Is the Port City dragon so fearful?

Over the past 10 years the Port City concept had to be modified to accommodate local legal situations. But the Opposition politicians and trade unions wish to display Port City to the public as a fearful Chinese dragon

On 4 January, the Cabinet of Ministers approved a proposal made by the President to take necessary steps to publish the Colombo Port City Economic Commission Bill on the Government gazette and submit same to the parliament. Accordingly, the Colombo Port City Economic Commission Bill was drafted by the legal draftsman to provide the necessary legal provisions for the said Commission.

Development of Port City

In 2010, the development of Port City was proposed by China Communications Constructions Company (CCCC) to reclaim 233 hectares (576 acres) from the sea adjacent and south of Colombo port. The Company arranged with University of Moratuwa to carry out an initial Technical Feasibility Study and Environmental Impact Assessment of the Project and the reports were approved by the Government. In addition project’s environmental and coastal impact reports was submitted and accepted. The process from submitting the proposal to signing the agreement, took four long years.

Finally, the project was launched by the President Mahinda Rajapaksa on 17 September 2014 with the participation of the Chinese President Xi Jinping, the project expected to cost $ 1.5 billion. Under the agreement 233 Ha (579 acres) would be reclaimed, to be shared as 310 acres (125 Ha) to the SL Government and 220 acres (88 Ha) to the investor, under a 99-year lease and another 49 acres (20 Ha) as freehold.

But with the Yahapalanaya Government coming into power in 2015, PM Ranil Wickremesinghe suspended the project. But when RW realised that compensation need to be paid to the developer, if the project were cancelled, agreed for the continuation of the project. In August 2016 Chinese investor, China Communications Construction agreed to withdraw all compensation claims for losses incurred due to the suspension of the project. Following this, a new agreement was signed superseding the previous agreement.

New clauses in agreement

The new agreement signed included following new conditions.

1. To allocate extra 2 Ha to the investors, in lieu of all compensation claims due to suspension of the project.

2. The ‘night racing’ track to be discarded and to increase the public land area by 28 Ha for parks and walkways etc.

3. The establishment of a Financial City in the area initially planned for real estate, cultural development activity, education and night racing, etc.

Also, of the 269 Ha of reclaimed land, 116 Ha to be allocated to CCCC, 62 Ha to the GOSL and 91 hectares as common public spaces, all lands to the Investor would be on a 99 year lease basis.

Under the new agreement, reclaimed lands will be gazetted by the President under the Lands Ordinance and will be allocated to the UDA. The UDA will declare them as a development area under the Urban Development Authority Act. This will happen before land is leased on 99-year basis to the Project Company. All this happened prior to the current Government coming to power.

Economic Commission Bill 

The Government gazetted the ‘Colombo Port City Economic Zones Commission Bill’ in March 2021 and the 76-page Bill providing legal framework for setting up of Special Economic Zone (SEZ) within Port City, was presented to the Parliament. The Bill included establishing ‘Colombo Port City Economic Commission,’ which will oversee all activities within the SEZ, including granting registrations, licenses, authorisations.

SEZ would be an international business and services hub. Services include international trade, shipping, logistic operations, offshore banking and financial services, IT and business process outsourcing, corporate and headquarters operations.

The Commission will consist of not less than five members and not more than seven members and will be appointed by the President, under whose purview Port City will function. The Commission, with the approval of the President, will appoint a Director-General, will be the Chief Executive Officer.

Petitions against proposed Economic Commission Bill

With the proposed Economic Commission Bill being presented to the Parliament, over 20 petitions were filed against the Bill at the Supreme Court, claiming that the proposed legislation is in contravention of the Constitution with different petitioners appealing for passing with two-thirds majority, a referendum and approved by provincial councils. A five-judge bench was appointed by the Supreme Court to hear the cases.

Petitions were filed by multiple politicians and organisers, including the UNP General Secretary, a JVP Parliamentarian, Bar Association of Sri Lanka (BASL), Transparency International Sri Lanka (TISL), Centre for Policy Alternatives (CPA) and Engineer Kapila Renuka Perera.

The TISL raised corruption concerns, the possibility that the Bill could pave the way for facilitating or enabling illicit financial flows and money laundering. TISL also drew attention to the lack of transparency in ownership of the “offshore” businesses established in the Special Economic Zone (SEZ), also the lack of transparency in offshore banking operations.

