CHEC to construct, operate 4-lane New Kelani Bridge to Athurugiriya elevated highway

• Project among largest foreign investments in road sector with committed investment of $ 821.6 m
• To be implemented with 100% foreign funding under Design-Build Finance-Operate-Maintain and Transfer basis
• CHEC-NKBA Elevated Highway Ltd. to build, operate and maintain project
• Completion to take 3 years
• Govt. announces slew of tax concessions for project company

The Government has announced several tax concessions to China Harbour Engineering Company Ltd. (CHEC) for the project to construct and operate a four-lane elevated highway from New Kelani Bridge to Athurugiriya via Rajagiriya.

The tax concessions have been published in the gazette by Prime Minister Mahinda Rajapaksa, who is also the Minister of Economic Policies and Plan implementation, under the Strategic Development Project Act.

The project will be implemented with 100% foreign funding under Design-Build Finance-Operate-Maintain and Transfer (DBFOMT) basis. The envisaged investment is $ 821.6 million.

The project construction period is three years from the effective date of the related Concession Agreement and the project operational and maintenance period is 15 years, altogether 18 years, at the end of which the project company will hand over the project to the Ministry of Highways.

The gazette states that CHEC, the bidder, is registered in China, founded in 1980, with its business headquartered in Dong Zhi Men Wai, Beijing – China and is an engineering company that specialises in infrastructure development such as marine engineering, roads and bridges, dredging and reclamation, railways and airports.

CHEC is also the contractor that will carry out engineering, procurement and construction of the project. CHEC, for the purpose of implementation of this project, will establish a special purpose company to be duly incorporated under the laws of Sri Lanka through its parents or an affiliate 100% owned by CHEC.

This project is one of the largest foreign investments in the road sector with a committed investment of $ 821.6 million and is expected to be financed, with an equity contribution of $ 246.5 million, and a loan of $ 575.1 million, to be made during the construction period of the project.

The tax concessions will include exemptions from Corporate Income Tax for profit and income generated by the project under the Inland Revenue Act during the construction and operational and maintenance period.

Tax on dividends for the shareholders of the project company in relation to the distribution of dividend income will be exempted during the operational and maintenance period of 15 years and one year thereafter.

The project company will also be exempted from the payment of Withholding Tax (WHT) in relation to several areas.

These include on interest of foreign loans taken for capital expenditure; on fees paid to consultants up to a maximum of 40 consultants in the construction period of three years and up to 20 consultants in the maintenance period of 15 years, and on Management Fees and Royalty Payments not exceeding 5% of the total project cost during construction period and not exceeding 2% of the total project cost during the maintenance period.

Exemptions have also been given from payment of Capital Gains Tax for the shareholders of the project company for 15 years as well as exemption from payment of income tax for expatriate employees (technical and managerial experts) for a period of three years subject maximum of 40 expatriate employee and for 15 years after the construction period for a maximum of 20 employees.

All imports of project-related goods as approved by the Board of Investment (BOI) and services required for the implementation of the project will be exempted from the payment of Value Added Tax (VAT) during both the construction and the operational and maintenance period.

VAT on local purchases of project-related goods as approved by the BOI and services required for the implementation of the project will be deferred during this period.

Further, the semi-annuity service payment by the Government of Sri Lanka to the project company including interest income receivable under the Concession Agreement shall be exempted from the payment of VAT during the operational and maintenance period.

The other tax exemptions include the concessions under the Ports and Airports Development Levy Act, Excise (Special Provision) Sri Lanka Export Development Act and Customs Ordinance.