Terminating JICA mono-rail contract will result ending long-term relations with Japan

The LRT project was expected to boost transportation capacity, save travel time, and improve the safety and comfort of public transportation over 15.7 kilometres of track with 16 stations in and around Colombo

With respect to much-publicised and long-awaited Pettah to Malabe Light Rail Transit (LRT) project, Cabinet Spokesman Bandula Gunawardena informed the public last week that Sri Lanka would not proceed with the Japan International Cooperation Agency (JICA) funded LRT project and that a Public-Private Partnership (PPP) was on the cards. Same was confirmed by Co-Cabinet Spokesman Ramesh Pathirana.

But a Spokesperson for JICA informed that, as far as it knew, the LRT has so far been “implemented steadily” in accordance with the relevant loan agreement. The agency “hopes that the project continues to be implemented based on the bilateral agreements”.

Light Rail Project

The Colombo-Battaramulla-Malabe road is the most congested road sector around Colombo and to ease the traffic over-crowding, a four-lane, 534-metre-long flyover was constructed at Rajagiriya costing Rs. 4.7 billion. The flyover was opened to public in January 2017, but the congestion still continues, to a lesser degree.

The LRT project was expected to boost transportation capacity, save travel time, and improve the safety and comfort of public transportation over 15.7 kilometres of track with 16 stations in and around Colombo. The Government staff who were transferred from around Fort to Battaramulla and are inconvenienced by the transfer would benefit from the LRT. The main stations are to be located as Malabe – IT Park, Battaramulla, Rajagiriya, Cotta Road Railway Station, National Hospital ending at Fort/Pettah Railway Station. The rail track and stations would be on elevated viaducts to minimise land acquisition.

To facilitate inter-connectivity with other public transport modes, multi modal terminals are proposed at Malabe (together with bus terminal) and Cotta Road (connecting with railway). At Fort/Pettah the LRT line will connect to the planned Multi Modal Transport Hub accessible to both railway and bus. An Environmental Impact Assessment for the LRT Project was prepared in April 2018 and was accepted.

The project aimed to improve the urban environment through a reduction in motor traffic and air pollution. In addition with the completion of the first section of Colombo Financial Centre in Port City in four years, the LRT route will offer a convenient mode of transport to staff in Port City.

The loan

On 11 March 2019 Japan International Cooperation Agency (JICA) signed the loan agreement with the Government of Sri Lanka for JPY 30.08 b ($ 270 m) for the establishment of Light Rail Transit System in Colombo. The agreement was signed by JICA Sri Lanka Office Chief Representative Fusato Tanaka and Ministry of Finance Secretary Dr. R.H.S. Samaratunge. The project is executed by the Ministry of Megapolis and Western Development.

The $ 270 million JICA loan for the project is provided under Special Terms for Economic Partnership, carry interest rates of 0.1% per annum for civil works and equipment cost, 0.01% p.a. for engineering services cost with a 40-year repayment period including a 12-year grace period, in order to promote technology transfer and economic cooperation between Sri Lanka and Japan.

After the signing of loan agreement detailed design and consultancy works commenced in April last year. Currently, the designs are underway with over 200 international and local consultants preparing detailed designs. The total consultancy cost of the project over seven years is estimated at around $ 140 million, including the feasibility review, detailed design and construction supervision inclusive of government taxes. The Japanese funding include the technology costs, electro-mechanical equipment and rolling stock for the LRT project.

The project staff highlighted the urgency of designs so that tenders could be called among Japanese suppliers and contractors for civil construction works, electro-mechanical works and rolling stock to enable operation by 2024.

Under the contract agreement, if the LRT project is suspended or delayed due to renegotiations, the SL Government will incur a loss of around $ 100 million, in addition to penalties from the Japan International Co-operation Agency.

Japanese reaction

Meanwhile, it was reported that JICA recently wrote to the Ministry of Finance informing the decision to suspend its financial support for a 220 kilo-volt underground cable project from Kerawalapitiya to the Colombo Port, possibly a reaction for abandoning Light Rail Project.

While seeking funding for underground cable project, Sri Lanka also requested Japan for a moratorium on its debt and reported that it could not proceed with the LRT for the next five years because the Government did not have borrowing space. It is not clear how the JICA project would affect the Government’s financial situation as the project contract includes a 12-year grace period for the commencement of loan repayment.

