Mangala moots ECT under India, Japan, Sri Lanka consortium
View(s):Rejecting a proposal to purchase equipment for the East Container Terminal (ECT), Finance Minister Mangala Samaraweera has sought Cabinet approval for the terminal to be run by a consortium led by India, Japan and Sri Lanka.
The minister, in a paper presented to the cabinet, pointed out that enhancing the viability and profitability of the Sri Lanka Ports Authority (SLPA) is by developing the ECT on a Public Private Partnership (PPP) basis with majority interests by the selected private investor and a “significant minority share to the SLPA.”
In this respect, it was pointed out that Indian and Japanese governments have already made commitments during meetings held with the Sri Lankan government on March 11 and 14 respectively to develop the ECT as a PPP with the participation of a consortium that includes Japan, India and Sri Lanka (i.e. SLPA).
Moreover, on April 26, Minister Samaraweera has stated that the Japanese Ambassador has requested to providing grant aid for the installation of equipment (cranes) necessary for the early operation of the ECT, on the condition that subsequently, the development and operation of the ECT will be implemented by the Japan, India and Sri Lanka consortium.
The viability of the SLPA could improve if the ECT is carried out as a PPP with a larger minority stake of at least 40 per cent by capitalizing the existing asset compared to the 15 per cent shares it obtained from CICT and SAGT.
The minister proposed that based on the commitments made to the two states they need to allow the governments of India and Japan to identify strategic partners who will own a controlling stake in the PP Special Purpose Vehicle (SPV) that will lease the ECT and operate on a BOT basis for a 35-year period, similar to existing PPPs in the Port of Colombo.
Moreover, SLPA requires ownership of a deep-water terminal to handle ultra-large-container vessels (ULCV). At present less than 10 per cent of the total ships handled in Colombo are UCLVs.
Highlighting that the SLPA has a question of affordability in purchasing the container handling cranes estimated to cost around US$80 million and a further cost of construction of the full terminal of 1200 metres at over $400 million, it was stated that the “such fiscal liabilities cannot be incurred by the SLPA” due to its commitments in investments made for the Jaya Container Terminal (JCT), the Kakesanthurai (KKS) and Oluvil port at over $150 million.
The minister pointed out that under a PPP the private sector investor would incur the entire cost of expanding the ECT and the SLPA could receive shares to the value of the investment already undertaken in ECT, which has also been done via a loan.
Alternatively the SLPA could obtain cash payments from the PPP investor retire this loan and rely on revenue streams from the PP operator to enhance SLPA’s profitability, it was stated.
The Cabinet paper also points out that SLPA had not been forthright in its submission to the National Economic Council (NEC) by stating that payments from current PPP operators is “negligible.”
However, direct and indirect payments to SLPA from Colombo International Container Terminal (CICT) and the South Asia Gateway Terminal (SAGT) PPP operators amounted to around Rs.11 billion in 2016 that has resulted in a 25 per cent reduction in SLPA’s loss in 2015, the paper said.
Minister Samaraweera noted that six decisions made by the Cabinet that had ratified CCEM decisions taken since April 1, 2016 points to the fact that SLPA should pursue a PPP model in a bid to not increase its debt burden and to ensure that a regional partner could be sought out with no less than 20 per cent interest in the terminal. This would safeguard the strategic positioning of the Port of Colombo as the primary regional hub.
(SD)