Pure commercial transaction – Minister | Daily News
Hambantota Port agreement

Pure commercial transaction – Minister

Rubbishes claims of Chinese military influence

In an interview with the Daily News recently, Ports and Shipping Minister Mahinda Samarasinghe discussed many aspects concerning politics, development activities related to ports and shipping and the state of Sri Lanka in the international arena.

Minister Samarasinghe, who is also the Vice Chairman of the SLFP, said that Hambantota Port agreement was a pure commercial transaction and there is no threat of Chinese influence there.

Referring to the pledge given by the government to make Sri Lanka a shipping hub, he said that the government has taken all necessary measures to improve the standard of the ports and their facilities.

Following are excerpts of the interview.

Q: It was reported that the Sri Lanka Ports Authority (SLPA) profits increased to Rs.13.3 billion in 2017. This is from Rs. 1 billion a year earlier. Any specific reasons for this increase?

Pictures by Sarath Peiris  

Well, the increase from Rs. 1 billion in 2016 to Rs. 13.3 billion in 2017 is phenomenal and this was largely due to the lease agreement of the Hambantota Port and the debt obligation being taken over by the Treasury. Although we made a Rs. 1 billion profit in 2016, the debt obligation that we had to undertake because of the Hambantota Port was much more. According to the chart of debt payment for the Hambantota Port, in 2022 we would have had to pay about Rs. 18 billion which would have been much more than the revenue that we would have been able to generate from all the ports.

Basically, we would have had to depend on the Treasury for bailout, if the situation had continued. Having borrowed US$ 1.5 billion to construct Phase 1 and part of Phase 2 of the Hambantota Port, we were left with the responsibility of servicing that huge debt and the Ports Authority was unable to do it. This was one of the main reasons why we were able to generate such a huge profit in 2017, because the Treasury took over the debt and now we are in an enviable position of not having the Hambantota Port debt on our heads. So overall, this has been very good for the Sri Lankan economy. This debt being taken away from us, we were also able to show an increase in revenue of approximately five percent and a decrease in expenditure by 8.5 percent in 2017. All this contributed towards this huge profit in 2017.

Q: So are you saying that the Sri Lanka Ports Authority is back to normal and heading towards a successful future?

Yes. This year we hope to maintain at least the profit we generated last year because we have had more expenditure this year. We signed a collective agreement with all the trade unions which led to an increase in salaries plus various benefits we have given them. We anticipate an increase in revenue as well because the first quarter figures now available for this year show an approximate 20 percent growth in the business operations of the Jaya Container Terminal (JCT). If that trend continues, there will also be an increase in revenue which will offset the increase in expenditure. So we expect to maintain current levels of profit, but there may be an increase over 2017 as well.

Q: Could you clarify if there was a request by China Merchant Port (CMPort) to build an entertainment zone in Hambantota to which the SLPA objected and the Cabinet later intervened to resolve? What actually happened?

That’s all rubbish. During the negotiations there was never a proposal to use this man-made island for entertainment purposes. The concession agreement very clearly states that the man-made island can only be used for marine and port-related activities. We have also been reiterating that it can never be used for military purposes. I don’t know who manufactured that story and that was not the reason why the last tranche was delayed by 12 days. It was only a 12-day delay. When you execute an agreement there are conditions precedent (CP) that need to be fulfilled and that process took a bit of time. We had to get the necessary approvals plus I had to get Cabinet approval.

Q: So the delay had nothing to do with CMPort?

Absolutely not. There was never talk about entertainment facilities being set up there; that is prohibited under the concession agreement.

Q: It was also reported that China has helped finance at least 35 ports around the world in the past decade and the Hambantota Port is one of them. So you affirm that there is no possibility of ports like the Hambantota Port being used for intelligence or strategic purposes?

Absolutely not. This is a pure commercial transaction. This has nothing to do with anything other than a commercial transaction. China Merchant Port, overall, has equity of 69.9 percent and the Sri Lanka Ports Authority has 30.1 percent. Clearly, we are also a substantial equity holder in this operation and the two Sri Lankan companies which have been registered will run the operations. They are fully owned Sri Lankan companies which will be responsible for running the operations.