Delaying or major modifications to large construction projects can have extreme financial and delay costs to the country. The result of modifications to Kandy Expressway is an example worth looking at.

Kandy Expressway

According to the original proposal, the Kandy Expressway was to commence from Kadawatha interchange of Outer Circular Highway terminating at Katugastota. The selected corridor located close to Ganemulla, Gampaha, Mirigama to Pothuhera (Phase 1 – 48.2km) and Pothuhera, Rambukkana to Katugastota (Phase 2 – 50.7km). Also, a 12-km ring road around Kandy city from Katugastota to Gannoruwa.

In July 2012, Cabinet approved the award the construction of 100km Kandy Expressway under Build, Own and Transfer (BOT) system to two Chinese companies, China Merchant Holdings and China Merchant Huajin Investment Company costing $ 1 billion (Rs. 130 billion, then) and a MOU was signed.

The first 45 km of the Expressway traverses a flat terrain, the next 15 km a rolling terrain and the balance 38 km hilly terrain and the route was approved by the Central Environmental Agency in 2008. The Chinese agreed to construct the Kadawatha-Ambepussa section for a 35-year Build-Own-Transfer basis and construction was expected to begin in August 2012 completing in four years. The Sri Lankan Government will not make any payments, the income from traffic during the 35-year period will cover the contractor’s costs and interest. The Chinese indicated that the second sector, Ambepussa-Kandy, would require a longer period.

In the original trace first 0-10 km was on firm ground. But in July 2012 when villagers near Gampaha protested, Minister Felix Perera, having consulted President Mahinda Rajapaksa, agreed to relocate the route. The road commencement was shifted from Kadawatha to Enderamulla and join the original route at Mirigama, increasing the distance by 5 km.

Enderamulla is surrounded by marshes, traversing over paddy, marshy and uncultivated lands. Marshes on the diverted route necessitated nine km of viaducts (overhead road). Viaducts cost over six times the cost of a firm-ground road and the increased costs altered the financial viability of the project, and the Chinese investor was no longer interested.

Changes to Kandy route

In March 2013, President Mahinda Rajapaksa reviewing progress noted delays due to land acquisition problems. Rajapaksa directed the expressway be built through Kurunegala and Galagedara. This diversion pushed the highway nearly 20km northwards and increased the highway length and the costs. Rajapaksa had a soft corner for Kurunegala, as he wished to contest from Kurunegala District, abandoning Hambantota, in the future.

After the change, distance-wise Enderamulla to Pothuhera became 67.8 km and Pothuhera to Gannoruwa 52 km, making the total distance of the expressway from Enderamulla to Kandy 120 km. The original highway was of length 98km, the revised highway increased the length by 22km. Thus the motorists on country’s most travelled road would require nearly two litres of additional petrol one-way. What would be the additional annual cost to the country?

Under the original Chinese offer the highway to Ambepussa would have been completed by 2016 and to Kandy years ago. Having changed the original route completion of the road is nowhere in sight. The third section of the Kandy highway from Rambukkana to Galagedara was to be awarded to Japanese but not finalised, mostly due to difficulty of the route. But now, with dropping of the JICA-funded project, the Japanese may no longer be interested.

Japan-Sri Lanka relationship

The cordial relationship between Japan and Sri Lanka is based on a happening 70 years ago, may be unknown to politicians in the current Government, but not to the Japanese.

After the end of the Second World War or Pacific War as Japan was concerned, some allied nations including then Union of Soviet Socialist Republic wanted Japan to be carved up into separate occupation zones. However, a leader from a South Asian island nation who was bombed by the Japanese during the war, stood up to oppose the proposal. The Leader was the late J.R. Jayawardene, then Finance Minister of Ceylon. This opposition helped Japan to remain in its current form.

During the San Francisco Peace Conference in 1951, Jayawardene declared that Sri Lanka would even waive its right to claim reparations from Japan, quoting the message of Buddha that “hatred ceases not by hatred, but by love”. Moved by his stirring speech, representatives from the victorious allied nations, who were demanding that sanctions be imposed on Japan, accepted the defeated country back into the international community.

Afterwards, the New York Times reported: “The voice of free Asia, eloquent, melancholy and still strong with the tilt of an Oxford accent, dominated the Japanese peace treaty conference today.”

