Wednesday Dec 11, 2024
Wednesday Dec 11, 2024
Wednesday, 11 January 2012 01:46 - - {{hitsCtrl.values.hits}}
In a development likely to reverberate for a long time, Aitken Spence Plc has decided to pull out of Sri Lanka’s biggest FDI project worth $ 500 million to build the Colombo South Container Terminal.
The Daily FT learns that Spence called it quits after much thought in the larger interest of its stakeholders and future viability in an apparent act of not wanting to be sorry later.
Among key reasons for the Spence pullout, is the escalation of the project cost, largely on account of the construction deal going to China Harbour and tougher conditions set by prospective lender for the project China Development Bank (CDB). Some said there had been differences of opinion between Spence and Chinese partner.
Spence together with Hong Kong-listed but Chinese Government owned China Merchants Holdings (International) Co. Ltd., (CMHI) were selected two and half years ago over a bid worth $ 475 million or nearly $ 500 million. However the project cost is now estimated to have ballooned to nearly $ 600 million. Of that, construction cost had risen by 35% to $ 350 million.
Despite some of these hiccups, construction work on the new terminal that would add 2.4 million Twenty-foot Equivalent Units (TEUs) over two stages with first being completed by mid-2014 was ceremoniously flagged off by President Mahinda Rajapaksa and Chinese Government officials last month.
The project was to be financed 70% via debt and 30% by way of equity by the operating company Colombo International Container Terminals Ltd (CICT) the joint venture between CMHI (55%), Aitken Spence Plc (30%) and Sri Lanka Ports Authority (15%).
On original bid CDB’s commitment would have been $ 350 million and consortium partners’ equity financing in stages was $ 150 million.
Lender to the project CDB had insisted that any cost overruns have to be met via equity financing as it will stick only to the original estimate. This, if agreed, would mean a higher burden on Spence. Its overall exposure on equity on original cost was $ 52.5 million.
CDB had also insisted in the event of a dispute arbitration should be held outside Sri Lanka, a clause which hadn’t found favour with the Government especially when it has set sights to establish and promote Sri Lanka as a hub for arbitration.
The cost overruns had been partly attributed to inflation and exchange rate differences between the bid stage and at present though some argued that demand for port constructions globally is depressed due to international economic meltdown.
Others pinned the cost hike to the construction deal going to China Harbour. Though it couldn’t be confirmed whether the tender process was transparent or not, industry analysts opined that China Harbour appears to expensive despite it having a growing business in Sri Lanka hence already well mobilised unlike a total new entrant.
It is most likely that Spence stake would be bought by CMHI entirely or partly whilst SLPA which remains bullish over Sri Lanka’s future prospects as a maritime hub could explore increasing its stake within permissible levels (as per conditions set by Asian Development Bank which financed the $ 300 million breakwater for the project).
With Spence pulling out, the stage is seemingly set for biggest FDI project in Sri Lanka to be all Chinese, a development which is likely to increasingly unsettle India on issues of geopolitics though the latter has officially not vented its apprehensions.
The operating company CICT was awarded the tender to construct and operate the Colombo South Container Terminal for a period of 35 years, after which the terminal would be handed over to the SLPA.
The terminal comprises a total quay length of 1,200m and a land area of 58 hectares, with quay-side water depth of-18m and a design capacity of 2.4 million TEUs. The project is expected to take two phases, with Phase I to be ready for operation by the middle of year 2014.
Once completed, the Colombo South Container Terminal would be the only port in Sri Lanka able to service the mega container ships with over 14,500 TEU Capacity.
At the ceremonial launch on 16 December Dr. Fu Yuning, Chairman of China Merchants Group and officials from China Development Bank, China Export & Credit Insurance Corporation and China Harbour Engineering Company Ltd., were also present.
Dr. Yuning said: “as the Chairman of China Merchants Group, me and my Board of Directors are aware of the vast economic development that has been implemented through the opportunities created by Your Excellency and have no doubt that Sri Lanka, very soon will be the envy of all of Asia. This we believe had been made possible due to vision and the dynamic leadership of the President of Sri Lanka. Your Excellency let me further assure that this investment is only the beginning of many by China Merchants in this country.”
“China Merchant, during the past 140 years has been the forerunner of China’s national industry and commerce. It with pride that I state that China Merchants is the leading international port investor, owner and operator, as well the leading diversified conglomerate in transportation infrastructure (ports & toll roads), finance (banking, insurance, funds and securities), real estate and related community services, energy shipping and logistics. Given our involvement in the various spheres of business, our investment in CICT is the beginning of long-term mutual beneficial partnership between China Merchants and Sri Lanka,” Dr. Yuning pointed out.
After the ceremony, Dr. Yuning had a media conference attended by correspondents from Xinhua News Agency, China news agency, Bloomberg and Sri Lankan domestic media. Dr. Yuning was questioned primarily as to the main business activities China Merchant were involved in, reasons for China Merchants’ decision to choose the development of Colombo South Harbour in Sri Lanka as the company’s first overseas Greenfield project and how should China Merchants further develop the traditional friendship existing between China and Sri Lanka. Dr. Yuning then responded to all these questions.
