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Sri Lanka in final stretch to ink Hambantota port deal with China

ECONOMYNEXT – Sri Lanka is close to inking a revised deal with China’s CM Port Holdings to sell an 80 percent stake in Hambantota port and a 1,200 acre industrial zone, following objections from coalition ministers and allegations of corruption from the opposition.

Sri Lanka borrowed 1.4 billion US dollars mainly from China to build a breakwater, a tank farm, a bulk cargo jetty, an artificial island and some container berthing space in Hambantota in the south of the island.

CM Port is expected to pay 1.12 billion US dollars, or 80 percent of the money spent to build the port, for an 80 percent stake, with a 1,235 acre adjacent industrial zone thrown in, valuing the total project at 1.4 billion US dollars. The land and port will be leased for 99 years.

Deputy International Trade Minister Sujeewa Senasinghe told reporters on Wednesday that a concession agreement with CM Port has been hammered out where broad terms have been agreed by China and the ministers.

It will be signed soon after some finishing touches, he said, without giving a date.

President Maithripala Sirisena had appointed a ministerial committee including International Trade Minister Malik Samarawickrema, Ports Minister Arjuna Ranatunga, Sarath Amunugama and Megapolis Minister Champika Ranawaka to monitor the implementation of the deal, which drew protests from inside and outside the administration.

Ranatunga had raised objections to 1,235 acres of land adjacent to the port being leased apparently free for 99 years by valuing the port and industrial zone at only the value of the debt in the deal, which was originally brokered by the International Trade Ministry.

There were also objections to the unusual structure of the deal where infrastructure including breakwater, utilities and the island are handed over to a third-party operator instead of the port agency as landlord only leasing out terminal and revenue generating sections, as is the international practice.

Ministers said military activity had been prohibited in the port, except with the agreement of the Sri Lanak government.

Ranatunga also wanted a 60 percent stake in the port to be kept by state-run Sri Lanka Ports Authority.





CM Port has agreed to given an option for Sri Lanka to buy a 20 percent stake within 10 years of signing the deal, increasing Sri Lanka’s stake to 40 percent, Minister Senasinghe said.

Sri Lanka’s government or any private party will have to pay an amount arrived at after an independent valuation. Whether the valuation will include the industrial zone is not known.

A Sri Lankan party also has the option to buy stock in the port company within five months of signing the deal, Megapolis Minister Patali Ranawaka said.

Any immediate sale should be done at the 1.4 billion US dollar valuation.

There was no information on when royalties or throughput are to be paid to the Sri Lanka Ports Authority.  The port is also expected to get tax breaks.

Senasinghe said China will make further investments needed to buy cranes for container operations, and invest in the third phase of the port later.

Sri Lanka, however, may have to put in 20 percent of any equity investment, analysts say, though the port company can borrow on its own account to finance investments.

Opposition legislators have alleged corruption in the deal with its unusual structure going beyond international norms and the model used successfully in Colombo.

Senasinghe denied any corruption. He said, under the last regime, deals were made secretly with members of the family of ex-President Mahinda Rajapaksa.

But now, a democratic government had taken other views into account, he said.

He said Sri Lanka had no capacity to make further investments to make the port fully operational, with the country already having too much foreign debt.

Critics, however, had said leasing the terminals individually under generous conditions with no base fees, and more time than the usual 30 to 40 year timeframe, would also have solved the problem of investment.

Keeping the port will involve burdening the people with repaying 1.4 billion US dollars in debt, government ministers have said.

Some critics have alleged that the administration has no intention of repaying the loan immediately and taxpayers would continue to service the loan and the cash inflows would be used for other purposes.

CM Port is expected to made payments in stages, after the deal is signed.

However, analysts say Hambantota is a difficult proposition for Sri Lanka or a private operator to make viable, but China has the long-term capacity and strategic intentions to make it viable. (Colombo/Mar23/2017)

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