Columns

• All set to sign Tripartite Agreement on August 16 for ambitious new port city
• PM explains major changes and practical  economic benefits to Sri Lanka; Attorney General disputes claim for compensation
• SLFP ministers who silently agreed to the project under Rajapaksa regime now voice concerns; Ranil angry but President cools situation

By Our Political Editor
Last Monday, the Cabinet of Ministers formally approved the ambitious Colombo Port City Project, perceived as Sri Lanka’s model of the future for business, leisure and offshore banking.

This venture with the People’s Republic of China was initiated by the previous Mahinda Rajapaksa administration. It became the object of bitter criticism by the United National Party (UNP) and the Sri Lanka Freedom Party (SLFP) – pro Sirisena faction – both during the presidential and parliamentary elections last year. Speakers on almost every platform charged that it raised environmental issues and compromised Sri Lanka’s sovereignty. Some even alleged that there was corruption over this unsolicited proposal.

Since coming to office, Foreign Minister Mangala Samaraweera raised eye-brows in diplomatic circles by saying, in Beijing itself, that the new Government had to review this project because of unsavoury issues connected to it. However, the tide turned. One of the causes was the complaint, not without substance, that western powers which sought a regime change in Sri Lanka, did only just that. They left the new Government high and dry, financially speaking. There was no substantial help to resuscitate an economy that was battered by war, widespread corruption and mass scale mismanagement. Some western diplomats explained privately that it was not their responsibility to keep pouring dollars, sterling pounds or euros to keep the Government machinery moving and the people content. They had their own problems to deal with. It was for the new Government to make its plans and seek help where required. Manna did not fall from heaven for those who ousted the Rajapaksa regime.

Paradoxically, the United National Front (UNF) Government which sought to lean on the West, and restrict China’s expanding role in the economy, did just the opposite. It opened the doors much wider to Beijing than former President Mahinda Rajapaksa. China was quick to respond. Its President was to tell visiting Sri Lankan leaders that China does not support individuals, but nations — a clear signal that China was ready to do business with the new Government. Many projects running into millions of dollars with China have been concluded and others are on the pipeline. From helping projects in Hambantota, China was now prepared to help in projects in Polonnaruwa too.

Yet, unlike the previous regime which won greater endorsement, China is moving more business-like in its approach with the new Government. It appears to have a two-fold objective. The first is to forge a closer commercial relationship with the UNF Government. Compared to trade relations with other countries, Sri Lanka was literally a drop in the ocean for China’s enormous financial resources. There was also the strategic importance of Sri Lanka in the Indian Ocean to China’s fast growing blue water Navy. Not so long ago, under the previous regime, Chinese submarines docked in Colombo’s newly built container terminal, and this caused ripples in the neighbourhood.

A new Port City will emerge after all from this area after the August 16 agreement. Pic Indika Handuwela

The second, perhaps more importantly, is not spelt out. It is to deliver a message to Sri Lanka’s friends who did not help – that China was there at the hour of need. This heavy tilt towards Beijing by the UNF Government is naturally a cause for concern for India, significantly to its security interests, despite diplomatic pronouncements by both Colombo and Beijing that there was no cause for concern over relations with a third country. If Mahinda Rajapaksa was the man behind close ties earlier, this time it is Minister Malik Samarawickrema, who launched his ministerial career barely a year ago. He is now responsible for the rapprochement with the support and guidance of his classmate and friend, Premier Wickremesinghe. Arguably, this reflects a foreign policy turnaround for Sri Lanka.

On March 9 last year, three months after the presidential election, the Cabinet of Ministers had decided to resume construction of the Colombo Port City Project. They appointed a Committee of Ministry Secretaries to discuss with the Project Company – CHEC Port City Colombo (Pvt.) Ltd. – the concerns of the Government and matters of policy. This company, registered locally, is a tie-up between China Harbour Engineering Company (CHEC) and the Sri Lanka Ports Authority (SLPA). The latter has since been dropped on legal advice.

