*      Sirisena, Ranil and leading ministers hold special meeting to approve Hambantota Port deal despite objections         by Ranatunga and threats by Rajapaksa *     Portfolios of some UNP, SLFP ministers to be changed on the basis of their performance and any charges against them One of the main [...]


President, PM reach agreement on Cabinet reshuffle


*      Sirisena, Ranil and leading ministers hold special meeting to approve Hambantota Port deal despite objections
        by Ranatunga and threats by Rajapaksa
*     Portfolios of some UNP, SLFP ministers to be changed on the basis of their performance and any charges against them
One of the main tasks for President Maithripala Sirisena, who returned yesterday from an official visit to the Russian Federation, will be to re-shuffle the Cabinet of Ministers.

Ahead of his departure to Moscow, Sirisena had discussed the issue at length with Prime Minister Ranil Wickremesinghe on more than one occasion. The focus at these discussions has been on the portfolios allotted to ministers representing the United National Party (UNP). The performance of these ministers whose portfolios await changes had figured in the talks. Sirisena is learnt to have told Wickremesinghe he would not take away the subjects assigned to the UNP but expects Wickremesinghe to name the ministers whom he has identified and intimate it to him.

Besides Premier Wickremesinghe, there are 27 UNP members in the Cabinet of Ministers. The performance of some of these ministers who have been identified for their poor performance, controversial actions and those who face allegations of misconduct, the Sunday Times learnt, has been raised by Sirisena with the Prime Minister. Although Wickremesinghe had earlier insisted that no changes be made, he has now consented to them, it is learnt. Initially, the latter had defended the roles of some UNP ministers who are at the centre of serious controversy.

Sirisena has also made an assessment of the performance of SLFP ministers. Whilst changing the portfolios of some, it has now become clear, he will give greater responsibility to a few who hold less important positions now. This is the first time Sirisena is set to re-shuffle the Cabinet. On two previous occasions, one after the presidential election (January 2015) and the other after parliamentary elections (May 2015), he swore in ministers to the Cabinet. Sirisena has come in for bitter criticism over the role of some ministers from both the SLFP and the UNP. Some of his confidants have pointed out that he was being blamed by the people for the current situation. He had acknowledged the situation and told them he would act.

With the proposed changes in the Cabinet, Sirisena is also gearing to set in motion measures to ensure that the alliance’s outstanding election pledges are fulfilled. One such area is the investigations into some high profile cases of bribery, corruption and other issues. Already some state investigative arms have gone into high gear making arrests and more importantly publicising them. That is not only in the mainstream media but also in the social media. The idea is to demonstrate that even after two long years, their machinery is still active and investigations have taken time. Some heads of corporations and statutory bodies are also to be replaced. The ‘new look’ Cabinet of Ministers is also to be told to contribute to develop the economy, particularly in the light of the deepening debt crisis. Raising money to shore up foreign reserves has become a top priority. The reserves that stood at US$ 8.5 billion are said to have dropped to US$ 5.2 billion with only three months of imports possible.

This serious debt repayment crisis was the reason why President Sirisena chaired a high-level meeting at his residence last Sunday night. It related to at least one of the urgent measures to be adopted.  Also associated with him was Prime Minister Wickremesinghe. The SLFP was represented by Sarath Amunugama, Anura Priyadarashana Yapa, Susil Premajayantha, Dilan Perera and Mahinda Samarasinghe. The UNP was represented by Mangala Samaraweera, Malik Samarawickrema, Akila Viraj Kariyawasam, Thalatha Athukorale and Kabir Hashim. Also present was Nishantha Muthuhettigama, acting Minister of Ports and Shipping.

