Financial Times

Foreign investors eye rebuilding contracts
Sri Lanka is much poorer in the wake of the tsunami with some 40,000 lives lost and severe damage to infrastructure, but the disaster has provided an opportunity to build anew the damaged areas with foreign investors already making inquiries about contracts in the massive reconstruction effort.

The government has said that large infrastructure projects will be made available for international participation on the basis of public-private sector partnership and that the massive pledges of aid would help shore up public finances.

Existing urban development plans are being modified and accelerated to make use of the opportunity provided by the disaster to replace damaged infrastructure with more modern amenities and radical changes are planned for damaged coastal towns such as Galle. The Board of Investment sees a sharp increase in investment this year as private sector participation is anticipated in some of the big infrastructure projects. "We see an increase in investment because of the rebuilding activity," Saliya Wickramasuriya, BOI chairman and director general said in an interview. "Already, we're getting a lot of inquiries on what projects will be made available for investors." There are many opportunities to put projects into public-private sector partnerships in building roads, bridges, power, water and sanitation systems in which there would be little risk for government while investors would have a long-term stake in the projects, he said.

"The rebuilding requirements make for very attractive long term projects for international investors," Wickramasuriya said. "Aid stops at a certain point - investment stays with us and brings new technology." The government has said at least $1.2 billion is required to replace the damaged infrastructure this year alone.

Treasury secretary Dr P.B. Jayasundera told a news conference the government is not only looking at replacing destroyed infrastructure but building more modern and durable systems taking into account that Sri Lanka is now considered to be within an earthquake prone zone.

The government is also focusing on restoring normal life in affected areas as soon as possible and working out a scheme to help people who lost all their possessions. "Retail shops are not open in affected areas because people don't have cash," he said. "We're now talking with UNDP to quickly inject cash through divisional secretaries for people to resume their daily lives. Whether people were rich or poor is irrelevant. They are starting a new life." Central Bank governor Sunil Mendis said the bank was watching the exchange rate closely to ensure the competitiveness of exporters was not eroded by the sharp appreciation of the rupee in the foreign exchange market.

World Bank country director Peter Harrold said in an interview that the bank, along with Sri Lanka's other main donors, Japan and the ADB were reviewing the government's initial needs assessment and that a more thorough assessment was expected soon.

Asked what projects the World Bank would fund Harrold said: "We can do anything. We would like to emphasis that in the situation like Sri Lanka is confronting, we're probably the most flexible donor that exists."

He said it was important for local communities to have a "strong role" in the recovery process and "not simply be told what's going to happen to them". Sri Lanka should also "maximize the grants before you take the loans." Harrold said. "It is very often the case that other donors have distinct preferences. We don't care what we finance as long as what is required gets done as a whole. We will allocate our resources to fill the gaps that others cannot after we maximize the use of grants."

The bank plans to re-allocate funds approved for existing projects to meet the immediate rebuilding needs of the tsunami victims and top up the funds for the original projects later on. "There's about $50 million in ongoing projects available immediately to be used for anything." Harrold said this was an opportunity to build better infrastructure.

"You don't rebuild a bad road, you don't rebuild shacks and insanitary housing, you don't rebuild water systems that serves only a few people. When restoring access to services of people affected you do so in a way to bring it to certain acceptable standards."

BOI's Wickramasuriya said Sri Lanka got $200 million in foreign direct investment in 2004 and had forecast before the tsunami that the island would attract $300 million in FDI for 2005 mainly because of a few 'big bang' projects of high dollar investments.

"Now with all these extra opportunities for investment that number could be significantly higher. Definitely we'll exceed our current target. The final number would be a good percentage of the re-construction budget."

Few BOI projects were affected outside the hotels. Of 55 BOI approved hotels in the southern and eastern coasts, 35 were affected and had to be evacuated.

"The affected investors are all sticking on - there are no cancellations. We got several letters from investors assuring us of their intention to go ahead with their projects," Wickramasuriya said. "Only two beach hotel projects have asked for more time to evaluate the new coastal building rules."

The disaster has provided an opportunity to remodel the resorts on the beaches whose environment was damaged over the years. "Now there's a chance to consolidate the strengths of the industry in the most appropriate manner and do away with the ad hoc development that's happened."

The disaster has also provided an opportunity to modernise the fishing fleet, 70 percent of which was lost. There are inquiries from foreign donors on replacing the fishing fleet with modern boats, fish finders, and other equipment and techniques.

Urban Development Authority (UDA) officials said badly damaged coastal towns such as Galle, Matara, Hambantota, and Batticaloa, and smaller towns would be remodelled and in some cases relocated.

Much of the key infrastructure would be shifted inland according to existing plans drawn up by the National Physical Planning Department that are now being accelerated. "The coast and hill country are considered too fragile to support dense population concentrations and commercial activity," a senior UDA official said. "The development thrust was planned for the interior."

All rebuilt towns will be linked to the southern expressway whose construction will be accelerated. The expressway already has land earmarked for a railway, which could probably be an electric line. The area between the expressway and the existing Galle road is earmarked for development such as houses and commercial buildings.

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