Finalisation of key regulations holding investors back from pouring into Port City Colombo

Colombo Port City   

CHEC Port City Colombo Deputy Managing Director Thulci Aluwihare

Delays in the implementation of key regulations are hampering investors from coming into Port City Colombo, a top official said.

Responding to a question posed at the recently concluded Sri Lanka Economic Summit 2022, CHEC Port City Colombo Ltd., Deputy Managing Director Thulci Aluwihare made some hard-hitting and insightful remarks.

When asked why nothing is presently happening at Port City Colombo, Aluwihare explained that the project was complete in terms of being ready for investors to come in, but that any progress was being held back by delays in implementing key regulations for the Port City Colombo Special Economic Zone. He also stressed that no public funds had been used for the project. “This is a 100% FDI-funded project, thanks to which the Government of Sri Lanka is now in possession of marketable land worth $ 2.5 billion, at least. This is the largest multi-service special economic zone in Sri Lanka, and this asset is now complete and ready for monetisation, but the whole project is being held back by two key regulations which are yet to be finalised,” he said.

He went on to explain that, although the Colombo Port City Economic Commission, which was set up by an Act of Parliament in May 2021, has been supporting the project in terms of getting the regulatory framework sorted out, the finalisation of two key regulations is still pending. “Fiscal incentives and ring-fencing regulations are holding everything back as they haven’t been published in their final form, and we have no information as to why they are being delayed! Any investor looking to invest in Sri Lanka right now will be looking at potentially generating at least a 20% return on their investment, in USD terms. Moreover, average costs of doing business in SL are 6.5 times higher than Singapore, and Sri Lanka has high taxes, such as 30% income tax and other indirect taxes and levies, so having fiscal incentives in place is crucial, otherwise how can we even present a proposition? That’s why all our marketing is now on hold until we have final clarity in this regard from the relevant authorities,” he said. 

Explaining the importance of ring-fencing, Aluwihare said: “In Sri Lanka, we have restrictive laws on foreign exchange. So, we need to create policy certainty and regulations around how funds coming into Port City Colombo will be ring-fenced from the rest of the Sri Lankan monetary system and economy. Investors must have confidence that they can move capital freely. 

“Otherwise, who will come? All the investment to develop Port City will have to come from outside. That means investors must feel comfortable, they must see policy certainty. At present, this is not forthcoming, even though the Colombo Port City Economic Commission Law and all other structures are in place, legally, and physically. If we can get clarity and certainty on the issue of fiscal incentives and ring-fencing, investors are waiting in the wings to come onboard and get things going!”

Aluwihare also gave a brief overview of the project’s five-year medium term roll-out plan as well, which aims to draw $ 5.6 billion of FDIs to Sri Lanka, and said that even if 50% of the expected demand arrives, the inflows could amount to $ 2.8 billion, and that these can start flowing as soon as regulations are finalised. 

He shared information about the project’s proposed 180,000 square metres of office space too, which he compared to 2.5 times the space contained within all the floors of Sri Lanka’s World Trade Centre, combined. “Even if you attract 20% of that, that’s 35,000 square metres or one whole WTC tower,” exclaimed Aluwihare. 

“In fact, if the regulations are sorted out, we expect to begin construction on the first multi-mixed-use development project in Q2 next year,” he revealed. “Plus, there is a provision in the law that, until the Port City infrastructure is complete, qualifying businesses can temporarily situate outside the zone, but still be subject to the rules and regulations of the Port City Special Economic Zone, until the development is completed and they can move in. All these are attractive propositions, but without clarity and certainty about regulations, investors are reluctant at best.”

Emphasising that final settlement of the regulations are crucial to keeping to the five-year rollout plan and generating investor confidence, Aluwihare ended by saying, “We are ready and waiting to drive FDIs to Sri Lanka, but we have to think big, and we have to act maturely, for the future. 

“We can’t think of $ 2-3 million or even $ 2-3 hundred million at this point, because you need billions in FDIs to really come out of this rut we are in, as an economy, and drive a meaningful and sustainable economic recovery, and Port City Colombo is our trump card in this!”