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Sri Lanka plans US$4bn PPP for LRT in place of Japan funded soft-loan project

ECONOMYNEXT – Sri Lanka plans to request proposals to fund a 2.2 billion US dollar light rail transit project after cancelling a Japanese soft-loan project, which will also involved up to 2.0 billion dollars of related investments, a top official said amid concerns that the project will be a non-starter.

Sri Lanka is preparing documents to request proposals from international investors to build the LRT which will run from Colombo’s Fort area to fast growing suburbs in Malabe and Athurugiriya, via the administrative capital of Sri Jayewardenepura.

Competitive Bids

“We will call international competitive bids,” Priyath Bandu Wickrama Secretary, Ministry of Urban Development, Water Supply & Housing Facilities told reporters in Colombo.

Sri Lanka opted for a Japanese soft-loan after earlier studies indicated that it was difficult to run the project as a purely commercial venture based on traffic projections.

Another LRT line which was opened for private investors by last administration had drawn interest including from Chinese firms but they had wanted ‘viability payments’ or gap-funding from the tax-payer.

But Wickreme said the project had been altered to allow the investors in the Public Private Partnership to also build mixed developments and housing projects, which will bring additional revenues.

“These will easily draw 2.0 billion US dollars of investments,” he said.

He said model RFP documents were already available from an earlier project and he hoped to call for RFPs before the end of the 2020.

This would allow the project to proceed by May 2020, as originally planned, he said. In the meantime, land acquisition and other work could proceed.

Changes

Sri Lanka had already signed a 270 million dollar equivalent loan tranche with Japan International Co-operation Agency (30 billion yen) and preliminary work has been done when the project was changed. The loan has a 12 year grace period and 40 year payback and yen interest rate of 0.1 percent.

A 130 million dollar contract had been signed with a project consultancy. Sri Lanka was planning to terminate it at the first milestone after negotiations, Wickrama said.

Traffic along the Fort to Malabe corridor has been slowing for many years and extra line and a overhead bridge had been built to speed up flows, though new vehicles are coming in as soon as traffic speeds up.

Sri Lanka was to borrow the equivalent of 1.85 billion US dollars from Japan and put in the balance funds to take it up to 2.2 billion US dollars.

Wickrama said the project had been altered to take a depot in Malabe which involved a costly 55 hectare concrete yard for rolling stock to Athurugiya, which will add 8 kilometres to the 16 kilometre original line within the same cost.

Another change to the project would be to replace fully concrete overhead track with an ‘open track’ he said.

He said bidders to another project indicated that per kilometre costs would be lower.

Credit

However private firms will also have to get near commercial rates of interests which tends to sharply push up costs, compared to a Japanese soft loan with a long grace period.

Sri Lanka’s credit rating was downgraded to ‘B-‘ in 2020, and Sri Lanka’s sovereign debt is also trading below par amid monetary instability.

In many countries private operators run rapid transit systems under concessions after initial state support to build the track.

One of the few private lines is the first Sukhumvit line of Thailand’s BTS Skytrain which was developed as a completely privately owned project with no state support other than right of way and is routed through several real estate projects of the main promoter.

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Analysts say an option for Sri Lanka would be to go ahead with the current project, which is already in progress and give rolling stock operations to a private operator who can make lease payments years to help repay the loan when the grade period ends.

The traffic from the Malabe line which interconnect could also make other lines more viable for private development. (Colombo/June25/2020)