Time constraints at the weekly meeting of the Cabinet of Ministers, sometimes lead to the postponement of decisions. This is until the subject matter is closely studied by ministers. Usually, the minister in charge of the subject is also required to be present when a matter under his or her purview is discussed. To facilitate a discussion and immediate conclusion, the meeting at Sirisena’s residence on Sunday night examined the Hambantota Port City project. They discussed a Cabinet memorandum from the Special Assignments Minister Sarath Amunugama that encompassed the Concession Agreement, just before the next morning’s ministerial meeting. All ministers were informed on Monday that their presence at the weekly ministerial meeting on Tuesday was essential. Foreign Minister Samaraweera cancelled his departure to Moscow to be on hand to receive Sirisena. Instead, he flew with the Presidential entourage. Fisheries Minister and UPFA General Secretary Mahinda Amaraweera was away in the United States.  The UNP ministers were particularly keen that the project should be approved the next day.On that hinged the receipt of US$ 1.1 billion from the Chinese company, much needed funds to cope overcome at least partly the debt crisis. This was after the Chinese company is satisfied that provisions in the Concession Agreement, to be signed, meet its requirements. There was also another reason for the hurry. The company, China Merchants Port Holdings Company (CMPort) is having its annual general meeting of shareholders on March 29 in Hong Kong.

Some of the participants did raise strong objections over key provisions of the Concession Agreement. It transpired at the discussion that the urgency over the project was in view of current financial crisis. Funds were urgently needed. Sirisena was to note that both the Ports and Shipping Minister Arjuna Ranatunga and his brother Sanjiva Ranatunga, Chairman of the Sri Lanka Ports Authority (SLPA) were away from the country. Minister Ranatunga had gone on a ten-day trip to Morocco. When the discussion on the Hambantota Port project ended, Foreign Minister Samaraweera gave a briefing on the ongoing sessions of the UN Human Rights Council.

One minister remarked to a colleague after the meeting ended that the onetime President J.R. Jayewardene’s move to give the Trincomalee Port to a United States business concern, angered the then Indian Premier, the late Indira Gandhi. She gave succour thereafter to the Tamil militant groups. That saw the birth of a bloody separatist insurgency in Sri Lanka.  Another, in response to his colleague cited the neighbouring Maldives where there were public protests over the reported sale of an island to the Saudi royal family and another to China. The objections at the ministerial meeting notwithstanding, it was decided to go ahead with the project. This is what the official announcement said about the ministerial decision:Thus, the Cabinet memorandum for the approval of the Concession Agreement of the Hambantota Port Project presented by Special Projects Minister Sarath Amunugama was dicussed on Tuesday at the weekly ministerial meeting. The previous night’s discussions notwithstanding, this memorandum came in for detailed scrutiny. Strong reservations were expressed by many ministers. They included Chandima Weerakkody, Patali Champika Ranawaka, Wijeyadasa Rajapakshe and Dayasiri Jayasekera. Sirisena asked them to carefully study the provisions of the Concession Agreement. The views expressed were varied.

“Concession agreement of the Port of Hambantota (Document No – 83)

‘The above agreement which is to be signed between Sri Lanka and China Merchant Port Holdings Company in China aims at preparing future plans, financial provision, operational promotion and development of infrastructure including completed phase I and II and proposed phase III. The Cabinet of Ministers have decided to enter into the above agreement which is cleared by the Attorney General and to appoint a Cabinet Subcommittee chaired by Minister of Special Assignments (Dr.) Sarath Amunugama to supervise its implementation.’”

President Maithripala Sirisena having a dialogue with Russian President Vladimir Putin.

The task of the Subcommittee, a ministerial source said yesterday, was to provide a “road map” for the implementation of the Hambantota Port Development Project. “It will also monitor how the Chinese company adheres to the provisions of the Concession Agreement,” the source added. The other members of the subcommittee are ministers Susil Premajayantha, Arjuna Ranatunga, Patali Champika Ranawaka, Malik Samarawickrema and Ravi Karunanayake. In a surprise move, on Friday Minister Ranawaka, who raised objections at the ministerial meeting, wrote to President Sirisena resigning from this Committee.

Former President Mahinda Rajapaksa, who was responsible for the construction of the Hambantota Port told the Sunday Times, “President Sirisena has made some observations warning his ministers to carefully scrutinise the new venture. However, despite his warning, he has privately gone on to give his full consent. Otherwise a Cabinet approval is not possible.” Rajapaksa said that his new organisation that is opposed to the sale or lease of state assets was meeting trade union organisations to obtain their views. “We will educate the public of the dangers involved,” he added.