SJB legislator Harsha de Silva expressed while the party wants the Port City project to succeed, for its potential to “catalyse” the next stage of fin-tech and high-end knowledge services-driven growth in the country, “a solid legal framework” is the key. For this long-term project to succeed it must be consistent with the Constitution of Sri Lanka. It must not be discriminatory, we see multiple clauses that are inconsistent with the Constitution.

“The clauses prohibit investment in Port City with Sri Lankan Rupees, keeping out Sri Lankans, resulting a forbidden city within Colombo. The Government claims it stands for ‘one country, one law’, but the Bill allows for running the Port City like a foreign country with special laws.”

Some of the petitions were taken up in Courts on 19 April Monday.

Financial Centre under Yahapalanaya

With fresh negotiations under Yahapalanaya Government, a new agreement was signed in August 2016, which included the Financial Centre. In December 2017, the Cabinet approved the signing of MOU with CHEC Port City, to develop Colombo International Financial City building complex, valued at $ 1 billion, to be located on 6.8 Ha of land, will consist of five iconic vertical towers.

For the design of the Port City master plan US consultant Skidmore Owings & Merrill was awarded the design contract, after winning a global competition.

Daily FT on 29 July 2019 reported that the Government had announced wide-ranging tax exemptions for the Colombo International Financial Centre (CIFC) Mixed Development Project within the upcoming Colombo Port City. Industrial Export and Investment Promotion Minister Prasanna Ranatunga has issued the relevant Gazette, granting the concessions under the Strategic Development Project to set up in the CIFC Project.

According to the article, tax exemptions under Strategic Development Project Act:

nExemptions will apply for eight different taxes and levies, including Corporate Income Tax, Withholding Tax.

nColombo International Financial Centre to be constructed on 17 acres, to be subleased from CHEC Port City Colombo Ltd.

nProject will be in two phases with total investment of $ 1 billion.

nAround 2,500 employment opportunities during construction period, over 15,000 direct and indirect opportunities at commencement of operations.

nProject completion eight years from date of signing of agreement.

The draft special law to govern the Colombo International Financial Centre was expected to be submitted to Cabinet before end September 2019. But with nominations being called for the next Presidential Elections on 7 October, stopped further action.

Thus the ‘Colombo Port City Economic Commission Bill’ presented to the Parliament is nothing new, but nearly two years old, held down due to oncoming Presidential elections, now with few modifications.

Financial Centres

A financial centre is a location with a concentration of participants in banking, asset management, insurance and financial markets with a venue with support services provided by the promoter. Participants can include banks, brokers, institutional investors, investment managers, pension funds, insurers and hedge funds.

There are hundreds of financial centres around the world. But Asian cities continue to dominate the list of most competitive services and the confidence in global financial systems. According to a survey, there are 114 major global financial centres, with New York, London and Shanghai occupying top three ranks, followed by Hong Kong, Singapore, Beijing, Tokyo, and Shenzhen among other Asian cities.

Financial centres require well-trained staff knowledgeable on "whole institutional infrastructure of laws, regulations, contracts, trust and disclosure", but can Sri Lanka provide personnel of such calibre?

Thus the proposed Financial Centre will need to compete with existing centres in the world and the region to attract customers and investors, needs to offer services, confidence, trustworthiness among others. Not an easy task, especially considering prospective customers are already engaged with an existing financial centre.

Objections by the petitioners

The Bill presented to the Parliament has been challenged in Court by many parties. They include politicians attached to political parties, members of Bar Association, lawyers, Colombo-based NGO, Centre for Policy Alternatives and labour organisations. In addition, Wijedasa Rajapaksa, a Minister of the governing party, showed his displeasure against the Financial Centre.

The Bar Association of SL claims the ‘International Commercial Dispute Resolution Centre’ to be established in the Financial Centre for attending disputes between different parties would not allow their members’ participation. Our lawyers have specialised in delaying cases before the courts for years, if not decades, will have to learn and rectify their mentality prior to participation. But they could start as assistants to foreign law firms and slowly move up with experience.

Opposing by members of SJB and UNP could be considered as silly, as the Financial Centre was introduced with the second agreement, signed in August 2016, while the UNP was in power. In addition, the Colombo International Financial Centre was gazetted by the Industrial Export and Investment Promotion Minister Prasanna Ranatunga on 29 July 2019, but finalisation was disrupted due to calling nominations for Presidential Elections.

At a media briefing, Minister Wijeyadasa Rajapakshe claimed that the Port City would become a Chinese colony through the Economic Commission bill. But he seems to have forgotten that all the above happened while he was the Minister of Justice in the Yahapalanaya Government. Can he claim to be unaware of Colombo International Financial Centre proposals and agreements during his tenure?