Nearly six months later, the landscape of the multimillion dollar venture has changed considerably. Plans are afoot to sign a Tripartite Agreement that will cover the Government of Sri Lanka (GOSL) – represented by the Secretaryto the Ministry of Megapolis and Western Development, the Urban Development Authority (UDA) and the Project Company on August 16. The SLPA has been left out of the project on the advice of the Attorney General. On this day, Premier Wickremesinghe, who is due to leave for Beijing in the coming week, is most likely to sign a Memorandum of Understanding (MoU) with his Chinese counterpart Li Keqiang.

Wickremesinghe submitted to the Cabinet of Ministers three different memoranda on the Colombo Port City Project. They were (1) Withdrawal of compensation claims by the Colombo Port City Project Company, (2) Commercial issues and (3) Policy, Administration and legal issues. The contents of all three memoranda were revealed exclusively in the Sunday Times (Political Commentary) last Sunday.

They were first taken up for discussion at the ministerial meeting on Tuesday (July 26). Some of the SLFP ministers wanted time to carefully study the three documents since they felt it related to an important matter of national interest. There was a moment when President Sirisena had to intervene when there was an exchange between Premier Wickremesinghe and Minister Faiszer Musthapha. The Premier was so exasperated that he warned angrily that he may be compelled to drop the Chinese funded project. Sirisena prevailed.

Wickremesinghe, who enjoys a more commanding position now with the decision to extend the joint alliance’s term to five years in the light of the Opposition’s protest march, said the matter could be discussed at the next ministerial meeting. Since he was leaving for Indonesia, it was fixed for 8 a.m. on Monday (August 1). He was to attend the ministerial meeting and leave for the airport for his flight to Singapore and thereafter to Jakarta.

A detailed discussion ensued at this ministerial meeting. One of the issues over which concerns were raised was on Wickremesinghe’s memorandum titled “Withdrawal of Compensation Claims by Colombo Port City Project Company.”
He told his ministerial colleagues that on March 23 this year the Project Company had sought compensation for losses amounting to $ 143 million. This was said to be for staff retrenchment costs, termination costs of contractors, overhead costs, equipment idling costs, remobilisation costs, losses due to price fluctuation, financial charges by banks, losses from rupee depreciation, loss of material from the landfill and costs relating to resumption of work.

The Sunday Times learnt that President Sirisena, ahead of the ministerial discussion, raised questions over this matter with Wickremesinghe. The Premier responded with a six-page Cabinet Note dated July 26 in which he enumerated the differences between the Port City Project Agreement of September 2014 (under the previous regime) and the proposed Tripartite Agreement.
A highlight of this note is the subject of “Compensation.” The Premier noted that “in view of the goodwill created by the visits of His Excellency the President and the Hon. Prime Minister to China, the Project Company has agreed to withdraw all compensation claims for all losses incurred due to suspension of the Project caused by the failure of the previous administration of the SLPA to obtain the required environmental permits.

“In their original Master Plan there was provision for night racing. They had fully abandoned that plan at present. In view of this, a large extent of marketable land becomes available. Out of this, two hectares may be allocated to them. This will be a good gesture to reciprocate their goodwill in completely waiving off all the compensation claims.

“The above proposal was acceptable to the GOSL since the Project Company has agreed in the new Master Plan approved by the UDA this year to increase public lands (parks, road, walkaways etc to be used by the general public) by 28 hectares more than originally planned to make Port City more attractive to the public. For example, when completed Port City will have 45 hectares of parks and 13 hectares of artificial beaches (compared to 5.7 hectares available to the public at Galle Face Green.)”

Wickremesinghe noted; “The Committee of secretaries therefore requested the Project Company to propose alternative ways in which any financial loss suffered during the suspension period could be addressed instead of pursuing claims against the GOSL. The Project Company was also informed to consider the goodwill generated following official visits to China by H.E. the President and the Prime Minister. The Project Company has responded to this request positively and has made proposals to the Secretary to the Prime Minister as an alternative to pursing compensation claims.”