The fact was appreciated by Japanese after the 1983 civil riots, when the world boycotted Sri Lanka. Japan was the only country which continued to support Sri Lanka during the period.

The relationship was highlighted by the former Prime Minister Ranil Wickremesinghe when he addressed the National Diet (Parliament) of Japan in a Memorial Speech in October 2015. The facts may be unknown to members of the current Cabinet who were not former members of the UNP. Also the fact is not taught to students in our political science teachings.

Discussion

The cancellation of JICA-funded Light Rail Transit (LRT) project is the acceptance of a Cabinet proposal submitted by a member, who was not named by the media. Most likely, the Cabinet paper would not have mentioned the conditions of termination in the signed agreement.

There are unconfirmed reports that the project would be awarded to China Harbour Engineering Company (CHEC). The only possibility of such a move would be to get a fat commission from the prospective contractor. It is well-known that the Japanese contractors’ prices are high compared to others, they do not offer commissions to politicians or officials, but deliver a high quality product on schedule. If someone wanted a commission, surely they do not have to block the LRT project negotiated and agreed over a long time period with designs almost completed; there are number of other projects that would serve their requirement.

The loan of $ 270 million was offered by JICA at an interest rate of 0.1% per year with a 12-year grace period and a 40-year repayment period. Sri Lanka has received a number of projects from various countries as grants. But the conditions offered by JICA are the best rates offered by any country in a commercial contract. Are we to drop the offer and accept commercial rates, so that politicians/officials could make profits?

The LRT project loan agreement was signed in March 2019 and the detailed design and consultancy works were underway since April last year with over 200 international and local consultants preparing detailed designs. Under the contract agreement if the LRT project is suspended or delayed due to renegotiations, the Government will incur a loss of around $ 100 million, in addition to penalties from the Japan International Co-operation Agency.

If the project is to be offered to another contractor, the project would have to be redesigned from scratch including route selection, type of structures, compensation for land to be acquired, analysis of soil conditions over the route. In addition finalising electro-mechanical works and selecting rolling stock. Also environmental approval which would delay the project by minimum five years.

Responding to the cancellation of the LRT project, JICA had reacted by writing to the Ministry of Finance informing suspension of funding for the new transmission line until it received clarification on several policy matters such as Sri Lanka’s current debt situation and the new Government’s financial policy. The JICA agreement for LRT project requires loan repayments only after a period of 12 years, how could this affect the country’s debt servicing situation?

The cancellation of the JICA-funded LRT project could be considered as the most foolish Cabinet decision by the Gotabaya Government. Was this proposal discussed in Cabinet at all or was it bulldozed by a powerful minister?

The current members of the Cabinet were not connected to the former UNP Government and may not have been aware of J.R. Jayewardene’s role in San Francisco Peace Conference in 1951, meaning they are not aware of the basis of the Japan-Sri Lanka friendship. The cancellation of the LRT project may mark the beginning of the end of Japanese assistance to Sri Lanka.

Among the projects that are under negotiation with the Japanese are the last section of the Kandy Highway and the East Container Terminal, expected to be a joint venture between India, Japan and Sri Lanka. ECT development has been dragging on for over seven years and the project was expected to calm relations with India and Japan, as currently most local harbour operations are controlled by China.

When the Yahapalanaya Government came to power it suspended the Port City project. But after one year, faced with penalty payments in the contract agreement, it was forced to re-negotiate the agreement, but only ended by releasing additional reclaimed lands to Chinese. If the JICA-funded LRT project termination is not withdrawn immediately, a similar situation could happen.

The cancellation of the softest loan ever seen by Sri Lanka to offer the contract to a favoured party, the country may get a project at a similar cost, but at a much higher interest rates and on worse terms, finally receiving a poor quality product after minimum five years’ delay. The delays, high interest charges and ending established long-term relations with Japan, is it worth it at all?

President Gotabaya Rajapaksa is extremely busy with fighting the coronavirus, drug dealers inside prisons, financial issues facing the country, etc. It is not clear whether he is aware of the actual reasons for terminating the LRT contract and the consequences that may arise and the significance on bilateral relations with Japan. The President needs to be enlightened on all aspects of the cancellation of the JICA-funded LRT project.