Business Times

Sri Lanka’s economic future – vast prospects in Trincomalee

By Sunil Abhayawardhane

After the conclusion of the war, many expect Sri Lanka to boom economically, which I believe would happen. However for some reason or other, officials appear to believe that this will just happen, though that’s not the way things work out. There has to be a concerted effort on the part of the country to make things work.

One should not lay back and expect foreign investment to just flow in. What makes the difference is the effort one puts in to attract the investment. The Board of Investment needs to be more aggressive and imaginative.

Our present GDP of approximately US$ 43 billion is way short of what it should be. In comparison, India’s Reliance Industries has a turn over of US$ 44 billion. This should give us some idea of our present position and what we need to aim for.

Even at a 10% growth rate it would take 10 years to double the GDP from its present level, assuming many other factors are kept in check. What is urgently needed is for a rapid leap to about US$60 billion within the next three years and then keep the momentum going.

With many countries competing for the same global capital, we need to be more attractive. Therefore a well thought-out strategy becomes important. Singapore’s strategy was a simple one, to provide a First World set up, in a Third Word region, where the MNC’s would feel comfortable to engage in business activity. What they meant by First World was not only the material comforts but also things like the rule of law and quick dispute resolution, etc.

Without a strategy it is difficult to imagine Sri Lanka setting itself on a path of rapid development. The purpose of this short note is to impress upon the authorities the need for a strategy and plan.
One needs to understand the nature of FDI flows around the world. Global capital will flow if the ROI (rate of return) is good and the investment is secure, while understanding that there is a tremendous amount of work countries do, in the form of infrastructure development to attract global capital.

A very clear fact is the difference in strategy that the East Asian countries followed as well as what is now being done in India and China and the Sril Lankan attitude of waiting for things to just fall into place. The sooner we realize that it just won’t work in that manner the better it would be for us.

The first step towards a positive strategy would be to fully utilize the natural assets that we have. What better asset could one have hoped for than Trincomalee and its harbour? One of the best natural harbours in the world and certainly the best in the region, we have hardly made use of it or realized its great potential. Listed below are some possibilities that lie in Trincomalee.

The biggest and best advantage that Trincomalee has over the other ports in the region is the fact that its port has an unlimited draft and its largeness, capable of handling the largest ships afloat today and in the future, as well as the availability of adjacent land for development.

The next advantage is its location, being on the east coast of Sri Lanka, it could become the hub port for East India, Bangladesh and Myanmar, and the operation of the Thai Canal in the future makes it more viable. It’s close proximity to India, making pipeline transfer viable and the already existing under utilized oil storage tanks, are also assets.

Though Trincomalee was a major port in the past and a major Royal Navy base during the last World War, it has hardly been used. However now with the tendency for ships to be bigger with greater draft, the obvious choice turns back to Trincomalee. In the shipping world the trend is for the operators to build and operate their own terminals as is happening around the world. Therefore if the thinking of the authorities is focused on those lines, there would be many interested in developing the terminals there.
The total volume handled by the Colombo Port is approximately 2.6 million TEUs, of which 70-80% is transshipment cargo for India. The present development of the South Colombo port was delayed by about 10 years and in the meantime the Indian ports saw massive development which would certainly affect the volumes at Colombo. The total revenue of the Colombo Port is approximately US$240 million, which is actually quite small for a port.

Situated on the east coast, with its unlimited draft, Trincomalee could handle the largest of ships and then feed the east coast of India, Bangladesh and also Myanmar, thus becoming a hub for that region. What we may lose in Colombo would be gained in Trincomalee. If this is handled properly, it could easily target US$ 500 million.

Dry dock facilities
There is plenty of space within the Trincomalee harbour for dry docks that are large enough for big ships. This facility would make Trincomalee a major base for the ship repair and servicing industry. In the 1980’s Singapore’s three facilities grossed S$ 800 million from ship repairs. In today’s terms this figure would be over US$ 2 billion.

This too if incorporated in a development plan for Trincomalee would certainly attract great interest and investment.

LNG terminal
Natural gas is one of the cleanest sources of energy available at present and is expected to be available for the next 250 years. India’s energy demand keeps on rising and specially, the demand for natural gas has outpaced its availability. It tried to obtain its requirement from Iran which means, a pipeline through Pakistan. This did not materialize for two reasons. First the Iranians were stuck with the sanctions for the liquidification technology and second the Pakistan factor was not all that comfortable.

