China gets controlling stake at Hambantota port
News that Sri Lanka had granted Chinese state-owned companies operating rights to four berths at the Hambantota Port once they are completed next year has caught the shipping industry unawares.
There had been no tenders or prior announcements. But Sri Lanka Ports Authority Chairman Priyath B Wickrama says the Government had agreed to such an arrangement with the Hambantota Port’s Chinese lenders as far back as 2010.
“We had an understanding with them when we took the loan,” he said in an interview with the Sunday Times. The loan agreement was signed with the Treasury.
He also revealed that, in exchange for these operating rights, the Chinese have consented to ease loan conditions. “That loan was a huge loan,” he said. “The Chinese Government (has) agreed to relax the loan conditions as well. So the terms of our Phase I loan and Phase II loan are being rearranged. Those negotiations are now ongoing with the Treasury.”
Dr. Wickrama, SLPA Chairman since 2008, said there could be concessions in repayment terms or the time granted for repayment. Phase I of Hambantota Port cost an estimated US$ 361 million with 85 per cent being met by Exim Bank of China. Phase II is priced at an estimated US$ 808 million and is a 100 per cent loan.
“The interest (levied) on the Phase II loan is only two per cent,” Dr. Wickrama said. “The Phase I loan is at 6.3 per cent interest. All these loans will be restructured.”
The ‘Agreement on Key Terms for Supply, Operate and Transfer (SOT) of Container Terminal Hambantota Port Development Project Phase II’ was entered into on September 16 in the presence of President Mahinda Rajapaksa and his Chinese counterpart Xi Jinping. Dr Wickrama signed on behalf of Sri Lanka.
Signing for China were representatives of China Merchants Holdings International (CMHI) and China Communication Construction Company Ltd. (CCCC). The former already operates the new Colombo South Container Terminal which, at 18 metres, has the deepest berth anywhere in the country. The latter is building the 233-hectare artificial island known as Colombo Port City.
The partners in the Hambantota SOT will be CMHI and China Harbour Engineering Company Ltd, an engineering contractor and subsidiary of CCCC. China Harbour did Hambantota Phase I and is now completing Phase II.
When the SOT comes into effect (a date has not been decided) this group of companies will hold operating rights in both of Sri Lanka’s main ports. Additionally, the Chinese will have effective control of 108 hectares – 20 hectares on freehold basis and 88 on a 99-year lease — in Colombo Port City.
In Hambantota, the Chinese joint venture will have the bigger stake in the project company. According to an announcement made by CMHI to the Hong Kong Stock Exchange, it will hold 64.98 per cent (just 0.02 percent short of 65) of shares while SLPA will have the remaining 35.02 per cent. The total capital investment into the SOT is US$ 601 million, of which the Chinese will invest about US$ 391 million.
“The concession period to be granted to the Project Company under the SOT Agreement shall initially be 35 years from the commencement of operation of the SOT Project, which can be extended by five years at the option of the Project Company,” CMHI states.
The investment ratios of China Harbour and CMHI in the China joint venture are yet to be determined while the detailed terms and conditions of the SOT are still being discussed by the parties, it said.
Dr. Wickrama said the agreement only covers “the operational part” while the SLPA owns the property. The Chinese joint venture will supply container handling equipment and will guarantee revenue to the Ports Authority, depending on volumes. “That will ease our loan pressure as well,” the Chairman observed.
The SLPA is not investing money in the project company. “Our capital is the infrastructure we developed,” he explained. “We are not spending an additional cent. Their capital is equipment and development.” Construction is expected to finish by the end of 2015.
The Chairman said that the artificial island that was being built in Hambantota as part of Phase II would “belong 100 percent to us”. It will be reserved for port-related activities and front-end services, not warehouses or industries.
The Chinese have offered to bring business to the industries zone. Asked if they made a firm commitment, Dr. Wickrama replied: “They have agreed to bring industries. The Chinese government has also agreed to support us to bring investments. That will come within five years.”
None of this satisfactorily answers the question of why the public were not informed of the SOT agreement until it was signed. “We don’t want to disclose everything from the beginning,” Dr. Wickrama replied. “We have to discuss at initial level. Until we finalise something, we don’t say.”
“But this was there for some time,” Dr Wickrama reiterated. “It was there in the last agreement. If you properly go through the loan agreement we signed, this was there. Those things were published. They were not hidden.”
However, the Sunday Times was not able to secure a copy of the loan agreement. Dr Wickrama said it was at the Treasury and that “normally we cannot give Treasury loan agreements to you”. He also did not show us the agreement between the SLPA and the Colombo International Container Terminals Ltd that runs the Colombo South Harbour, which many Ports Authority officials said they had not seen.
A request for information about the SOT deal (sent via email) went unanswered by Treasury Secretary P.B. Jayasundera. A spokesman for the External Resources Department of the Ministry of Finance said they did not handle the SOT agreement and knew nothing about it.