Some SLFP ministers were unhappy that an extent of two hectares offered to the Project Company was indeed a form of compensation in lieu of financial payment. “If this is a commercial transaction what is the requirement to donate two hectares. In time to come, that extent of land will be almost equal to the value of the compensation sought,” said a senior SLFP minister who did not wish to be identified. He complained that “there has been no transparency” over this aspect and added that there were also other issues to be addressed. The minister pointed out that the one of the official Government spokesperson Minister Gayantha Karunatilleke had told a news briefing on Tuesday that the Project Company had withdrawn compensation claims. “Why then do we have to gift two hectares of land? If this is accepted as a precedent, other companies investing in similar projects will also get gifts of land,” he argued. A UNP minister, who also did not wish to be identified, declared that it was a “measure of goodwill.” He added, “this is a project in which Chinese President Xi Jinping had shown greater interest. He inaugurated it. We need their (Chinese) help for other investments that will boost our economy.”

The issue is compounded by another matter. Discussions on the draft Tripartite Project Agreement were held at the Prime Minister’s Office at Temple Trees on June 3 and 4. Taking part were officials of the Project Company, those representing the Urban Development Authority (UDA) and the Attorney General’s Department. The purpose of this meeting was to finalise outstanding issues. Thereafter, on June 8 the Attorney General’s Department sent a ten-page report to the Secretary to the Prime Minister giving its opinion on a variety of issues.

With regard to the subject of compensation payments to the Project Company, this is what the Attorney General’s Department had to say: “The Project Company is agreeable to relinquish its right to receive 20 hectares of land on a freehold basis. In return, it is requesting that the restriction of the 35-year period to execute leases does not apply to this land. Effectively therefore the Project Company has control of the land for 99 years with an option of seeking a lease through an agent or by selling the lease to a third party for a further 99 year period. As such, we are of the view that the Project Company has been adequately compensated for it agreeing to relinquish the 20 hectares of freehold land and that in these circumstances, there is little justification for the claim for compensation in this regard.

“With regard to the claim of compensation for suspension, we do not agree that an event of compensation has arisen. In the circumstances we are of the view that they have not made out a legal basis to justify compensation which in any event appear to be exaggerated.

“Thus, the GOSL must take a decision with regard to the claims for compensation.”
According to authoritative sources, President Sirisena has directed that the Project Company should be called upon to withdraw its claim for two hectares. These sources said yesterday that according to initial reports, the company was willing to do so heeding the President’s request and continue with the project.

The Attorney General’s Department has recommended that a “firm decision is required on the stance that the GOSL” with regard to waiver of sovereign immunity. It noted: “The Agreement requires the GOSL to waive its sovereign immunity. A decision needs to be taken whether the GOSL is agreeable to such a waiver. Whilst we are of the view that waiver of sovereign immunity with regard to suit is acceptable, we are firmly of the view that the assets that are liable for execution should be limited to assets of the GOSL which is used for commercial purposes. This is the practice that we adopt in foreign loan agreement and we see no justification for a deviation from this practice.”

Commenting on “the creation of a new Municipal Entity,” the Attorney General’s Department has said: “It is clear that the new land area to be created would be outside the Colombo Municipal Council. Thus, the GOSL must decide whether the said land would form part of the Colombo Municipal Council or whether it wishes to create a special Municipal Council for the new City.
“At the moment, the Agreement contemplates the management of the city including the management, maintenance and repair of all Common Areas to be brought under an Estate Management Corporation, which the parties have agreed to consider being carried out as a joint venture between the GOSL and the Project Company. Therefore, a mechanism to synchronise the activities of the local authority and the EMC in a profitable manner would have to be considered.

“It is therefore recommended that the Cabinet of Ministers take the following decisions: (a) Whether the formation of a special municipal council is required and if so, the tasks and functions that would be allocated to such council. (b) Whether the GOSL is agreeable to enter into a joint venture with the Project Company for the establishment of the Estate Management Corporation and if so, the level of participation that the GOSL wishes to have in the said Corporation.”