A pipeline from Myanmar, which is 900 km through Bangladesh, is still undecided. A liquefied natural gas terminal in Trincomalee could handle the LNG carriers of deep draft without difficulty. A pipeline from Trincomalee to India would not be more than 250 km, so doesn’t it make sense?

Our own power needs could be met by a power plant in Trincomalee using natural gas which would give us cheap clean energy as well as the possibility of trading carbon credits. The revenue from a LNG Terminal in Trincomalee supplying India would be much more than we could ever expect.

Oil storage facility
Though Sri Lanka took over this facility from the British Admiralty in the mid sixties after the payment of sterling pounds 250,000, it has been hardly used. Some 35 tanks have been leased to the Indian Oil Company while the rest remains unused. Each tank with a capacity of 10,000 mt amounts to a large volume of oil. The pipes would require rehabilitation as well as some of the tanks.

Many countries are looking out for storage facilities, and the possibility exists for more tanks to be constructed further inland with pipes laid underground. The idea of storage facilities out of the Middle East (ME) is because in the event of war in the ME, the straits of Hormuz could get blocked and no oil would flow through that area. Kuwait has already started construction of a facility in Indonesia, while Japan is to construct one in the UAE and so on.

If the government or any other organization sets up a refinery, it is needless to mention the billions of petro dollars that would flow. This in itself is a very large industry which is still possible to be done out of Trincomalee.

Ship building, marine structures
Another logical industry for Trincomalee would be the ship and marine structure building. The once thriving ship building industry in Britain moved east to Japan and later to Korea. Now some projects have moved to Subic Bay, in the Phillipines. This industry could be brought to Trincomalee, together with a plate manufacturing steel mill.

These are not investments the government has to make if it does not want to or does not have the funds to do so. It’s investment could always be in the form of a facilitator.

Aircraft maintenance
With the rapid development of aviation in India, it is already short of maintenance facilities.
An international airport in Trincomalee would be required for the already mentioned projects, as well as for the massive tourist development programme.

Aviation engineering around the world is worked on a man hour cost and we could be very competitive. Even if we were not so competitive, the sheer lack of facilities in relation to the growing Indian market would make many such facilities viable.

When the airport is designed, a state of the art cargo facility that is capable of attracting the major air cargo operators as a gateway to India and the region to make use of the strategic location.

Other prospects
What I have mentioned are only some of the key projects that are certainly possibilities, and the list could go on and on. These projects would require only minimum investment by the government. The results of such a development thrust would be a massive increase in GDP.

Just for the projects mentioned there would have to be a training of human resources required on a scale that we have not witnessed in the past. A tourist development plan together with urban development, that could take place would transform Trincomalee to a futuristic city.

If all the projects that are possible in Trincomalee are implemented the human resources available in Sri Lanka would not be sufficient and foreign employees could be obtained for this purpose.

Trincomalee Development Authority
All that has been mentioned requires a proper plan and implementation, that needs to be coordinated by an authority with power set up by the Central Government. This authority would have to be staffed by well trained officers with the correct positive attitude. If it is dependent on the present officers from the public service, it would certainly be a non starter.

A transparent policy that is clear with the minimum delay is required. In India, the Gujarat state approves projects in two days and has positioned itself at the top of investors’ preferred locations
If such a programme is to be implemented the government would need to show its seriousness by committing itself to such an effort. Commencing the Colombo – Trincomalee freeway which would link the two cities with minimum travel time, could be the first of such.

Sri Lanka needs to gear its economy in such a way that it is not prone to major shocks that recently occurred in the global economy. The above mentioned project could establish some stability to our economy while giving it a tremendous boost.

Sri Lankans have traditionally not been able to think big, probably due to our country being small. We need to change our thinking and make the most of the possibilities that open up with the development of the large Indian market.

There are many more projects that could be implemented in Trincomalee, but due to lack of space only a few major ones have been mentioned. The ones mentioned could easily increase our GDP by about US$10-15 billion. Therefore maybe it is time to change the way we look at development.

(The writer has been involved in public sector projects and was a former CEO of state-owned CDE, once the largest heavy construction company in Sri Lanka)

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