Easwaran Rutnam
China is not fully satisfied with the agreement reached on the Hambantota Port deal, Chinese government sources said.Sources said that Beijing had questioned the Chinese Embassy in Colombo about the agreement reached with Sri Lanka.
China had provided over USD 1 billion for the construction of the port as a loan.
Under the agreement the Sri Lanka Ports Authority and China Merchant Port Holdings Company Ltd will establish the Hambantota International Port Services Co. (Pvt) Ltd – with a capital of USD 606 million and 50.7% shares to SLPA and 49.3% to CMPort.
The Hambantota International Port Group (Pvt) Ltd – with a capital of USD 794 million and 15% shares to SLPA and 85% to CMPort as in SAGT terminal and CICT terminal will also be established.
Accordingly, instead of 80:20 share distribution in the initial agreement shares of overall investment will be revised as 69.55 to CMPort and 30.45 for SLPA.
The lands will be only given to newly establishing two companies on lease basis and their shares are allowed to be purchases by SLPA after 70 years of effective date of agreement at a fare rate decided by Government Assessor and an independent assessor.
After 80 years of the effective date SLPA has the right to purchase shares of CMPort and its affiliated companies at a rate of USD 01 as the SLPA’s share holding in HIGP to be 60% and HIPS to be 76.8%.
After 99 years of effective date all the shares of CMPort and affiliated companies should be transferred to SLPA at a rate of USD 01.
The sole authority of managing the defence situation of the port is in the hands of Sri Lanka and use of the port in military activities is prohibitted.
China Merchants Sees Potential
Meanwhile the Board of China Merchants Port Holdings Company Limited announced in Hong Kong that, on 25th July 2017, CMPort, Sri Lanka Ports Authority (“SLPA”), the Government of the Democratic Socialist Republic of Sri Lanka (“GOSL”), Hambantota International Port Group (Private) Limited (“HIPG”) and Hambantota International Port Services Company (Private) Limited (“HIPS”) have agreed on the terms of the Concession Agreement in relation to the development, management and operation of the Hambantota Port.
In a statement released in Hong Kong it was announced that CMPort will agree to invest an amount of up to USD1,120.00 million (equivalent to approximately HKD8,736.00 million) into Hambantota Port and Hambantota port and marine-related activities, of which the total amount to be paid to SLPA for the acquisition of the 85% issued share capital of HIPG shall be USD973.658 million (equivalent to approximately HKD7,594.53 million) (and HIPG shall use a portion of such amount to acquire 58% issued share capital of HIPS) and the remaining USD146.342 million (equivalent to approximately HKD1,141.47 million) shall be deposited into a bank account in the name of the Company in Sri Lanka and will be utilised for such Hambantota port and marine-related activities as may be agreed with GOSL within one year from the final payment of capital injection in HIPG and the Company shall be entitled to repatriate any amounts in the bank account at the expiration of such one year period if no agreement has been reached with GOSL for the use of such funds.
Pursuant to the Concession Agreement, SLPA and GOSL will grant (i) to HIPG, the sole and exclusive right to develop, operate and manage the Hambantota Port and (ii) to HIPS, the sole and exclusive right to develop, operate and manage the Common User Facilities, for the operation of the Hambantota Port. The term of the Concession Agreement shall commence on the Concession Agreement Effective Date of 99 years. During the first 15 years from the Concession Agreement Effective Date, SLPA and GOSL shall ensure that there shall be no, and shall not obtain any fresh tenders, granting any right to any third party, or discuss, negotiate or entering into any arrangement or agreement with any third party in relation to the development of any port/terminal development directly in competition with the port services and activities carried out at the Hambantota Port within 100 km perimeter from the periphery of the Hambantota Port.
“The Port of Hambantota is located on the Southern coast of Sri Lanka occupying a prime location within 10 nautical miles to the main shipping route from Asia to Europe and is also in a strategic position along the “Silk Road Economic Belt and the 21st Century Maritime Silk Road”. Hambantota Port is a comprehensive deep-water port, the Hambantota Port project is a project to develop a major industrial and service port with an attached industrial zone in the Port of Hambantota and it is currently expected that the project will comprise three phases. With 10 berths in Phase 1 and 2, and quay length of up to 3,487 meters; the berths are specialised to handle containers, bulk cargos, general cargos, RO-RO cargos and liquid bulk. Water depth alongside the quay and navigation channel is -17 meters, which makes Hambantota Port a deep-water port capable of handling super-mega vessels. Hambantota Port has great potential for future expansion, with its hinterland covering the South Asian region, and as a maritime hub in the region,” China Merchants Port Holdings Company Limited said.
CMPort has, in recent years, been actively exploring and, as and when deemed appropriate, capturing available opportunities overseas as the means to effectively add new growth drivers to its existing and sustainably growing ports business. Having already established a story of success in Port of Colombo through the development of the Colombo International Container Terminals Ltd., the addition of the Hambantota Port will provide the Company a platform to materialise synergies between the two major ports in Sri Lanka, unlocking the county’s potential to be a global maritime center.
China Merchants Group Limited has rich experience and resources in implementing the “Port + Park + City” Model (e.g. Shekou, Zhangzhou). The significant landmass of the project (approximately 11.5km2 port area) gives leeway for the Company to implement and capitalise on the said model to add substantial value to the port operations and development. Furthermore, the Company has also entered into a cooperation framework agreement with China Harbour to explore possible future cooperation and joint development and operation in relation to the Hambantota Port and the industrial park adjacent to the Hambantota Port. As at the terms and conditions for such cooperation is yet to be finalise, the Company said it will further disclose when such cooperation materialises.
A former white elephant
The Hambantota Port was seen as a white elephant. But former President Mahinda Rajapaka felt otherwise.
Rajapaksa insisted the Hambantota port had made operating profits in 2014 and 2015.
Rajapaksa said the loans taken for the construction of the 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.
The former President had said that when complete the harbour would have had 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,” Rajapaksa said.
Rajapaksa had said the new Government made some unwise decisions with regards to the Hambantota port, including disregarding the management contract for the Hambantota container terminal entered into by his government with China Harbour Co and China Merchant Co.
“The government said the Hambantota port was a white elephant and that it had to be privatised 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.
SLPA Has Paid China Rs. 47 Billion So Far For Hambantota Port
The Sri Lanka Ports Authority (SLPA) has paid China Rs 47 billion so far for constructing the Hambantota port, Ports Minister Mahinda Samarasinghe said.
The Minister said the money was paid back using funds collected by the SLPA through ports operations in the country.
“SLPA has been paying back the loan since 2011. All this was paid from SLPA funds. Nothing was taken from the treasury,” the Minister said.
He also said that the Hambantota port was constructed at the wrong time but yet now with the new agreement with China, the Government hopes to convert the port from a loss making venture to a profitable venture.