Overview

As an island state, Sri Lanka relies on Colombo Port for its international trade links. The Colombo Port has a geographical advantage that gives it the potential to be the international hub for South Asia. The port also has the potential to create synergies leading to the expansion of economic activities centered on port, shipping and related activities.

Technological and structural changes in shipping, particularly containerisation, have brought new opportunities and the Port of Colombo has established itself as a premier transshipment port for the South Asian region.

Being close to international navigation lanes, it provides the shortest and least cost deviation for shipping lines en route between the Far East and Europe as well as the east coast of the United States of America. South Asia, which is the traditional ‘hinterland’ of Sri Lanka, is identified as one of the most rapidly developing economic growth areas in the world.

The Government is in the process of introducing new policy initiatives that would be necessary in order to introduce the port and regulatory reforms required to transform Sri Lankan ports into truly modern, competitive and profitable enterprises that would act as a catalyst for further economic growth in the country.  

Private Sector Participation Options

a)    Port Development

Traditionally port infrastructure in Sri Lanka has been financed through a combination of Government concessionary borrowing and through funds generated by the Sri Lanka Ports Authority (SLPA). However, with the limitations in concessionary borrowing available to the Government, coupled with the repayment of existing loans and budgetary constraints on public sector borrowings, it has become necessary for the Government to explore alternative sources of funding for the development of large-scale infrastructure.

As such, the Government since 1995 has actively sought private sector participation in the development of port infrastructure through Build Own Operate (BOO) and Build Operate Transfer (BOT) basis. Under certain circumstances, the Government would also be willing to undertake projects on a public-private partnership basis.  

A major milestone in the port sector of Sri Lanka was the entry of the private sector as a terminal operator in 1999. The development of the Queen Elizabeth Quay (QEQ) by South Asia Gateway Terminals (Pvt.) Ltd (SAGT) on a Build Operate and Transfer (BOT) basis heralded the first BOT transaction ever concluded in the transportation sector of Sri Lanka and also gave an indication of the confidence the private sector and potential financiers had in the Government’s policy of attracting private sector investment for large scale infrastructure.

Ancillary Services

For Sri Lanka to emerge as a premier maritime center in the region, it is necessary to have a successful hub port such as Colombo, complemented with the full range of ancillary services that may be required by a vessel. It is the Government’s aim to attract private investment to the various areas of ancillary services by identifying the areas for such investment and providing the necessary fiscal incentives. Some of the key ancillary service areas are as follows:

 

§    Ship repair and Ship Building

The current ship repair and ship building facilities available in the Port of Colombo are constrained by the limitation of space in the port and it has been determined that additional ship repair and ship building facilities would need to be constructed in the ports of Galle, Trincomalee and the proposed port of Hambantota.

 

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§    Bunkering and ship chandelling

With the development of Sri Lanka as a major maritime center in South Asia, there is considerable potential for the supply of bunker to vessels plying the East –West shipping lane. However, this sector has not performed to expectation mainly due to the high cost of bunkers supplied in Sri Lanka and the limited availability of bunkers.

In order to encourage private sector participation in this sector, the Government is presently in the process of liberalizing the bunkering sector currently being handled by the Government owned Ceylon Petroleum Corporation.

The Government is also to actively develop and promote private sector investment in ship chandelling and offshore supplies to ships.

 

§    Intermodal transport network  

The integration of road, rail, and the seaports in an integrated intermodal network would greatly assist in the reduction of transport costs, traffic congestion, and increase trade competitiveness. In this regard, greater co-operation would be required between the relevant Ministries and agencies in order to work towards a common purpose.

As an initial measure improving the interface between the railways and the Colombo, Galle and Trincomalee ports should be looked at as a matter of priority, particularly in the use of railways in the transportation of containers and bulk cargo to and from the different ports. Such a project may be feasible even as a public-private partnership.

 

§    Multi country consolidation and entrepot cargo

Efficient ports are perceived to be a catalyst for adding value to logistics chains and are positioned to attract certain types of industries and enterprises. Although these commercial and industrial developments require access to port facilities, they also require the development of coordinated actions to set up distribution hubs, which are not currently in place.

With a view to attracting industries such as International Procurement Centers that requires an efficient logistics framework, steps are currently being taken to set up several logistics hubs in proximity to the Colombo Port and the Bandaranaike International Airport in order to exploit Sri Lanka’s potential as an Air-Sea cargo hub for the region.

 

Port Development Strategy

 

Map of Sri Lankan Ports

 

§       Port of Colombo

Colombo Port is one of the few deep-sea ports that is close to the Indian subcontinent and also lies on the main shipping route between East and South East Asia, Europe, and North and South America. It is an excellent location to serve as a hub for regional container and transshipment traffic, connecting South Asia’s 1.5 billion inhabitants through feeder services with the main shipping routes, and could command a significant market share of this trade. Between 1987 and 1997 the throughput of containers for Colombo Port, in terms of Twenty-foot Equivalent Units (TEUs), increased from 429,000 to 1,650,000.

Growth however, stagnated from 1997 to 1999, but then grew to 1,732,855 during 2000. The Jaya Container Terminal (JCT) in Colombo Port is presently handling 1.4 million TEUs a year and is expected to reach its maximum capacity in 2003/4.

On completion of the ongoing construction work at the QEQ in the Port of Colombo by SAGT, the container handling capacity of the QEQ is expected to be increased to over 1 million TEUs per annum from the current level of 250,000 TEUs pa.

Projections of growth in international trade across the Indian Ocean indicate that Colombo Port has the potential for rapid growth. In order to exploit this potential it requires that the Colombo Port is perceived within the shipping community as an internationally competitive and efficient port with adequate capacity.

