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Govt. takes a different turn for LRT project; questions over JICA deal
The Government will float a request for proposals (RFP) for the Colombo Light Rail Transit (LRT) project despite the last administration having already signed a loan agreement for it with Japan International Cooperation Agency (JICA) in March last year.
“We will do it but it will be a different model,” said Priyath Bandu, Secretary to the Ministry of Urban Development, Water Supplies and Housing Facilities. “There will be an RFP to find a good investor. There will be no unsolicited parties. The future of this project will be a PPP (public private partnership).”
The project “won’t immediately happen”, Treasury Secretary S R Attygalle also said. “The Government has a lot of other priorities.”
The announcement is likely to surprise JICA which in March 2019 signed a 40-year loan agreement with the Government for the project. The LRT system is designed with 16 stations over 15.7 kilometres of track in and around Colombo. Completion was due in April 2026. The loan has a 12-year grace period and the interest rate if 0.1 percent.
Moreover, the consultancy contract was awarded in March 2019 and the detailed design is at a final stage. Bid documents for the first contract package for rolling stock is ready to be submitted for Government approval. Land acquisition for the first civil works contract package for the depot area is in progress. Residents’ consent has been obtained and a Land Acquisition and Resettlement Committee (LARC) is due to be appointed.
It had been planned to float a tender for rolling stock after the Parliamentary election. Various sources in the Government had been indicating for some weeks that the new administration may even be reconsidering the JICA funding. A decision, they said, was expected after the election: “We are in discussions on how best to go forward.”
But one year of consultancy work has already been completed and paid, authoritative sources said, pointing out that terminating the JICA contract now will have serious repercussions financially. The project environment impact assessment was approved in Sri Lanka and Japan.
JICA has been financing various aspects of Colombo’s transport sector since 2012 on grants. It initially backed a Transport Master Plan, then a feasibility study for a monorail and two feasibility studies for the LRT. All personnel of the Project Management Unit were also trained, including in Japan, free of charge.
The LRT was not found to be financially feasible although it was economically feasible, transport sector experts said. In other words, no company can make a profit on it.
In order to incentivise a PPP, therefore, the Government may have to offer “viability gap funding”–or pay the difference. Alternatively, they could give a prospective private sector partner high value land to make up for the shortfall.
“You have to give the private company something to recover their investment and to make it profitable,” one expert pointed out. “That means agree on a profit amount to be paid by the Government or receive very high value land.”
It was not immediately clear what the contract between JICA and the Government says about termination of agreement but there are likely to be obligations.