The Hambantota Port Concession – 4 Takeaways from our Meeting with the Ports Minister

The Hambantota Port deal has been surrounded by controversy and commendation, depending on who you speak to. In order to provide clarity, dispel myths, and address concerns of the private sector, the Minister of Ports and Shipping Mahinda Samarasinghe and the Chairman of the Sri Lanka Ports Authority (SLPA) Dr. Parakrama Dissanayake yesterday met with industry stakeholders and briefed them on the concession agreement signed for the development of the Port. The Ceylon Chamber’s National Agenda Committees on Logistics & Transport and on Infrastructure were part of this meeting.

Here are four key points we took away from the Minister’s remarks at this briefing;

1. Majority of the US$ 1.4 Bn inflow will go to the Treasury to boost the country’s reserves

The concession agreement signed by the SLPA with China Merchants Port Holdings Company Limited, amounting to US$ 1.4 Bn is “the single largest investment since the accelerated Mahaweli Development Project” stated the Minister, and the majority of the proceeds would go directly to Treasury coffers.

“Out of that (US$ 1,400 Mn investment) US$ 973 Mn will be coming straight to treasury coffers which would of course increase the international reserve position. An increase in international reserves means more foreign exchange to the currency management which means increase in money supply which means decrease in interest rates, which means increase investment which means increase in employment opportunities.”

He also said that the agreement followed intense negotiations, and it was agreed that China would have a 70 percent stake in the port while Sri Lanka will have 30 percent.

2. The Treasury will absorb the loan taken for the development of the Hambantota Port, saving the SLPA from ~Rs 9.1Bn in payments due every year

The Minister stated that the Ports Authority will no longer have to bear the repayment costs of the loan, and will be saving Rs.9.1Bn (90% of it profits) every year. According to the Minister, the Treasury has agreed to take on repayment of the loan.

“In comparison with our Concession Agreement, US$ 973 Mn is coming straight to the coffers, another US$146 Mn is being invested in the Hambantota Port, that money will be parked in Sri Lanka for one year. So we have one year to decide how that money is going to be used. As of today the cabinet has approved that the treasury will take over the liabilities of the loan, so as of today the SLPA will save Rs9.1Bn every year. We have saved the SLPA”

The Minister further asserted that the SLPA now has the opportunity to develop seven other ports of the country.

3. Minister asserts that national interests will not be compromised and security concerns have been addressed

Minister Samarasinghe emphasized that the security of the port will be entrusted only to the Sri Lanka Navy, having understood the potential geopolitical consequences of entering into an agreement with the Chinese party. Furthermore, the Minister stated that ‘a committee of four’, with the SLPA as its convener will be set up to take decisions pertaining to security.

“The security service will only be handled by Sri Lankans – we have put in a clause to say that 100% of security personnel would be Sri Lankan nationals. There’s no room for Chinese to come in, as there are geopolitical issues that we have to also look after and we have to be mindful that we don’t send the wrong signals. There’s a feeling that there’s a risk this could be used for military purposes, and we need to assure them that the Chinese party has assured us that its purely, 100%, a commercial investment and nothing else.

There will be a small committee of four that will take all the decisions pertaining to security, the convener of that committee will be the Ports Authority, we will also have the Navy, a Defense Ministry representative and the Police. The small committee will meet as and when necessary and take decisions. For that matter, in relation to security matters, the Navy’s mandate to fully discharge The Navy can board any ship and search that ship if they feel that it needs to be searched. So all those things have been accepted by the Chinese party so there’s absolutely no issue as to security matters”.

He further emphasized that multiple amendments were made to the original agreement, after consultations with the President, Minister of Finance Hon. Mangala Samaraweera and the Attorney General’s Department, to ensure that the country’s ‘national interests’ were met. The minister stated that the amendments were aimed at;

  • Allowing the possibility of amending the Concession Agreement at any given time;
  • Ensuring that China Merchant Port and its affiliates are also bound by the agreement;
  • Incorporating three further recommendations made by the attorney general.

4. Minister acclaims “China is Sri Lanka’s perennial friend” and Sri Lanka should aspire to develop similar bilateral relationships with other countries

On signing the deal with CM Port, Minister Samarasinghe stated that the Chinese parties have been very receptive of our concerns and such bilateral relationships need to be further consolidated.

“National Interests cannot be compromised, that was my bottom line. I must say that the Chinese side are very receptive. I don’t have to understate the fact that China has been with Sri Lanka in good times as well as bad times. So these are friends, perennial friends of Sri Lanka. So, despite the geopolitics, we are appreciative and mindful of the fact that these are bilateral relationships that need further consolidation if possible. Our foreign policy today is to reach out to everyone, we don’t have favorites. Like with China, we would like to see bilateral relationships with India, our closest neighbor, other South Asian countries in particular”.

The Minister’s comments were received positively by most of the private sector attendees, as they believe the agreement would boost the country’s foreign reserves, increase employment opportunities, and pave the way for Sri Lanka becoming a maritime and logistics hub.

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