By Nisthar Cassim
In an emphatic move, Beijing has brought together two competing bidders for the Hambantota Port to work together, reinforcing China’s serious intent on Sri Lanka though the latter is still grappling with differences of opinion on the crucial $ 1.4 billion public-private partnership (PPP) project.
The Daily FT learns that the Beijing administration had asked China Merchants Port Holdings Company Ltd. (CMPort), the chosen party by the Lankan Government, and China Harbour Engineering Co. Ltd. (CHEC), the other Chinese Government-controlled entity and failed bidder, to work together by forming a Joint Venture between them for the way forward on the Hambantota Port.
The Beijing-initiated move is seen as a strong signal from China that it means “serious business” as far as the Hambantota Port is concerned. As per the Beijing agreement, CMPort will own the controlling 51% stake in the Joint Venture to be formed between them which in turn will own 80% stake initially in the PPP with the Sri Lanka Ports Authority for the Hambantota Port.
Since the Hambantota Port deal and its viable future is linked to China developing industrial zones in four districts of the Southern Province, for which CHEC has given a proposal to the Lankan Government, it will own a controlling 51% stake in the Joint Venture with CMPort for same. Shipping circles claimed that prior to this move the losing bidder CHEC or its bid may have inspired a politically motivated protest against the Unity Government’s bid to revive the Hambantota Port’s commercially viable future.
With CHEC as a partner to successful bidder CMPort in the Joint Venture steering the Hambantota Port, Opposition critics could lose their venom. The recent Cabinet nod for a revised PPP deal on the Hambantota Port is also seen as a strong show of intent from the Lankan Government to forge ahead. Official sources said the Cabinet decision confirms all key members of the Coalition Government, the UNP and SLFP, are in agreement though the Joint Opposition and JVP are wary about the deal. Ports and Shipping Minister Arjuna Ranatunga and a few other Ministers however have been vocal in their opposition to the deal or have called for it to be made more attractive for the country.
Sources said the Government was likely to sign the necessary agreements on the Hambantota Port with China later this week. The remaining agreements to be signed are the Concessions Agreement, the Shareholder Agreement and the Lease Agreement. The original Framework Agreement was signed late last year.
As per the Cabinet decision a fortnight ago, the Hambantota Port will be developed as a PPP between China and Sri Lanka (SLPA) with the Chinese party paying $ 1.12 billion for the 80% equity stake in separate tranches within six months. The deal to be signed has a clause for controlling stake to be lowered to 60% in favour of the SLPA or a local investor.
The PPP JV will use the existing Hambantota Port (completed up to the civil work stage of Phase II) and 1,235 acres (5 km2) of contiguous land, for a period of 99 years. The number of years is likely to be lowered with options as final agreements are still being firmed up.
The Rajapaksa Government borrowed $ 1.3 billion or Rs. 183 billion to build the Magam Ruhunupura Mahinda Rajapaksa Port (MRMRP). Interest rates of loans ranged from 2% to 7.5%. The operational loss of the Hambantota Port is a staggering over Rs. 9 billion per year since 2014 whereas the revenue had been Rs. 2 billion per annum.
After the Unity Government took office in a bid to restructure and revive the loss-making and debt-burdened MRMRP in Hambantota, the developer China Harbour (CHEC) and China Merchant were asked to submit proposals. This was pursuant to a Memorandum of Understanding signed between the Unity Government and the Central Government of China.
The latter was invited since it was a global port and terminal operator and invested over $ 500 million to build South Asia’s most modern terminal in the Colombo Port – Colombo International Container Terminals (CICT) – as a PPP with the SLPA.
CHEC valued the Hambantota Port at $ 1.1 billion with 65% stake as equity and a 50-year lease period and CMPort valued it at $ 1.4 billion with 80% stake as equity and a 99-year lease period.
CMPort was picked as the preferred bidder by the Government on the strength of its proposal as well as its credentials as a port/terminal operator as opposed to CHEC’s experience as only a builder/developer.
CMPort is one of the largest global terminal operators and investors in port and port-related facilities, listed on the Stock Exchange of Hong Kong. CMPort has an extensive network of ports (55 terminals in 28 ports in 15 countries globally) and these ports handled a total container throughput of 83.66 million TEUs in 2015, ranking it second in the world according to Containerization International.
China Harbour’s parent, China Communications Construction Company, is listed on the Hong Kong Stock Exchange and is ranked 110 on the Fortune 500 list and third on ENR’s Top International Contractors. CCCC operates in 135 countries with an annual turnover of $ 68 billion.