News
Hambantota port deal signed; minority stake for SLPA in both new companies
View(s):The Concession Agreement for the controversial Rs. 193 billion Hambantota Port, the legally binding document for what is being promoted as a public-private partnership, was signed yesterday.
The event at the Ports and Shipping Ministry was telecast live over the UNP-controlled state run Independent Television Network (ITN). Ministry Secretary L.P. Jayampathy and Sri Lanka Ports Authority (SLPA) Chairman Parakrama Dissanayake signed on behalf of the Government while Vice Chairman Bai Jingtao signed for China Merchants Port Holdings Company Ltd.
The highlight of the Agreement is the setting up of two separate companies – HIPG (Hambantota International Port Group (Pvt.) Ltd.), which will oversee commercial operations and HIPS (Hambantota International Port Services (Pvt.) Ltd) to oversee Common User Facilities (CUF), including security operations.
In the port operator company HIPG, CMPort (the Chinese company) will have a majority stake (85%) and the SLPA will have a minority stake (15%). The CUF Company – HIPS, the SLPA will have 42% and the HIPG 58% of the stake. Thus, the SLPA is a minority shareholder in both these companies.
After last Tuesday’s Cabinet meeting where Minister Samarasinghe’s memorandum was approved, a news release was issued on Wednesday. Both the Minister’s memorandum and the news release create the understanding that the SLPA has the majority stakes in HIPS. It states the SLPA will have 50.7 percent of the shares and CMPort 49.3 percent.
Corporate Analysts, however, pointed out, that the SLPA’s 50.7 per cent is made up of 8.7 percent stake in HIPS shares is not direct, but is represented through HIPG in a convoluted share-structure. The Agreement, which is a legally binding document, states that “initial equity share capital to be comprised of 42% to be held by the SLPA and 58% to be held by the HIPG operator.” The document signed yesterday does not mention SLPA’s 8.7 percent stake to be held separately in HIPS. Instead, it says the HIPG would hold 58% stake in HIPS.
Analysts point out to the widely regarded commercial practice, in a corporate set up, that a majority shareholder decides the policies as well as controls the day-to-day decision making. The CMPort has a controlling stake in the HIPG, so all decisions of HIPG would be the decisions of the CMPort. The minority shareholding becomes irrelevant since they can be voted out.
Among the ministers who attended yesterday’s ceremony were Malik Samarawickrema, Sarath Amunugama, Mangala Samaraweera and Mahinda Samarasinghe. China’s envoy Yi Xianliang was also present.
Minister Samarasinghe claimed that further changes in the Agreement could be made even after yesterday’s signing. He said the document would now go before the Cabinet for endorsement and would be tabled in Parliament thereafter. Earlier, President Maithripala Sirisena had said that the Concession Agreement would be signed only after Parliament debated the deal.
According to the news release issued by the Ministry of Ports and Shipping, the Hambantota Port which began commercial operations in November 2011 has an accumulated loss of Rs. 46.7 billion and that in from January this year it has handled only 10 ships if the car carriers which were forced to unload at the port instead of the Colombo Port are taken off.
The land area that will be gazetted to be leased out to companies wanting to invest around the Hambantota Port will be 1,115 hectares (and not 1,574 hectares), adds the release. The release also states, “The sole responsibility and authority in relation to National Security is with the Government of Sri Lanka).