Before departing for Morocco, Ports and Shipping Minister Ranatunga had circulated a 11-page cabinet memorandum among his colleagues. A minister familiar with the project remarked rather humorously that “it is the voice of the Ports Minister and the hand of his deputy.”  The memorandum has been signed by acting Minister Nishantha Muthuhettigama. It gave fuller details of how the framework agreement for the Hambantota Port, an unsolicited proposal, came about. It was accompanied by letters, minutes, documents and notes making it a compendium. A brief account on the subject appears in a box story on this page.

The memorandum also gave the background to the Concession Agreement and “the concerns that need to be addressed.” In essence, this memorandum was a point by point counter to the Concession Agreement and emphasised that Ranatunga, as Minister in charge of the subject, had been overlooked on every occasion. However, one UNP minister was to remark “he (Ranatunga) should have remained in Sri Lanka and presented his case before the Cabinet of Ministers if the issue was that important to him.” Nevertheless, the memorandum has made some very salient points. Here are some highlights:

*  Under this Concession Agreement, the entire Hambantota Port (developed at present), future development rights together with the Sri Lanka Ports Authority (SLPA) rights to operate it, and substantial amount of surrounding lands are proposed to be assigned to the operating Company for a term of 99 years. However, in the Port of Colombo, the sea bed has been given on concession terms only to build, operate and transfer (BOT) a Container Terminal for a period of 35 years. It is advisable to limit the term of the Concession Agreement only for a period of 30 to 40 years instead of 99 years lease. Further, Minister of Finance in his observations to the Cabinet Memorandum has recommended that the lease agreement could be 30 years or less.

*    The extent of the land area of the Port is approximately 1650 hectares and when it is valued at the current land lease rate of Hambantota (US$ 50,000) per hectare per year) for 99 years, the undiscounted land lease itself amounts to US$ 8.1 billion, without considering 3% increment which the SLPA charges at present from the other public–private partnerships (PPP). Further, the value of the land has not been considered at all for the project cost, and no clear reference has been made in the Concession Agreement whether a separate lease is paid for the lands or which lands are considered for lease, if such lease is proposed.

* In addition, the Government Valuer estimates annual lease value as Rs 988,000 per hectare (Rs 494 million). However, SLPA’s current market annual lease rental is Rs 7,5 million per hectare (US$ 50,000 X 150= Rs 7,5 million). Hence the loss to the Government of Sri Lanka (SLPA) will be approximately Rs 6,5 million per hectare per annum. Since the SLPA has certain concerns regarding the valuation given by the Valuation Department, SLPA requested the Deputy Secretary to the Treasury to have appropriate actions to rectify the valuation.

* The Minister of Development Strategies and International Trade forwarded Salient Features of the Hambantota Port Restructuring, as per the same it appears that the GOSL to establish and register a company in Sri Lanka. However, when examining the recitals of the draft Agreement, it appears that the parties to the agreement have to establish a company under a Companies Act in order to execute and implement the project. Therefore, we are of the view that there is no clarity pertaining to establishment of the company. However, we are further of the view that the relevant Concession Agreement to be executed between the Public-private partnership operator and the SLPA as done with the Colombo International Container Terminal, the South Asia Gateway Terminal agreements. Therefore, we totally disagree with regard to registering a separate company.

A Government source said yesterday that the Concession Agreement that will pave the way for the first instalment of US$ 1.1 billion will be signed within weeks.

Other than ensuring that the Concession Agreement with the Chinese company over the Hambantota Port is concluded and the funds received as a result would help partly overcome the debt crisis, President Sirisena has a number of other priority tasks before and after the national New Year holidays. Next Sunday, he will address youth members of the SLFP and later the party’s May Day rally in Kandy. There are clear messages waiting to be delivered at these events.

Ports Ministry outlines negative features of Hambantota project

The conclusion of a deal with a Chinese company to develop the Hambantota Port began in May last year after a visit to Beijing by Prime Minister Ranil Wickremesinghe, according to the detailed Cabinet memorandum prepared by the Ministry of Ports and Shipping.The memorandum is backed by several documents as annexures. They include minutes of meetings, other cabinet documentation, reports and related issues.The first move came in May last year. Premier Wickremesinghe told a meeting of the Cabinet Committee on Economic Matters (CCEM) that many Chinese investors were interested in the Hambantota Port and industrial parks. In the same month, the Sri Lanka Ports Authority (SLPA) submitted details of debts and obligation. The loan (obtained by the Rajapaksa administration) was being paid by the SLPA and not the Treasury. CCEM, however, decided that the Chinese Government should undertake a study of the port on a public-private partnership basis and submit a proposal.In July, the Chinese Ambassador Yi Xianliang appeared before a meeting of the CCEM. Responding to a Government request, he declared that under the existing Chinese law it was not possible to convert debt directly into equity and it needs to be executed through discussions with investors on commercial terms.