Q: So they will be handling the commercial operations according to the concession agreement. What are these commercial operations? What will they be doing?

One local company, Hambantota International Port Group Company Ltd (HIPG) will take care of bunkering services, facilitating export and import activities, and transshipment of vehicles. Industries will be set up inside the port and they will be facilitating them as well and many more. But every operation that these companies are involved will be confined to port and marine-related activities.

Q: Will the employees hired for these commercial operations be Sri Lankans or Chinese?

Hambantota Port

Mostly Sri Lankans. And the Sri Lanka Navy will continue to be deployed there and they will carry out their respective mandate as well. All security-related decisions will be taken by the government of Sri Lanka. So, for example, if a naval ship wants to call to the Hambantota Port like they call to the Colombo Port, it has to be through a government-to-government request.

If a government wants to send their naval ship, it will have to get permission from the government of Sri Lanka and it is the same for the Chinese.

Q: Was there a decision to relocate the Ceylon Electricity Board’s windmill operation in Hambantota?

The CEB had a windmill operation there and they have now decided to relocate it. They were given an option to enter into an agreement with the new companies that have been set up, to continue if they wish to. But they are now in the process of relocating.

Q: What is the progress of the Colombo Port’s East Container Terminal (ECT)?

I am still preparing the Cabinet paper which will be presented shortly for the terminal to be fully operationalised. And that will be done by the Sri Lanka Ports Authority. The JCT terminal cannot accommodate large ships as its depth is not enough. There is a trend where international shipping companies are acquiring larger ships to achieve economies of scale in their transport and logistics. We are going to fast track the development of this terminal and we will be able to reduce the congestion in the Colombo port. The Chinese run Colombo International Container Terminal (CICT) is currently the only deep water terminal. One terminal is not enough to cater to all the business we have. We have done the civil work; we need to get cranes and machinery. Actual delivery of this equipment will take about one-and-a-half years. But we are looking at leasing equipment to operationalise immediately. We will call for tenders and a leasing arrangement will be made until the equipment come. Within the next three months, we will be able to operationalise it.

Q: Any other new development projects taking place?

There is 5,000 acres of land in the Trincomalee Port and we want to give it to potential industrialists to connect with the harbour to increase import and export volume. We are planning to develop the Colombo Harbour Queen Elizabeth 2 Quay to accommodate cruise liners. We have cruise liners coming in at the moment, but the infrastructure is not up to standard. A lot of cruise liners are bypassing Colombo despite Sri Lanka being one of the famous tourist destinations. Once we develop the infrastructure facilities, we will be able to promote tourism. We call it the International Maritime Centre.

We have called for financial proposals for the Galle Marina; that will be another major initiative on our part. We believe that we will be able to add to the momentum of tourism. We have already called for proposals and that will also be fast tracked.

We have got US$ 40 million from an Indian line of credit to develop the Kankasanthurai Harbour in the North. We are in the process of calling for tenders, Cabinet has given the approval. Work will start during the course of this year. The Oluvil Harbour has not been operational for some time, so we are in the process of making it operational by unblocking the harbour where sand has been accumulated. I have got Cabinet approval to call for interested parties to come in and locate industries and businesses inside the harbour; we are in the process of evaluating the proposals.

Q: This government promised to make Sri Lanka a shipping hub and there is less than two years to make any changes. Do you think the government is going on the right path to achieve this goal?

Sri Lanka is number 23 in terms of the number of containers that the Colombo Port handles in the world; it is impressive for a 21 million population. India with a 1.2 billion population, handles only 15 million TUs. We are definitely the transshipment hub of South Asia and that will only strengthen. In terms of connectivity, we are in the 13th position. It is an improved position and we will consolidate further.

Q: There was a recent debate raging on whether an authoritarian government or a democratic government would suit our people the best. Do you think that there is a threat to democratic governance in Sri Lanka?

That is just a result of a monk making a statement. The people of this country have been enjoying democracy. Sri Lankans will always prefer a democratic system to an authoritarian rule. The best example is how Mahinda Rajapaksa was defeated in 2015. There is absolutely no danger of Sri Lankans opting for an authoritarian government as against a democratic government. As far as the SLFP is concerned, President Maithripala Sirisena will seek another term and we are looking forward to it. 

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