The Eastern Province comprises 15% of the land area of the country, 25% of the coastal belt, 8% of the population and 35% of the fisheries population. The total land area is 9,361 sq km, inland waters 635 sq km with a total of 9,996 sq km or 15% of Sri Lanka.

The three districts in the Eastern Province - Amparai, Batticaloa and Trincomalee - have land extent of 4,415, 2,854 and 2,727 respectively with population figures of 618,000, 549,000 and 388,000 respectively.

The total labour force in the province is 507,000 and the major employment are in Services 46%, Agriculture 37% and industry 17%. The GDP in the Eastern Province is 4.8% compared to the country GDP of 6.5%.

Trincomalee Special Economic Zone
Under the BOI the cabinet of ministers has granted approval on February 15, 2006 to gazette an area of 675 sq km in the Trincomalee district to establish a Special Economic Zone under BOI Act No 4 of 1978.

The Trincomalee Special Economic Zone has been declared as a Licenzed Zone under section 22A of the BOI Act No 4 of 1978 on 16th Oct. 2006 by an Extraordinary Gazette notification No. 1467/03.

Under the Special Economic Zone 6 zones have been demarcated and they include zone1 for port related development, zone 2 for tourism development in Nilaveli, zone 3 for agriculture and agro processing, zone 5 eco tourism, and zone 6 comprises existing residential zone.

The proposed industrial activities to be started include the following –

- Port related activities – ship repair, dry dock & dry port, boat building, container yards.
- Oil refinery, power plants, fertilizer and L & G storage.
- Fisheries based industries
- Agro processing
- Oil storage facilities, petroleum based products, fertilizer manufacture.
- Light industries and local based SME’s. The development plan of the Investment Promotion Zone include the following activities - Large scale industries, Medium scale industries, small scale industries, logistics centre, container terminal, service area, residential area, rain water harvesting reservoir, sewage/waste water, treatment plant, road development, green belt, conservation zone and water tank. The total area is 1635 acres.

Infrastructure
One of the most important facilities that will be required for the setting up of the IPZ is the infrastructure requirements. This includes the following:

- Road network linking the five zones and the construction of the outer circular road the work of which has already commenced.
Estimated requirement of 60 MVA, new grid sub station or an alternative captive power plant for the zone.
-Water supply. Initial demand of 10,000 cubic meters per day need to be met in the 1st phase. The possible sources of water is ground water, supply from existing water main from Kanthalai tank, extraction from mahaweli.
- Sewage/ Waste water treatment and disposal.
- Storm water disposal
- Solid waste management
- Telecommunications

The estimated cost for phase 1 of the infrastructure development was Rs 4,400 million and for the second phase Rs 2,600 million giving a total of Rs 7,000 million.

The implementation programme was planned for three years and the foundation stone for the IPZ was laid in December 2006. However no development work on the zone has been yet started.
Thereafter many political developments have taken place and the local government and provincial council elections were held and the provincial council set in place.

Now with the improvement of the security situation they are ready to commence development of the Eastern province and unfortunately no work has still commenced on the Trincomalee Investment Promotion Zone. It is important to note that the infrastructure should be in place to attract local and foreign direct investment. Hence the government will have to now decide how expeditiously they could get the infrastructure and the work on the IPZ to commence.

With the new incentive package given to BOI companies already the apparel sector has taken the lead and companies such as Brandix have started to set up garment factories in the East. The BOI needs to set up their service centre in the Eastern Province to assist import/export activities, approvals etc. for the new industries that will be set up. This office could be set up in the proposed IPZ the work of which is to yet commence.

Tax incentives
The BOI grants generous tax incentives to existing BOI companies that set up new industries in the East. This includes tax holidays upto 5 years for the parent company. This indeed is a very generous gesture for a profit making parent company which could get 5 years tax holiday while the new company could get 15 years. In the case of agriculture and dairy projects they could get up to 20 years tax holiday. Local industries such as rice processing plants, ice manufacturing plants & cold rooms, dairy farming & livestock development, cultivation of fruits and vegetables, fisheries industry are eligible for 20 year tax holiday. They will also not be liable for payment on import duty on plant, machinery and equipment and construction material.

Revival of existing companies will enjoy a 10-year tax holiday and expansion of existing companies or revival of a sick company by an existing company will enable BOI companies to enjoy a tax holiday up to 5 years for the parent company.

The BOI will also assist in obtaining state land for the projects.
The tourism sector is another area where the tax concessions of 15 years are granted considering the large potential for tourism in the Eastern Province.

New investors and non BOI companies
The existing BOI companies will enjoy the benefits that are granted to a new company.
However a non BOI company does not enjoy the same tax advantage applicable to a BOI company which could expand their projects and be entitled to a tax holiday for the prent company. One would notice that a BOI company that has no tax holiday remaining will enjoy 5 years tax holiday.

However this has created a double standard as the non BOI company which may not be enjoying a tax holiday will not be entitled to such benefit. In many other countries one of the methods by which they provide incentives is to grant double deduction of expenses incurred by the new project to the parent company. This should at least be permitted to non BOI companies to attract more projects to be set up in the East which is classified as a ‘Most Difficult’ area. Especially in the agriculture and dairy farming the returns will take a long time and there should be some incentives to companies investing in this sector.

What needs to be done

- The BOI should set up an office in the Eastern Province to provide the full gamut of services.
- The work on the Investment Promotion Zone should commence immediately
- A level playing field both for BOI and non BOI companies should be implemented to accelerate investment and development.
The USAID project of providing skills training should be encouraged and the government should take it to all districts
- The Port Development and mega projects in Trincomalee should be promoted to attract both local and foreign investors
- Housing project for investors and the public should be planned.
- The Small and Medium sector industry authority under the Ministry of Industries need to establish an office in the Eastern province
- The support of the banks and financial institutions need to be obtained.
- Road Transport facilities need to be improved and the train services for container traffic and cargo.
-Domestic Airport and flights to be scheduled.
- Security should be a top priority of the government.
-Foreign donor agencies support for the development of the infrastructure of the area to be obtained.
- Agriculture and fisheries to be given top priority.