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Ports and Shipping Minister Mahinda Samarasinghe and CMPort Executive Vice President Dr. Hu Jianhua exchange a memento to mark the occasion amidst applause from Finance Minister Mangala Samaraweera, Senior Minister Dr. Sarath Amunugama, Chinese Ambassador Yi Xianliang whist Development Strategies and International Trade Minister Malik Samarawickrama looks on
Sri Lanka on Saturday finally signed a crucial and equally contentious Public-Private Partnership (PPP) with China to revitalise the strategic Hambantota Port, built with Rs. 193 billion borrowed funds and saddled with Rs. 47 billion in losses since its opening in June 2012.
The agreements were made between China Merchants Port Holdings Company (CMPort) and the Sri Lanka Ports Authority (SLPA) and were witnessed by top ministers and China’s Ambassador in Sri Lanka Yi Xianliang, who has been a champion of the new arrangement.
CMPort said it will invest $ 1.12 billion in total, acquiring a controlling 70% stake in the Hambantota Port and Common User Facility operator. Of the amount, $ 973.658 million will be to buy equity stakes in two companies formed for Hambantota and the balance $ 146.342 million for additional investments in one year. The agreement is on a 99-year lease.
CMPort Managing Director Bai Jingtao (right) shakes hand with Sri Lanka Ports Authority Chairman Dr. Parakrama Dissanayake whilst exchanging the agreements as Ports and Shipping Ministry Secretary L.P. Jayampathi looks on
Ahead of Saturday’s signing, Prime Minister Ranil Wickremesinghe on Friday told journalists the new deal was better than the one the previous regime had signed. “We are giving the country a better deal without debt or any implications of security,” he said.
He added that revenue from the deal would strengthen reserves and assist in managing foreign exchange volatility whilst the larger plan for Hambantota envisages massive investments from global investors relocating in several industrial zones.
Finance Minister Mangala Samaraweera also said on Friday the Hambantota Port signing ceremony will herald the most significant development project launched in this country since the Mahaweli project.
“We thank China for arranging this investor to save us from the debt trap,” Port Minister Mahinda Samarasinghe said on Saturday after the signing ceremony. Sri Lanka owes $ 6 billion in Chinese loans obtained primarily during the previous regime.
Apart from the $ 1.12 billion sale price, the Chinese firm will invest another $ 600 million to develop Hambantota, Samarasinghe added.
In an apparent response to concerns from India and the US over Chinese investments in Hambantota, Minister Samarasinghe said: “We have addressed geopolitical concerns.”
“China has accepted that everything in this agreement will operate under Sri Lankan law,” he said, adding that Hambantota will be purely a commercial port but any routine port calls by foreign navies will be regulated by Sri Lanka as in the case of the Colombo Port.
CMPort Executive Vice President Hu Jianhua said the port facilities belong to the citizens of Sri Lanka but will be a key part of China’s massive One Belt One Road initiative to build trade and transport links across Asia and beyond.
“With these maritime infrastructure investments, and other diverse investments such as the proposed international maritime centre, Sri Lanka will be well positioned to play a strategic role in the One Belt One Road initiative of China,” Hu said.
CMPort wants to make Hambantota the gateway to expanding economies in South Asia and Africa where it has similar port operations.
“(The) business of the Hambantota Port will be cross border, across the Indian Ocean, stretching to the Far East, to Europe and to the globe,” Hu said.
“Sri Lanka will be well positioned to play a strategic role in the One Belt One Road initiative of the Government of the People’s Republic of China,” Hu added.
The finalisation of PPP came after many months of negotiations and the signing followed an aborted attempt in January this year. Given strong criticism from MP and former President Mahinda Rajapaksa-inspired Joint Opposition as well as some members from the ruling coalition’s Sri Lanka Freedom Party, the CMPort and SLPA negotiated revisions though the lease period remained unchanged at 99 years which was originally contentious. The Government claimed Sri Lanka managed to negotiate a 30% stake for SLPA as opposed to the 20% stake previously proposed. However, others claimed SLPA’s stake effectively remains a minority ownership.
CMPort will have 85% stake in Hambantota International Port Group (HIPG) with SLPA owning 15%. CMPort will own 58% stake in Hambantota International Port Services (HIPS) and the effective shareholding of SLPA will be 50.7% (i.e. 42% of shares directly by the Ports Authority and a further 8.7% of shares indirectly through (HIPG).
It was based on this composition of shares that the Government maintains the overall shares held by the Ports Authority will become 30.45%, as opposed to the initially proposed 80:20 split, and the overall shares held by CMPort will be 69.55%.
Since such a split in shares will result in a deficit of $ 146 million from the agreed investment value of $ 1.12 billion, CMPort, abiding by the framework agreement already executed, will be required to bring the deficit of $ 146 million for investment in the Hambantota Port area simultaneously without reducing the initially agreed investment value.
HIPG has the sole and exclusive right to develop, operate and manage the Hambantota Port and HIPS has the sole and exclusive right to develop, operate and manage the Common User Facilities for the operation of the Hambantota Port. The two companies will be capitalised to a value of $ 1.4 billion, which is the transaction value.
As per the proposed move, CMPort agrees to sell to the SLPA a further 20% equity of the HIPG within a period of 10 years at a value to be determined by an independent valuer.
The term of the concession agreement is 99 years with provisions with the right for the Ports Authority to purchase the shares upon the expiry of 70 years or the transfer of majority (60%) ownership to the Ports Authority in 80 years.
CMPort and SLPA will be strictly required to prevent engagement by the two companies in any form of military-related activities. This is because the sole responsibility and authority for such activity and national security of the Hambantota Port lies with the Government.
The Government will also have the authority to grant permission, clearance and approval to berth naval vessels at the port on mutually agreed payment terms.
For managing security within and outside the port, an oversight committee convened by the SLPA, which includes the Sri Lanka Navy, Sri Lanka Police and a representative of the Secretary to the Ministry of Defence, will be set up by the Ministry of Ports and Shipping.
All personnel involved in security services and related matters of the two companies will be Sri Lankan nationals.
The Hambantota Port deal was scheduled to be debated on Friday but Parliament was adjourned until 4 August after the Opposition disrupted proceedings over trade union action.
“It is the Government’s responsibility to give a parliamentary debate as they abruptly hoodwinked the debate yesterday,” Dinesh Gunawardena, an Opposition leader told Reuters. “We have requested the President to give us time to discuss the concerns.”
