Adani, JKH sign WCT deal amidst SLPA concerns
A deal to hand over the operations of the West Container Terminal (WCT) to Adani Group (51 percent) and John Keells Holdings (JKH) went ahead on Thursday amidst the Sri Lanka Ports Authority (SLPA) raising concerns that the royalty gains are lower than that obtained from the Colombo International Container Terminals (CICT).
The agreement was signed on Thursday with JKH saying that the BOT agreement between the SLPA and CWIT is for a lease period of 35 years. JKH is the local partner of India’s Adani Ports and Special Economic Zone Ltd (APSEZ). It is one of the biggest foreign investments in recent times.
The JKH statement said that the total project cost is envisaged to be approximately US$650 million with a debt to equity mix of approximately 70:30. The JKH equity commitment is estimated to be $70 million, which will be infused into CWIT on a staggered basis over the project construction period. JKH will have an equity stake of 34 per cent in CWIT, while APSEZ and the SLPA will hold 51 per cent and 15 per cent, respectively.
Meanwhile the Business Times is in possession of a letter dated September 17, 2021 by SLPA Chairman Capt. Nihal Keppetipola addressed to the Ports and Shipping Ministry Secretary with copies made to SLPA Managing Director and the Secretary to the President that raises concerns in the Build-Operate-and Transfer (BOT) agreement that received approval from the Cabinet on March 16, 2021. The letter states that “the proposed total annual guaranteed throughput royalty payment for 35 years by WCT is lower than the amount guaranteed by CICT. Of the 35 years, the rates proposed by WCT for 21 years are lower than the rates of CICT for the corresponding years for the same throughput.”
The Chairman has noted that “the SLPA has proposed a commencing royalty rate of US$7 which has been slashed down to US$4. Considering the fact that CICT commenced operations in 2013 and WCT has planned to commence in 2023, and with the increasing inflation during this period, it could be presumed that the initial royalty rate to be higher than that of CICT for the same throughput.”
In the letter the chairman also notes that the draft BOT agreement “is the outcome of the negotiations carried out by SLPA, M/s JKH and M/s Adani Group prior to my taking office as the Chairman SLPA.”
In this respect, he has recommended that a “totally independent committee be appointed to carry out an expeditious review of the terms and conditions of the draft BOT agreement”.
But he pointed out: “…keeping in line with the government policy, the BOT agreement has to be signed at the earliest”.
A JKH spokesperson said they were unaware of such a letter and noted that the SLPA chairman had commended the project during Thursday’s signing of the BOT agreement.
The SLPA chairman’s concern about lower royalties was pursuant to the March Cabinet decision taken on the “Colombo South Port Project – Development and Operation of the West Container Terminal (WCT)” which has stated that the Cabinet had noted that the payments of royalty rates, lease rent etc., have been higher than the amount agreed with CICT in 2011.”
Some industry sources point out that the guaranteed royalty payments by WCT are higher than the guaranteed royalty payments by CICT.
But another industry source, familiar with the CICT and WCT deals, said that, “In 2010 CICT gave a (NPV) Present Value of guaranteed cashflows of $150 million, while in 2021 WCT has given a NPV of $155 million for a capacity which is 17 per cent more than CICT. When taking into consideration the additional space at WCT combined with the discounting of inflation in dollar terms, WCT should have given the GOSL / SLPA a NPV of $200 million.”