This article provides an overview on the recent talk of the town “The Colombo Port City”. This may appear to be mind-numbing or may not be interesting owing to the fact that it is imperative to include a few economic terms and jargon to emphasise on the real or practical meaning or the importance of the same. No theories or law points are discussed here as the intention was to shed a light on salient features and a simple understanding to layman on the Project.
It is my personal belief that many people are holding on to different opinions on the Project whether favourably or unfavourably as a consequence of unacquaintance or no or little access for right information. Some accuse China gratuitously and wrongfully portraying a ‘debt-trap diplomacy’: enticing poor, developing countries into agreeing for large scale development projects backed by unsustainable loans so that they can acquire the assets on default resulting unimpeded military reach for which the evidence are very little as oppose to the colonials we had thus far around the world.
Some are under the impression that we are a country blessed with a vast range of natural resources reserves such as petroleum, gas, uranium, gold, coal, copper and silver. And further are in the belief of that such resources are readily available for us to reap the benefits and to be secluded from the rest of the world. But the reality is that we are only in possession of graphite as a deposit of mineral and forests with least disturbed and biologically unique and very high level of diversification as natural resources.
North Korea is currently holds the largest and one of the finest available graphite reserves. However, owing to closed economic policies and as they are isolated from rest of the world, they send part of their production only to the Chinese market. Hence we are fortunate enough to be retain our position among the first ten producers in the world for graphite. Except graphite, we are not in possession of any such valuable, marketable and natural resources reserves with scale advantages. Hence, it is a must for a country like us to find alternative avenues to source dollar income.
In this sense, “The Colombo Port City” will emerge as a golden opportunity for us to make a major leap in the economy. Below are the reasons for me to bear such a view in this regard.
What is “The Port City”?
The Port City or the Colombo Port City is a man-made island (Reclaimed land) located adjacent to the Galle Face Green, Colombo which is currently under the development by CHEC Port City Colombo (Pvt.) Ltd. (CPCC). Land reclamation is a process of creating a new land raising the elevation of a water-bed or a low-lying land. The Palm Jumeirah of Dubai is a well-known and classic example for one such successful development.
Even though we call it “Port City” in short, the entity’s lawful name is “The Port City Colombo Development Project (PCCDP)”.
It is a project by The CHEC Port City Colombo (Pvt.) Ltd. with an initial investment as gigantic as USD 1.4 billion which planned in reclaiming 269Ha of land. It is planned to be utilised as a “Specialized Economic Zone” which is a new and widely used in most developed and developing economies as an investment promotion tool.
After a fairly long embryonic gestation period, the project’s land reclamation was over by 2019. Currently the basic infrastructure is being developed. As per the Development Control Regulations (DCR), the reclaimed land will comprise Gross Floor Area (GFA) of 6.9Mn sq.m. (including car parks) which includes commercial space, retail space, residential, hospital, convention, exhibition centre and hospitality with state of the art social infrastructure.
It is a Public Private Partnership (PPP - Public - Private Partnership involve collaboration between a government or its agency and a private-sector company that can be used to finance, build and operate projects) arrangement with the Government of Sri Lanka and CHEC Port City Colombo Pvt Limited to invest USD 1.4Bn in return for 99 years leasehold rights for 116Ha of reclaimed land (the total extent is 269Ha).
CHEC Port City Colombo Private Limited is a subsidiary of China Harbour Engineering Company (CHEC) and Communications and Constructions Company Limited the (CCCC) is the parent company of CHEC. CCCC is a multinational engineering and construction company with its global presence across 135 countries and possesses about 103 branches and offices to serve them. CCCC is an internationally renowned company which is listed on Hong Kong Stock Exchange and the Shanghai Stock Exchange. The CCCC was ranked as the 93rd by Fortune 500 Companies in 2019. It was positioned third by the Engineering New record (ENR) out of 250 international contractors in 2018.
The Shantou New East Coastal Area Development Project and Guangzhou Nansha New District Development Project are some most notable work done by the CCCC. The CCCC has its presence in Sri Lanka since 1998. They contributed to projects such as Southern Highway, Outer Circular Highway, Hambantota Port, Mattala Airport and Colombo South Container Terminal.
In an economic perspective, it can be envisaged that the Port City would result in having significant positive impact on creating employment, attracting FDIs, contribution towards GDP, managing BOP and increase in government income.
Employment opportunities
The reclamation, infrastructure development and attracting investors are being done now and at this stage, it is expected to create 6,400 employment opportunities and with related to construction, it will be about 160,172 man-hours (direct and indirect) and creation of skilled and unskilled job opportunities over 210,355 is expected. The job opportunities will be created in sectors such as hospitality and leisure, education, health and retail.
When looking at Foreign Direct Investments (FDIs), at the reclamation and common infrastructure development stage, it is estimated to receive USD 4.1Bn (including the initial investment of USD 1.4Bn by CPCC). Thereafter it is expected to attract USD 2.7Bn through land leases. (Rs. 13Mn p.p which may differ at the time of enacting the actual lease). During the construction stage it is planned to attract USD 5.6Bn (assuming at least 75 percent of the construction cost being foreign funded) and when the entities commenced the operations, it is expected to reinvest about USD 0.7Bn per annum back within Sri Lanka.
The value addition for GDP through the CPC is twofold; i.e. investment and consumption. During the phase of reclamation and infrastructure development, construction and leasing out the lands, it is anticipated to contribute USD 4.6 Bn and USD 13.0Bn. And through the operational stage, it is expected to have USD 11.8Bn annually mainly by the rent income of retail, commercial and residential space with the Port City.
Even though the construction stage consists of considerable outflows arising through importation of raw materials for construction, this will get offset with the recurrent rent income inflows over the space. When considering the export services, inbound tourism spending as well, we can expect the total cash flows to pave a way to a considerable positive impact towards managing Balance of Payment.
Government revenue inflows can be derived through lease rent over marketable land, import duties, income tax, value added tax, and licensing fees and expected to be around USD 0.8Bn.
Incorporating the concept of township planning, the total land extent has been divided into five distinctive zones as per the Development Control Regulations (DCR), namely the Financial District - 40Ha, Marina District - 15Ha, Central Park Living - 95Ha and Central Living - 85Ha. Upon the completion of the land reclamation, the project was officially handed over to the Urban Development Authority (UDA) in October 2019.
As mentioned earlier, a tripartite agreement has been entered in to by the GoSL, CPCC (CHEC Port City Colombo Private Limited) and Urban Development Authority (UDA and Ministry of Megapolis and Western Development).
The GoSL holds 57 percent of the reclaimed land (Common area 34%, marketable land 23% ) and as the developer and in return to the investment they made, 43% of the reclaimed land is held by CPCC on a 99-year lease basis. The CPCC is to be involved in sales and marketing and setting up the Estate the Management Company (EMC - joint venture between CPCC and GoSL to maintain common infrastructure) and the development of International Financial Centre.
The Port City Colombo the joint investment project by CHEC and GoSL will undeniably become a golden turning point of the economy of Sri Lanka.
To be continued next week