In his six page note to ministers, Premier Wickremesinghe has said that it has been agreed with the Chinese Government that the land in the reclaimed Colombo Port City Project will be used to build “a Financial City to fill the vacuum between Singapore and Dubai.” He said; “This will enable offshore operations. For this purpose, the Government will propose new laws for governing offshore activities like in Dubai. The Financial City will make a major income earner and an employment provider for Sri Lanka.” The Premier has pointed out that the previous administration had this as a Land Reclamation Project to utilise this initially for real estate, sports, education and cultural development including night racing tracks etc. Therefore, the bulk of the land was not available for real estate development by the Government.

Among the other comparisons made by Premier Wickremesinghe are:
Legal status of the land to be reclaimed: Under the original Concessionary Agreement, the status of the land was unclear. It was not part of the District of Colombo. Therefore it did not come under the territory of Sri Lanka under Article 5 of the Constitution. The new land will make it part of the administrative District of Colombo and it will come under the Financial City Corporation distinct from the Colombo Municipal Council.

Fishermen’s income support programme: Under the original agreement, responsibility for funding the income support programme to fishermen was a responsibility of the Sri Lanka Ports Authority (SLPA). Under the new agreement, the Project Company will allocate Rs. 500 million towards the fishermen’s income support programme to the Ministry of Megapolis to implement the programme in consultation with the Ministry of Finance.

Management and Maintenance of Reclaimed Areas: The Project Company has agreed to consider establishing and operating the Estate Management Company in partnership with the GOSL. Under the earlier arrangement, the EMC was to be a 100% GOSL owned enterprise that would manage, maintain and repair the common areas of the Port City by collecting management charges from investors.

Limits on developing GOSL Lands: Under the new agreement this has been expanded in favour of the GOSL to include healthcare and hospitals and exhibition and convention centres. It will also include the new Colombo International Financial Centre (CFIC). No restriction will be placed on developing the North and West Ports of the Colombo Harbour. In addition, the Project Company has agreed to setting up the CFIC building in the land area reclaimed first including making a new investment in the CIFC building no sooner it is technically feasible to build on reclaimable land and upon mutually acceptable terms being agreed with the GOSL after a feasibility study. The original agreement limited developments the GOSL could undertake on its land during the three years from the completion of reclamation to educational and cultural activities only.

Freehold Land: The new Agreement negotiated by the Government will not grant any freehold land and all lands will be allocated to the Project Company on a 99 year leasehold basis. The Project Company may lease out this 20 hectares of land for another 99 years if not required by the Government. The original Agreement of September 2014 granted 20 hectares of land to the CHEC Port City (Pvt.) Ltd. (the Project Company) on a freehold basis, with the balance land granted for 99 year lease.

Utilities and transport infrastructure: Under the new Agreement, the possibility of undertaking public-private partnerships through the Project Company will be evaluated as a long term solution to ease the GOSL’s responsibility of undertaking provision of road infrastructure and utilities to the periphery of the site. Under the original agreement, all investments in roads and utilities within the reclaimed area was the responsibility of the Project Company while providing all utilities and road infrastructure to the periphery of the site was the responsibility of the GOSL.

Role of the Megapolis and Western Development Ministry: The Ministry of Megapolis (on behalf of the Government), the UDA together with the Project Company, will now sign a new Tripartite Agreement replacing the original one. Under the earlier agreement, the Ministry of Ports and Shipping was tasked to fulfil all obligations of the Government including amending the SLPA Act.

The Colombo Port City Project, fathered by the previous Government and now nurtured by the new regime, does seem to offer substantial economic benefits to Sri Lanka. In the next eight days, resumption of work under a new agreement will be a reality. Yet, a project of that magnitude could blend harmoniously with national development only if there is political stability. Thus, it falls on the Government to apply the same vigour and vitality to create a stable environment. More so since the Opposition parties, which favoured the project when in office are unlikely to raise issue over it now. SLFP ministers who raised little objections when they were in office under President Mahinda Rajapaksa are now questioning some of the steps taken by Prime Minister Ranil Wickremesinghe in implementing this project with a ‘nearly new look’. The Attorney General has raised some legal issues and the Government must not try and bulldoze its way now and create problems for the country later. This and not the project itself would be the Government’s biggest challenge.