News
Hambantota Port deal prohibits military activity
View(s):Oversight committee to ensure national security; company to maintain internal security
By Namini Wijedasa
An agreement to be signed between the Sri Lanka Ports Authority (SLPA) and China Merchant Port Holdings Company (CMPort) for the privatisation of Hambantota Port expressly forbids military activity and envisages the setting up of an oversight committee to oversee national security of port property.
Port property shall be strictly dedicated for port-related commercial activities, says the final working draft of the 75-page concession agreement which gives CMPort the right to operate business within the Government’s jurisdiction, subject to certain conditions.
The Sunday Times saw the draft. It says, there can be no activities “of military nature whatsoever, whether on land, air or in sea, onshore or offshore within the territory of Sri Lanka, including and not limited to bringing in, berthing, of warships, submarines, storing, warehousing of any military equipment and machinery, installation of communication networks/facilities, bringing in or keeping any form of military or paramilitary forces, irrespective whether [sic] such activity is inimical to the national security or not and the GOSL shall have the sole power and be the sole authority over such activities”.
An oversight committee comprising representatives of the Sri Lanka Navy, Sri Lanka Police, SLPA and the Secretary to the Ministry of Strategic Development and International Trade will control the national security of port property.
But the joint venture company is responsible for all internal security, safety of cargo, vessels and personnel including, but not limited to, manning of entry and exit gates. These will be guided by, monitored by, and in close coordination with the oversight committee.
Also under the agreement, the SLPA will meet the cost and expense of rectifying any design or engineering flaws in Phase I and II of the Hambantota Port. The civil works of both these phases are done. The multi-purpose terminals and oil terminals of Phase I have been in use since 2013. Operations are currently ongoing in the form of bunkering and roll-on/roll-off transhipment and import. Construction work of Phase II is substantially completed.
However, if the joint venture company to be formed under the privatisation notifies the SLPA of any design or engineering flaws, the State-owned operators shall, at any time within three years of the agreement taking effect, “rectify the said flaws at its own cost and expense within 3 months of receipt of the aforesaid notice or mutually agreed timeframe”.
Four agreements are to be signed under the proposed SLPA-CMPort deal. They are the concession, site lease, shareholder, and management agreements. The joint venture company shall be capitalised with an amount of US$ 1.4 billion (transaction value), the draft agreement states. CMPort shall invest a maximum of US$ 1.12 billion (investment value) by itself or through its affiliate, by subscribing or purchasing 80 percent of issued share capital of the company. The balance 20 percent will come from the SLPA.
CMPort’s money will be paid in three tranches within six months, subject to fulfilment of conditions. A security payment of US$ 5 million has already been deposited. The deal will give CMPort sway, not only over Phases I and II, but over the proposed Phase III which is still just a concept. The total land to be leased out is 1,235 acres (5sq km) together with a man-made, 46.2-hectare (114-acre) island. The joint venture company will get all movable property and port infrastructure within that area “including the naval bases which are established within the Port Property as at the date of execution of this Agreement”.
The agreement includes a 15-year “exclusivity period” during which time there shall be no container port or terminal development directly in competition with the services or activities carried out at Hambantota within a 100km perimeter from the centre of the Port. This is called the “exclusive limit”.
At the same time, the joint venture company, or any of its nominees, shall be permitted “to exclusively carry out port/terminal development activity within 50 kilometres from the centre of the Port”. But there will be no restriction to development of fishery harbours, cruise terminals or marinas within the exclusive limit and similar developments or general cargo developments in the Galle and Oluvil Ports.
The SLPA will transfer the Port on a 99-year lease, free of any liabilities, including loans, tax, litigation, claims, environmental liability or other statutory liabilities. The site lease agreement will be reviewed 15 years after its first execution and thereafter at five-year intervals.
The joint venture company will be entitled to set and revise port tariffs and take the benefits and revenues of all port services and activities defined in the agreement. It will operate as an independent, profit-oriented enterprise. Any arbitration under the agreement shall be held in Sri Lanka.
The Government and the SLPA will bear responsibility for settling all issues related to existing employees of the Port. While those currently working in Phase I shall receive priority from the joint venture company when hiring staff, such will be subject to employer terms as well as the qualification, expertise, experience and skills required for the job and concerned position.
The agreement obligates CMPort to ensure that the rights it gains “shall not be used to create a monopoly, restricting competition or creating unfair competition, to third parties who engage in similar and/or related activities”. However, the joint venture company reserves the right to conduct any project within the leased area without offering such project to any third party.