The Port of Colombo has been ranked as the world’s fastest growing port among the top 30 container ports for the first half of 2018. This is a positive sign of the development of the shipping and ports industry of the country where Sri Lanka covers a huge portion of its annual dollar requirement. In the wake of these positive signs it is important defining the challenges for the proposed East Container Terminal (ECT).
President Sirisena and Ports and Shipping Minister Mahinda Samarasinghe had taken a strong decision not to drive for a PPP in ECT and to operate the terminal 100% by the Sri Lanka Ports Authority (SLPA).
This arbitrary decision is quite interesting to review. The two terminals functioning under PPP models namely, Colombo International Container Terminal (CICT) and South Asian Gateway Terminal (SAGT) have ousted the operations of the SLPA owned Jaya Container Terminal (JCT) which has mostly 20-30 year old inefficient container handling equipment in terms of tonnage and TEUs (Twenty-foot Equivalent Units) and contributed heavily in to the financial capacity of both the SLPA and the General Treasury.
According to the data at the Ministry of Finance, the revenue generated for the government by CICT and SAGT together amounted to around Rs. 11 billion in 2016. It is true that if the SLPA owned the terminals, the entire profit (a much larger amount) would be credited to the Treasury. But there are various determinant factors to be considered in such a scenario. The burden to the government in millions of USD as capital investment, inefficiency of the government sector in management and the few contacts of the government with international shipping lines are a few to be considered.
East Container Terminal
Under the Colombo Port Development plan initiated in 2005, three container terminals (South/ East and West) were proposed with China Merchant Holdings (CMH) winning the tender. CMH built and commenced operating CICT through a partnership with SLPA on a contract of 35 years. The next step was developing ECT and the Rajapaksa administration commenced construction.
When the current government came in to power the 400m long first phase of the ECT (one berth and a container yard) were already completed with an investment of US$ 80 million. But the development of ECT kept on dragging - it was a dilemma whether it should be developed as a PPP or not.
After two and a half years administration under Minister Arjuna Ranatunga the Ministry of Ports and Shipping was assigned to Minister Mahinda Samarasinghe. After assuming duties he stated that the loss to the country due to the delay in completing the ECT was in the range of Rs. 4 billion.
Meanwhile President Sirisena showing interest in the subject has said that ECT won’t be privatized. “I will not hand over even an inch of Sri Lankan land to another country or any foreign company” he said at a ceremony held recently.
Dr. Priyanga Dunusinghe a lecturer of the department of Economics at the University of Colombo points out the political movement behind running state owned enterprises.
Business and Politics
“I personally know of the Ports Authority, especially how many employees are politically appointed and how many of them support those who appointed them at election campaigns ”. According to the Economics expert, Ports are considered to be a highly competitive business and where private involvement is vital in order to ensure efficiency and competitiveness.
“There are different reasons tabled in order to avoid involving the private sector in these business operations. They talk about national assets, patriotism, government monopoly and all sorts of stories. But the truth is completely different. It’s all about politics. They (politicians) use these places to entertain their supporters. If they divest the management to the private sector, they can’t give away jobs to their cohorts” he explained.
Dr. Dunusinghe cannot be more than correct when referring to the number of employees at all three terminals.
As confirmed by the CICT there are only 1,000 (approx.) employed at CICT including the outsourced employees. SAGT has also another 1,000 employees approximately. Both privately managed container terminals which handled 4.1 TUEs in 2017 have contributed more than 67.6% to total container handling at the Colombo Port with their 2,000 employees, where as the SLPA owned JCT contributed 32.4% of the total container operations with a massive employee cadre over 8,000, basically four times larger than the workforce of the other two terminals.
Tudor Wijenayake, a veteran Engineer closely observes the Ports industry, gives perhaps the most legitimate reason for this. “Sri Lankans are not efficient. They are very lazy, specially compared to the Chinese.
So no wonder a huge work force at JCT is accommodated” he said.
Finance Ministry sources also supported these observations. According to them per crane productivity in terms of moves per hour is 30 per cent higher in PPP operators compared to SLPA.
National Interest and Profitability
“We are not going for a PPP. It will be 100% SLPA. This is of course to earn a profit for the SLPA. Our JCT is also performing well. JCT’s improvement is 30 per cent during the last month alone” said Minister Mahinda Samarasinghe responding to questions raised by the Sunday Observer.
While refusing the probable high return on minimum investment via a PPP, Minister Samarasinghe said that ‘National Interest’ is far more important than profits.
Nevertheless, reliable sources inside the Ministry of Ports and Shipping said that trade unions are the main force for the minister to determine to develop ECT 100% by SLPA. When the Hambantota Port was to be handed over to the Chinese, Minister Samrasinghe had promised the trade unions to retain ECT for SLPA, according to Ministry sources.
“When it comes to CICT we can learn a few important lessons from the Chinese. Number one is their efficiency. Two is their connections.
If we built CICT on our own, we might have opened it and kept waiting till ships come. But China convinced some of its shipping companies to visit CICT. We must admit that we don’t have such connections” explains Wijenayake.
Legitimacy and Entertaining the gallery
Even though the Minister assures the financial stability of SLPA to develop ECT, according to sources at the General Treasury it is questionable as the US$ 200m worth of infrastructure development is already on its way at JCT, KKS and Oluvil Ports by SLPA.
In April 2018 the Ambassador to Japan had informed the Ministry of Foreign Affairs the willingness of Japan to provide grant aid for the installation of container handling equipment. Managing operations at ECT under a consortium consisting Sri Lanka and Japan was the only condition.
The Colombo Port is considered as a major transshipment hub, handling 80% of Indian exports and imports. In other words the Colombo Port has always been an attractive investment opportunity for Indians.
Therefore, the Indian Government was always keen on investing in the Port of Colombo.
Minister of Development Strategy and International Trade Malik Samarawickrama signed an MOU with Indian Foreign Minister Sushma Swaraj a few months ago which reportedly had clauses related to Colombo Port’s development.
“India’s problem is shallow water. They have plans to develop Mumbai as a major international port and have to carve a channel 20 kms long to bring ships to Mumbai. Therefore, Colombo and Hambantota are crucial for the Indian shipping industry as well” said Wijenayake.
However entering into a PPP, SLPA could earn a larger stake of the joint venture (approx. 40%) as it has already invested a sizable amount.
This could be more beneficial to SLPA compared to CICT and SAGT according to Finance Ministry sources. Even the stagnation of the project is evident to the competency of a PPP model introducing to ECT.
Hence the government should simply look at the practical performances of the Port’s operations. On the other hand both SAGT and CICT were given to private parties during the SLFP Government where it could not be a conflict of interest to the SLFP President and Minister.
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We look at national interest and profit - Minister Samarasinghe
Ports and Shipping Minister, Mahinda Samarasinghe said, “We don’t look at profit all the time. There’s a thing called national interest. Do you know that? We look at national interest also. Do you understand? At a time where we don’t have a deep berth, we can’t give in to the private sector. We need a deep berth and it’s a national interest. On the other hand, a deep berth is vital for the sustainability of SLPA, because all cargo ships are massive ones. They cannot enter JCT or SAGT. Only CICT can facilitate those large vessels. CICT is now congested, and we are in danger of turning down ships as we don’t have another deep berth. We are ready to give theWest Container Terminal to India. We have no issue with that, as the MOU with India doesn’t mention a particular terminal. So we are going to keep ECT as it can be operated in a short period of time. It will take two more years for WCT operations.