Need for transparency in port and airport operations and their viability

The Hambantota Harbour is to earn 40% of the Sri Lankan Government’s income by 2020, reports

ColomboPage News Desk, Sri Lanka on 14 November  2010 (http://www.colombopage.com/), quoting the Deputy Minister of Ports and Aviation .

The ‘Mahinda Chinthana’ commits Sri Lanka to become a “shipping and aviation hub” as a key strategy of achieving the dream of Sri Lanka as the ‘New Miracle of Asia’.

“The newly-constructed Hambantota Harbour, which lies within 10 nautical miles from a major Indian Ocean shipping route, will be a significant port for the East-West shipping trade, a Government Minister has pointed out.

“Ports and Aviation Deputy Minister Dayasritha Tissera has told the State-run radio, Sri Lanka Broadcasting Corporation (SLBC) that three ships will berth into the port known as Magampura Harbour on 18 November.

“According to the Deputy Minister, the Government has set in motion a plan to earn 40 per cent of Government’s income from the Hambantota Port in 10 years. The Hambantota Harbour project in addition will create direct and indirect employment opportunities for 25,000 people, Tissera has told the SLBC.

“With the commissioning of the port, the Government plans to attract more investors into the area. Under this plan, a surrounding area of 2,000 hectares will be developed as an investment and industrial zone and in parallel the roads network in Hambantota area will also be upgraded. Already 65 investors have expressed interest, the Minister has said.

“Along with the Hambantota Port, the Government has taken measures to develop other major ports in the country as well. Ports in Galle, Oluvil, Trincomalee, and Kankasanthurai are now being expanded, the Minister has revealed.

“In addition, the Government has embarked on an ambitious plan to expand the Colombo Harbour. The government expects to triple the operations at Colombo port by 2012. The Colombo Port Expansion Project allows Sri Lanka to meet increasing demands of services in the international shipping industry in the Indian Ocean. ”



Shipping professional’s views

A shipping professional engaged to review the above prediction in a critical commentary says:

“The Management has not given such forecasts. The port is promoted as a gateway to an air and sea related free zone to be established adjoining the Harbour and Mattala Airport. But this plan lacks firm direction and the direction in which the port will develop is somewhat fluid. The port is also promoted as a bunkering port this too lacks firm direction as we are yet to establish a refinery in that area to get the best market prices.

“All the oil to be supplied to ships will have to be imported stored and delivered to ships, this takes place in Colombo at present. Then there is also the possibility of forcing fertiliser importers [and certain other similar cargo types] to go to Hambantota and discharge – this will increase the cost of delivery.

“A free zone on the lines of Dubai is one plan that is being promoted. Port officials and the Ministry have already visited the Dubai Free Zone to see how it works. We have no systems or regulations governing such free zone operations or the skills to manage such an operation at this stage.

“The talked-of factories will be set up in the free zone and will have air and sea access.  Probably a free zone authority will have to be established to do the work and raise the money. How much revenue the free zone will bring in and how much revenue the port will bring in has yet to be worked out but to do that there must be firm direction.

“The site lacks infrastructure – this will take some time and some party will have to finance it.

“The Port of Colombo is constructing the new Colombo South Harbour. The Ports Authority is building the breakwater and private operators have to build the terminals and operate. At present only one of the three terminals has been awarded. Another two of matching capacity await builders and operators.

“Normally when an operator gets a terminal award, there is a clause that no competitor will be awarded the adjacent terminals for a period usually five years. This may be the case with the ongoing terminal award also. This means that there will be expansion taking place over the next 15 years or so in Colombo. Hence we can assume that Hambantota will not be allowed to come into competition with Colombo as far as container business goes.

“Colombo is fixed on containers and Hambantota will have to develop on the free zone concept or any other as determined by the thinkers. In short it is going to be tough going till we find and establish the direction in which business will be developed. Then comes the problems of growing on the decided lines. We have free zones in Port Klang Malaysia and Dubai on the other side already up and running. The curve of growth has slowed down, see below on the Chinese situation.”



 Overcapacity dogs Chinese ports

Chinese ports are struggling with overcapacity as global demand has failed to keep pace with years of rapid expansion of facilities, Su Xingang, Vice-President and Chief Economist of China Merchants Holdings, admitted

China has six of the 10 biggest ports in the world and another 14 with capacity of at least 100 million tonnes, reflecting the Government’s vast investment in infrastructure to facilitate growth in trade.

China’s port capacity is estimated to be as much as 40 per cent more than the current demand, Su said. Even if no new ports were built in China, it could take more than three years for demand to catch up with capacity at the ‘well-operated’ ports and as much as five years for others, he added.

China’s economic growth is expected to slow next year to around 9.6 per cent from 10.5 per cent this year, according to the International Monetary Fund.

Predictably the same set of arguments will apply to the evaluation and financial justification of the planned Mattala Airport.  

The Parliament, having overlooked its public finance responsibility under the Constitution and the Parliamentary opposition having  miserably failed in its duty to the Legislative Public Finance Control process, the chambers, business, academics and professionals together with the executive, in the interest of assuring future growth and prosperity of this nation and its  people and in effectively practicing risk governance , must urgently initiate a critical public debate and establish full transparency on the plans for port development in Sri Lanka.



(The writer is a former Chairman of the Ceylon Chamber of Commerce)