News
Ports Ministry in move to cancel ECT bidding process; India-Japan deal under consideration
The Ports and Shipping Ministry this week sought Cabinet permission to rescind a 2016 bidding process for the deep water East Container Terminal (ECT) after squandering months on what started out as an effort to seal a public private partnership for the facility’s management.
Ports Minister Sagala Ratnayake presented the paper to the Cabinet this week, but notified ministers that he was withdrawing sections in the memorandum which also requested approval to buy container handling and gantry cranes for the ECT using Sri Lanka Ports Authority (SLPA) funds.
The ECT has been ready since mid-2015, when its first phase was completed with a commercial loan of US$ 80mn from the Bank of Ceylon. This comprised a 440m quay berth, an 18-hectare container yard and other facilities.
However, its berths require container handling equipment—five ship-to-shore cranes and seven rubber tyred gantry cranes—to make them functional. Eight other rubber tyred gantry cranes were to have been transferred from another terminal to raise the total to 15.
It had been proposed that the cranes be purchased from SLPA’s own funds, which are readily available. This would circumvent the need for a foreign loan and, thereby, foreign exchange losses that will severely impact the organisation’s profit and loss account.
In the 2018 financial year alone, the SLPA’s financial loss was more than Rs 10bn, incurred on repaying the Asian Development Bank (ADB) loan for the breakwater and on yen loans taken as far back as 1985. The profit of Rs 8bn earned that year was notwithstanding these heavy liabilities.
It is learnt, however, that the administration is now considering a proposal for a Government-to-Government (G-to-G) deal floated by Japan and India for the management of the ECT. The idea is that they will fund the procurement of cranes–which must be bought from a Japanese supplier–and that the SLPA will take on the liability of resettlement of the loan. A new company will then be formed to manage the ECT, in which India and Japan will hold a 49 percent stake and the SLPA 51 percent.
This proposal is now reportedly under consideration in what is a continuation of a policy of dividing strategic projects in Sri Lanka among foreign players on geopolitical—not commercial—grounds. The negotiations on a G-to-G project will result in further delay of the ECT being put to use, amidst a dramatic slowdown in the growth of Colombo port this year owing to lack of capacity.
The port achieved overall growth of 15 percent in 2018 with transhipment increasing by 19 percent. But by last week, growth in the entire port of Colombo had slowed down to 3.5 percent, an insider said, blaming the lag on the failure to launch the ECT. The industry agrees there is a severe lack of capacity.
The ECT has been at the centre of a political fiasco from the time it was completed. The previous Government had commissioned the equipment from M/s Shanghai Zhenhua Heavy Industries Co. Ltd (ZPMC). When the regime changed in January 2015, Arjuna Ranatunga, the new Ports Minister, cancelled the order alleging corruption (although no action was taken against the alleged perpetrators).
In June 2015, the Cabinet gave the green light for the SLPA to order anew four handling and 12 gantry cranes. Eight months later, in February 2016, the policy changed again. The Government invited expressions of interest (EoIs) for the development of ECT. A joint venture with an investor (SLPA holding 51 percent of equity) was envisaged. Bids closed in July that year.
Five consortia applied: Aitken Spence PLC with Port of Singapore Authority (PSA) and Shapoori Pallonji; China Merchant Holdings International (CMHI) with Evergreen, CMA CGM (shipping company) and Summit Shipping from Bangladesh; John Keells with APM Terminals, Maersk Lines and Container Corporation of India Ltd; Terminal Link with CMA CGM; and Hayleys with Westport Shipping Services LLC, Mitsui and Co, Mitsubishi and Co and NYK. Transnet (South Africa) and MST Terminals put in single bids, bringing the number of interested parties up to seven.
No fewer than four committees evaluated the bids for the Build, Operate and Transfer (BOT) concession and the ADB was hired as a consultant. But in December 2016, the process was abandoned after the Cabinet Committee on Economic Management (CCEM), which was headed by Prime Minister Ranil Wickremesinghe, introduced fresh conditions to the process that eliminated all seven parties vying for the project.
Minister Ranatunga then canvassed Cabinet approval to buy cranes so the SLPA could run the ECT. His successor, Minister Mahinda Samarasinghe, also sought permission to purchase the equipment, this time with the SLPA’s own funds. But these didn’t go through and a G-to-G is now being touted.
“The SLPA will have to buy the equipment from Japan,” said a senior shipping official who did not wish to be named. “It will be more expensive and involve a loan. Even if it involves a grace period, the SLPA is still paying the yen loans taken for the Jaya Container Terminal (JCT).”
The official said a G-to-G loan at this point would be a “folly” as it will severely affect the SLPA’s balance sheet. “Then people will clamour it’s a loss-making organisation and to close it down,” he reflected. “The same thing happened with Hambantota (port) until the management was able to transfer the loan onto the Treasury resulting in huge profits for the SLPA. If you want to kill the SLPA, G-to-G is the best prescription. The SLPA has the money.”
Meanwhile, Cabinet granted approval this week for the SLPA to buy three ship-to-shore cranes from ZPMG in a move to increase the capacity of the JCT deep berth.