Financial Times

SAGT loses first option on new port berths
South Asia Gateway Terminals (SAGT) has lost first right of refusal for four berths of the proposed deep draft Colombo South Harbour, as the Sri Lanka Ports Authority has not informed the terminal operator of a decision to build the breakwater for the new port within the period specified in the concession agreement.

The development allows the government to call for competitive bids, without negotiating solely with SAGT, for the first container terminals in the planned port, which is critical for Colombo’s survival as a transshipment hub. Other companies and international multi-port operators are known to be interested in Colombo’s New South Harbour, given its proximity to the main East-West trade route across the Indian Ocean and the booming Indian economy, the main source of transshipment cargo for Colombo.

Some multi-port operators have even sent teams to hold talks with the Board of Investment. Under the concession agreement signed between the Sri Lanka Ports Authority (SLPA) and SAGT in August 1999, SAGT was offered the first right of refusal to build four berths in the Colombo South Harbour on the seaward side of its existing Queen Elizabeth Quay (QEQ) terminal. Port Ministry officials said that for this to be effective, the SLPA was required to inform SAGT of the government’s decision to build the breakwater for the new South Harbour within 75 months of the date of QEQ’s hand over.

That period has now expired, according to an Attorney General’s Department official, with the government yet to make a formal announcement on building the breakwater.

SAGT, in which the P&O Group and the John Keells Holdings conglomerate each have 26.25 percent stakes, along with equity investments by SLPA, Evergeen and multilateral lenders, took over QEQ on September 1999.

The ADB has promised part of the funds for the three-km breakwater, which along with dredging, is expected to cost US$300 million, and the government is seeking the balance money.

AG’s Department and port officials said the new development allows the government to get the best terms for building the first berths in the new Colombo South Harbour by calling for open competitive bids. SAGT CEO Maciek Kwiatkowski said the terminal operator still supported the South Harbour project.

“We support it and we’re keen to see it start as soon as possible,” he said.
He said SAGT had not been informed about the current status of plans to start building the new port or that SAGT had lost the first right of refusal on the four berths.

For the first berth to be ready by 2009 work must start early next year and industry officials have said the government should fast-track the project.
Otherwise, Colombo risks losing its hub status, with adverse effects on the port and exporters and the island’s attractiveness for foreign investment.
“If the government does not go ahead with the South Harbour, we would have a capacity crunch by the year 2009,” declared Dr. Parakrama Dissanayake, Chairman of Aitken Spence Shipping and former chairman of SLPA.

He suggested the BOI with SLPA could use it as the flagship project to attract foreign investment. Colombo has increased annual capacity to 3.3 million TEUs (Twenty-foot Equivalent Units or containers) with the entry of SAGT and consequent improved efficiency at the Jaya Container Terminal.

“SAGT made a positive contribution towards the development of Colombo Port. SLPA may not have enhanced its efficiency levels if not for the international standards established by SAGT,” said Dr Dissanayake. But with annual demand forecast to grow as 10-12 percent, demand is expected to outpace capacity by end-2008.

Colombo’s present infrastructure will not be able to handle the huge new container vessels capable of carrying over 8,000 TEUs that are now being deployed on the East-West trade route. The loss of direct port calls by big ships could have serious economic implications with industrial exports, which make up three-fourths of exports, being badly affected, especially garments which are highly “transit sensitive”, Dr Dissanayake said.

“These products are bound to become non-competitive. Having direct shipping services will be essential in attracting investors to choose Sri Lanka as a possible location for manufacturing. Besides we would incur additional costs to feeder export/import traffic and face loss of transhipment revenues.”

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