 

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§    New South Port of Colombo

The Government’s recent decision to proceed with the new South Port of Colombo would act as a positive signal to the shipping community that Sri Lanka is committed to expanding its container handling capacity to meet the growing demand in the region.

The new South Port of Colombo is to be completed in six stages and on completion would have 12 berths with an overall berth capacity of over 7 Million TEUs per annum. The first two berths under this development program which is to be undertaken on a public-private partnership with the berths being developed on a BOT basis, is to be commissioned by 2005/6. Such measures would greatly assist Sri Lanka to consolidate and enhance its position as a major maritime center in South Asia

 

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§    Port of Galle

The existing port of Galle in the Southern Province of Sri Lanka is to be developed further to meet the immediate needs of industrialists in the hinterland, in addition to the construction of a new regional multipurpose port in Galle catering to conventional and break bulk cargo and a limited number of containers.

As the Colombo Port is increasingly being utilized for container handling, it is expected that with the completion of the Colombo – Matara expressway by 2005, and the improvement of other inter modal links with Colombo, most of the bulk and general cargo operations would be shifted to Galle.

 

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§    Port of Trincomalee

The port of Trincomalee on the North-East coast which is one of the deepest natural harbours in the world, has been identified for development as a multipurpose industrial port engaging in cargo handling as well as other port related activities such as, ship repair, ship building, ship breaking, bunkering, and salvage and towage.

Significant potential also exist for the development of tourism related maritime activities such as marinas. At present, the SLPA is in the process of constructing a 250m-quay wall to accommodate 40,000 DWT vessels. Major developments in Trincomalee have not taken place mainly due to the ongoing conflict in the North and East, though the SLPA continues to operate its facilities in Trincomalee.

 

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§    Proposed Port of Hambantota

The Government is due to commission an independent feasibility study to determine the technical and commercial viability of constructing a new port at Hambantota. Due to the lack of suitable inter modal links, it is expected that in the short term Hambantota would be developed to handle bunkering, ship repair and other port related activities. In the long term, it is expected that the Hambantota Port would be developed as a container port once the new South Port of Colombo reaches saturation in terms of available capacity.

 

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§    Ports of Kankesanthurai and Point Pedro

These two ports in the Northern Province have been earmarked for reconstruction and development as coastal / regional ports once the conflict in the North and East end.

 

Establishment of a Port Regulator

At present, the SLPA itself has been a ‘regulator’ for the sector alongwith the Ministry of Finance. However, with the modernisation of the port sector and the entry of private sector operators, it has become necessary to have a Port Regulator independent of the SLPA, as the SLPA continues to be a monopoly service provider in certain areas of port activity such as navigation and pilotage, in addition to being a terminal operator.

The Port Regulator is essentially a competition regulator who would ensure the interests of all stakeholders including the SLPA, private operators and the port users are safeguarded by preventing anti competitive practices in all aspects of port business, including the, cross subsidization of monopoly services, price fixing among competitors. The regulator would have the power to investigate on its own initiative or in response to a complaint made by any port participant.

It is expected that a separate Act of Parliament would establish the Port Regulator before 2005

 

PROJECTS COMPLETED

The Project Agreements for the US $ 240 MN Build Operate and Transfer (BOT) for the development of the QEQ were signed between SAGT and the SLPA in August 1999.

Operations on the existing QEQ container berths and construction of the new berths commenced in September 1999. Since the handover of the QEQ to SAGT, the productivity and efficiency of the QEQ has been increased inspite of the ongoing construction work. The first container berth under the project and the new passenger berth are to be commissioned by July 2001

 

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Scope of project

The existing QEQ in the Colombo Port is to be widened 100m into the harbour basin in order to increase the container handling capacity of the QEQ to approximately One Million Twenty foot Equivalent Units (TEUs) per annum at a cost of US$ 240 Million. The QEQ would have 3 container berths, with nine quayside gantry cranes, operating on a total quay length of approximately 940 metres, with 20 hectares of container yard.

A new passenger berth would also be constructed by SAGT for the use by the SLPA, and all costs of construction including capital dredging alongside the berth would be borne by SAGT.

This phase is expected to be completed in 2003 as the construction period is currently estimated to take approximately 3½ years from the date of handover.

The Concession term for this phase of the project is 30 years from the date of handover of the QEQ.

 

Capital Structure

The project will be undertaken by South Asia Gateway Terminals (Pvt.) Ltd. The primary sponsors of SAGT are John Keels Holdings Ltd and the P&O Group companies. The total project cost of US$ 240 mn is to be financed based on a Debt/Equity ratio of 60:40.

Shareholding Structure

 

Shareholder

 

Equity Proportion

(%)

  John Keells Holdings Ltd., Sri Lanka.

26.25

  P&O Netherlands B.V

16.25

  P&O Nedlloyd B.V

10.00

  Sri Lanka Ports Authority

15.00

  Evergreen Group Taiwan

10.00

  International Finance Corporation

7.50

  Asian Development Bank

7.50

 Commonwealth Development Corporation

7.50

It should be noted that a total of 41.25% of the SAGT shareholding would be held by Sri Lankan shareholders (John Keells Holdings and Sri Lanka Ports Authority), while only 26.25% of the shares would be held in total by the P&O Group companies.

 

Project Lenders

 

 

US$ (MN)

  International Finance Corporation

35

  Asian Development Bank

35

  Commonwealth Development Corporation

35

        The Private Sector Infrastructure Development Company Ltd.

39


Source: Borad of Investments - Sri Lanka (BOI)

 
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