SLPA considers JV for East terminal on PPP basis
The Sri Lanka Ports Authority (SLPA) is currently looking at development of the East Container Terminal (ECT) to construct the first berth by itself and the rest through a joint venture initiative, a study carried out on the options available to the port has stated.The November 2015 “Study on Development Options of East Container Terminal Colombo Port Expansion Project” has stated that the most viable option to construct this terminal would be to develop the first berth as a SLPA berth as an interim measure and devlop the remaining berths on a Joint Venture (JV) arrangement with a shipping line or a private terminal operator.
The study, a copy of which was obtained by the Business Times, had found that it is imperative that this option be pursed in view of the current financial commitments of SLPA. However, it was noted that SLPA may have to guarantee minimum throughput to the Terminal Service Partner (TSP) to ensure recovery of his investment.The study noted that the funding for the civil works investment of US$210 million under the Option 3 would be to secure a commercial loan as a result of which SLPA would have to incur financial difficulties only until 2019 and thereafter, the loan could be served by expected revenue from ECT.
In the study’s conclusion it was stated that the benefit to SLPA by operation of ECT through Option 2 and 3 are the most attractive options. In Option 3, the loan commitment of SLPA is limited to $292 million and yields almost similar NPV irrespective of the loan scheme.The study recommends purchasing equipment for the first 440 m quay length of ECT and commencing operations of ECT as soon as possible irrespective of the option selected.The study had proposed five options the first being to develop the ECT on a Public Private Partnership (PPP) basis with competitive tender process under a Build Operate and Transfer concession arrangement.
The second option was to develop the ECT as a SLPA exclusively owned terminal without open competition and private operator’s involvement.
Develop the first 400 m quay immediately as an interim measure and develop the remaining two berths aligned with market demand as SLPA berths.While the third option was the one the study had highlighted to be most viable, the fourth was to allow SLPA and a shipping line or a terminal operator develop ECT jointly at stages in alignment with market demand.The last option would allow developing the first berth as a SLPA berth as an interim measure, and convert ECT under the PPP approach at a later stage through competitive tendering and award the terminal to a successful concessionaire.
The first ECT berth can be transferred to the future concessionaire under agreed terms and conditions, it was noted.These options were based on three philosophies, the study stated namely to develop and operate by SLPA; develop by SLPA and operate by TSP; and PPP for BOT basis.At present the study had found that in view of the weaknesses in operation of Jaya Container Terminal (JCT) “the SLPA workforce was not in line with the expectations of the industry and as a result was rigid in mind and less flexible in delivering expected services to the organization.” It was further pointed out that “over staff had limited flexibility of providing a handsome salary offer by the private sector.
In addition it was noted that there was limited freedom provided to the public sector management in decision making, especially with incidental sensitive business decisions and lengthy process of purchasing.In this regard, the SLPA needed to address the key issue of amalgamating the labour force in blending a reasonable hybrid system and selecting a preferred development option for the ECT retaining SLPA footprint as the leading container terminal operator leaving the opportunity to work hand in hand with the private sector.
Under the third option to construct the ECT by SLPA, equip and operate by a TSP it was found that the major difference between Option 2 and 3 is that the SLPA burden of investment for equipment is given to the TSP that would allow the latter to select suitable equipment and maintain them throughout the contract period. However, the SLPA would get less return compared to the previous option.At present with the civil works completed on Phase I for 440 m the loan amount for investment incurred was $84 million in 2015, the study stated. In addition it explained that a further $43 million would be required for civil works in Phase II for the 600 m in 2017; and a further investment of $165 million for civil works on Phase III of 1200 m with the total amounting to $292 million.
SLPA has completed the 440 m quay wall last year and would be getting ready to operate this terminal in 2017, the study indicated.It was pointed out that in order to cater to the demand from the Port of Colombo with adequate deep water terminal facilities, the entire ECT needs to be operational in 2020.The cargo throughput forecasted at ECT shows a rapid growth initially from 2017 to 2023 and when it reaches its defined capacity the cargo throughput will have a slow growth from 2023 to 2048, the study said.