Sajith Premadasa too is critical of the Financial Centre. Did he forget that he was the Deputy Leader of UNP when all the above happened? The entire country is aware that during the period he was only concerned about constructing housing in Hambantota and spent a substantial amount of time in Yala watching leopards. If Sajith neglected his duties as Deputy Leader of UNP, can he now blame the Chinese project?

The JVP, civil society groups and labour unions will always object to any proposal and will always find faults under their vision.

In addition, most questioned why the Government decided to enter the Bill into the order book ahead of the New Year holidays, which severely limited the time for the public to exercise their rights.

One country – one law

A number of politicians and labour unions have pointed out that the country’s Constitution specifies ‘one country – one law’ and the same should apply to Port City too. But Industrial Estates established under the ‘Regional Industrial Estate Development’ allows Custom Duty and VAT exemptions, also tax holidays, and in addition, the workers are exempted from country’s labour laws. Thus special concessions in existing laws extended to specific locations are nothing new.

In addition, five years ago Port City was not a part of Sri Lanka, it was created out of the sea. The created land mass became a part of Sri Lanka only after gazetting by the UDA.

The management

When the proposed legislation is passed by Parliament and becomes law, the Commission could be appointed, consisting between five and seven members and they would be selected by the Investor and appointed by the President, under whose purview the Colombo Port City functions. The Commission, with the approval of the President, will appoint a Director-General, who will be the Chief Executive Officer. The developer has already stated that world-wide applications would be called for the posts.

The Chinese developer has already invested over $ 1.5 billion and is expected to invest further $ 1 billion on the Financial Centre building and services.

Infrastructure development

In Port City 100 Ha of lands are divided into 74 buildable plots, ready for superstructure construction. The promoters will first sell 40 commercial plots, covering 60 Ha is expected to be sold for $ 5 billion and bring in businesses activities and workers. The development will drive the demand for residential plots.

The Port City is now completing the utilities and by June expects to complete all bridges, roadways and the boulevard, water and sewage systems. Before end of this year, landscaping, also the beach and the park also leisure activities are planned to be completed. By mid-2022 all utility connections to the boundary of each plot on phase one will be completed.

Benefit to the country

There seems to be a misunderstanding between Port City and the Special Economic Zone. The Bill presented to the Parliament refers only to administration of SEZ and not of Port City.

Port City is intended to be South Asia’s premier residential, retail and business destination, with more than five million sq m of built space within a meticulously planned urban area along the ocean’s warm waters.

The city comprises five precincts, Financial District, Central Park Living, Island Living, The Marina and the International Island. The complex offers an internal port for yachts, features residences, schools, offices, health care and hospitals, hotels and restaurants, education, commercial spaces, retail and entertainment facilities, also exhibition and convention centres. The yacht piers in the marina are already in operation.

With long-term environmental sustainability a priority, Port City hopes to position itself as Colombo’s ‘green lungs’ by implementing various eco-conscious practices, with a third of the developed areas dedicated to public parks, open spaces with lush greenery, waterways and beaches. The city is adopting a rainwater harvesting system.

With increasing FDI in real estate and other businesses will bring in business and employment opportunities for skilled and unskilled labourers and opportunities for suppliers of materials. The Port City would become a modern city district for approximately 70,000 residents and 200,000 workers.

According to a report in 2019 by PricewaterhouseCoopers, the project will have a significant impact on the national economy, as it may generate 210,355 jobs, add $ 0.7 billion to FDI, $ 11.8 billion to gross domestic product, and $ 0.8 billion to Government revenue every year.

Discussion

The Port City legislation has been under discussion for nearly 10 years under different governments and politicians were involved. But now the same politicians who were involved are opposing the Bill in Parliament. 

The country needs to understand that after 10 years of tug-of-war the Port City infrastructure is almost complete. The project had to undergo four years for environmental acceptance, two stops with government changes and two agreements with respective governments. Now the Economic Commission Bill needs acceptance for the project to enter the final space.

After approvals, getting the Port City to function and make a dent in the market will not be easy. There are over 100 Financial Centres in the world, including our neighbour India, three, all in Mumbai. Thus we need to offer better services and facilities than others to get a hold of the market. And the residential facilities, marina, etc. would attract rich businessmen.

Over the past 10 years the Port City concept had to be modified to accommodate local legal situations. But the Opposition politicians and trade unions wish to display the Port City to the public as a fearful Chinese dragon.