In August 2016 the CCEM gave instructions to R. Paskaralingam, Advisor to Ministry of National Policies and Economic Affairs (which is under Premier Wickremesinghe) to submit a paper on the strategy on which Chinese debt to equity could be transferred.

In September last year, the CCEM was told that the Chinese Ambassador had recommended two companies – China Merchants Ports Holding Ltd. and China Harbours Engineering Company Ltd. A Committee of Ministry Secretaries examined the matter. Later, Paskaralingam was asked to assist the Cabinet Appointed Negotiation Committee (CANC) and “give them relevant guidelines.” Thus, there were no invitations for other bidders or requests for proposals made.

The China Merchants Ports Holding Ltd. was selected. The SLPA said it was not consulted about the decision. The Ports and Shipping Ministry charged that the Board of Directors of the SLPA was surprised that “the Committee has considered only the upfront money and all other aspects of the project have been ignored.”

At a meeting of the CCEM in November last year, the SLPA had proposed a share allocation for 65% (for the Chinese company) and 35% for the SLPA.

However, negotiations had been based on share allocation of 80% for the Chinese firm and 20% for the SLPA. It had been approved by the CCEM and endorsed by the Cabinet of Ministers.

It was explained at the same meeting that the Chinese side has agreed to accept a transaction sum not exceeding US$ 1.4 billion and to ascertain the transaction value, pursuant to financial and due diligence. Only the transaction value has been considered and the total value of the facility has been disregarded, which is much higher. The SLPA had already paid US$ 220 million approximately as loan repayment and this has been ignored when calculating the transaction.

In October last year, the Minister of Ports and Shipping told the cabinet that construction costs of major projects of Hambantota Port alone exceeded US$ 1.4 billion and this cost had to be borne by SLPA through loans and their own funds. The SLPA had also floated Request for Proposals (RFP) for various ventures at the Hambantota Port including bunkering facility. The RFP process “was kept on hold as per decision taken at the CCEM meeting in July last year.

In December last year “a joint Cabinet Paper on Development of Hambantota Port was submitted by Minister of Development Strategies and International Trade, Minister of Special Assignments and the Minister of Ports and Shipping.” However, the Ports and Shipping Ministry “was not aware of the submission until the Cabinet paper was submitted.”

The Framework Agreement was signed between the China Merchants Ports Holdings Ltd, a Chinese project proponent and a committee comprising Ministry Secretaries. At a CCEM meeting in December last year, approval was granted by them for the Framework Agreement. Accordingly, the Cabinet of Ministers endorsed the decision.

Dealing with the “Concession Agreement, sequence of events” the cabinet memorandum notes that a second draft was to be scrutinised by the Attorney General.” It notes, “On reviewing this document, it was observed that the latter document contains more unfavourable conditions than that of the first document – e.g. including the condition that that the public-private partnership operator or any of their nominees shall be permitted to exclusively carry out Port/terminal development activity within 50 kilometres from the centre of the Hambantota Port during the entire lease period.

“Further, at the CCEM meeting on March 1, 2017, approval was given to authorise the Secretary of the Ministry of Finance to establish a Special Purpose Company within the Treasury for the development and operation of the Hambantota Port holding 100 % shares and acting as the custodian for the Port Operations Company and to give authority to manage and facilitate all required Government approvals as a National Priority and on a fast track basis.”

The Ports and Shipping Ministry has noted that that the investment value of the share equity of the Chinese company does not include upfront payment of the lease rental for the land area of the Port property. Anyhow the Port Property and the Lease Area definition stated in the Concession Agreement need to be changed defining the same clearly. Therefore, the entire land identified in the Port property shall be considered as Lease Area and the public-private partnership operator shall pay fixed lease rental for same throughout the term.  It is to be noted that the investment value proposed by the Chinese company is to be treated as consideration only for cost of development and granting of operational rights.


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