Future of Port of Colombo

THERE was welcome news from the highly-successful city of Shenzhen, China on Friday, when it was announced that the Build, Operate and Transfer (BOT) deal on the Colombo South Container Terminal (CST) was signed between the consortium involving China Merchant Harbour International (CMHI) and Aitken Spence and Company Plc and State entity Sri Lanka Ports Authority (SLPA).

The new terminal comprises a total quay length of 1,200 metres, a depo land area of 58 hectares with water depth of 18 metres capable of handling mega ships whilst throughput is estimated to be 2.4 million Twenty-foot Equivalent Units (TEUs). The first phase is 600 metres with a capacity of 1.2 million TEUs. For the shipping industry it was a long wait as negotiations went back and forth. At one point of time some even feared the project was a nonstarter and shipping circles were busy fuelling many rumours.

Given the fact that it will be the biggest-ever private sector foreign investment to date (estimated to be over $ 500 million), time consuming thorough scrutiny of concessions for the project spanning 35 years and other issues may have been warranted. Another aspect, though it won’t be officially admitted, is managing the political implications of the project given the Chinese State-owned entity as a promoter amidst India’s own interests in Sri Lanka. However, despite the best of intentions, the signing of the BOT deal could have been done much earlier.

The CST has been on the cards for years after it was re-advertised for a round of fresh bids. The process perhaps began in early 2007 and the BOT breakthrough last week confirms the road to it has taken five years.  As per the agreement, Phase 1 of the CST must be ready for operation by early 2013. If one puts early 2013 as first quarter, then the timeframe is just under 20 months, which is ambitious. Promoters are confident of the early 2013 target but progression of the remainder of the work connected to the deal would be crucial. The ADB funded breakwater is in place already.

Modernisation and expansion of the Colombo Port, the nerve centre of the country’s economy, is a key challenge if it is to remain a competitive hub in South Asia. Some view the delay as a blessing in disguise on the basis that had it started a few years ago and was in operation by now, Colombo would be hit by the impact of the current recession. However, this view may not hold water when the larger scheme of things is factored in because Colombo remains a compelling strategic hub for seaborne trade and much could be done to lure more volume and shipping lines.

India made a head start by opening the first phase of its own deep-water port Vallarpadam in Kochi early this year, with world famous DP World as the operator. The International Container Transhipment Terminal’s full investment is $ 650 million, higher than what is envisaged in Colombo’s South Terminal.

India, given its high growth in containerised cargo, will endeavour to attract more direct calls by shipping lines. This is certainly a threat to the Colombo Port, whose major business is transhipment. So far this year the volume of transhipment boxes handled at Colombo is up by only 3% to 1.3 million TEUs. In the month of May transhipment volume actually dipped by 9%. The SLPA however attributed the dip to the loss of berths due to the installation of new equipment. June data will confirm whether the May setback was temporary or permanent.

Total throughput at the Colombo Port in the first five months had grown by only 4% to 1.75 million TEUs, whilst in May it dipped by 5.6% to a lowest in a year of 0.33 million TEUs. Contrary to volume dip, ship traffic however increased by 5.9% in May and 6.3% in the first five months. The silver lining is a 10% surge in domestic boxes so far this year due to external trade being robust.

Whilst SLPA upgraded its equipment in May, the other operator, South Asia Gateway Terminals (SAGT), has ordered two new super post panamax cranes for delivery in the first quarter of next year, thereby enhancing capability to handle the larger modern vessels and increase productivity and capacity. The breakthrough on the Colombo South Terminal last week is a further positive development in addition to various measures the SLPA had rolled out of late and is planning to embark on later. The pieces as it were are falling in their rightful places as far the Colombo Port is concerned, but several outstanding issues highlighted by users and stakeholders including setting up an independent port regulator must be addressed urgently to remain competitive and attractive. Colombo must be an integral part of the larger goal of Sri Lanka being a maritime hub and given the global and regional developments, a more dynamic and credible approach with private sector participation is key as Sri Lanka charters uneasy waters externally.