East Terminal Saga

By A South Asian freight analyst

While the political chaos is grappling and crippling the country, the port of Colombo is once again in the picture where Sri Lanka could suffer transshipment growth due to political tug of war on expanding capacity through the development of the East Terminal. The shipping community collectively as shippers, shipping lines, agents, freight forwarders will agree that the delayed development of the second-deep draught terminal in Colombo will have negative repercussions for years to come. 

Delays in decision making has always had a direct impact on Sri Lanka transshipment volume growth. This historical evidence can be visibly traced back as far back as 1995 when the then CBK government neglected Colombo and lost transshipment business to other ports. Similarly, the South harbour and its terminals should have been operational by 2005 on a step by step basis instead of 2013. All this is because politicians have intervened in what should have been real business decisions. 

East container terminal

Given the delays and the market forecasts the second-deep draught terminal of the South harbour Colombo should have been commissioned by at least 2017 end to give a clear signal to the global shipping lines who service Sri Lanka that Colombo is ready with capacity up to 2020 and beyond. All those who are in the industry know that with the current regional volume growth by 2019 the larger container vessels that are operating the East-West route will run into difficulty in Colombo port with the existing berth capacities at CICT to maintain efficient turnaround times.

In a highly developing and a competitive port industry in the South Asian region, Sri Lanka should have always been one step ahead to provide the necessary environment to global ship owners to plan future trade routes and transshipment operations. Sri Lanka’s biggest customers are the Indian shippers who use Colombo as a transshipment hub which accounts for 80% of throughput in Colombo, and at the same time global ship owners who transit through Colombo provides vital dollars to the national economy and help the economy grow and support to boost itself as a major port in the world. 

East terminal Vs. West terminal

The new Colombo port expansion project was designed with three terminals, which has a collective design capacity of 7.2 million containers and each has the ability to handle the biggest ships (22000TEUs). The first terminal was given to China (CICT) by the then Mahinda Rajapaksa government in 2013 with 85% equity for 35 years and within five years this terminal has reached a design capacity of 2.4 million TEUs but may have an operational capacity of well over 3 million giving enough time till early part of 2019 to provide services to mega ships without major delays.

East terminal has its advantage compared to the West terminal as it is situated in the middle of the new port and the old port of Colombo and has a lessor distance to all the terminals to move inter terminal cargo (ITT) which is an important component in transshipment business. East will have an operational advantage and a lessor cost to handle transshipment with the ITT advantage. (Please see picture 1.1). One with little knowledge in shipping would see the picture and can decide himself.

The new Government came into power in 2015 and the then Minister Arjuna Ranatunge, suspended the equipment order for the East terminal phase 1, (ECTP1) citing corruption. These were required assets to develop the first berth of the East terminal. People working in the shipping industry know that gantry cranes and other capital-intensive port equipment etc. cannot be purchased overnight. The fundamental mistake that the then minister did was, to delay the purchasing of equipment through a new tender whilst he had the right to investigate the alleged corruption. 

Calling for RFPs – was it a joke?

Then comes the next surprising element. The cabinet of ministers headed by the President then takes another decision, which is probably the correct decision, to call for Request for Proposals to develop (RFPs) to build, operate and transfer East terminal just as SAGT/CICT was developed.14 bidders came in. Even ministerial committees were appointed for the process. This was a time the government was finding it difficult to invest as the government/SLPA was in financial difficulty with the Hambantota port. 

The President and both ministers, Arjuna Ranatunge and Mahinda Samarasinghe, were in the cabinet and would have given the approval and consent to call for RFPs for a consortium to develop the East terminal along with SLPA. That being the case a little over a year back, at the 38th anniversary of the SLPA the President put a bombshell that took a turn and announced that ECT will be only built and operated by the government. Even the 14 bidders were not informed by him before saying so. 

Many international investors, local companies as consortiums who had submitted proposals to the very advertisement the government published calling international and local partners to develop Sri Lanka’s second deep draught terminal in Colombo were taken unaware of the presidential direction. These RFP’s were never pursued again.

Wrong signals to investors

Sri Lanka once again sent wrong signals on inconsistent policy to the global investor community. If politicians had real patriotism, when the country developed the first deep draught terminal (CICT) they should have made sure that Sri Lanka (SLPA) should have been a greater partner in developing CICT, instead of giving 85% to China, which at that time was the only exclusive such facility in South Asia. Ironically even the local private company that was to be a partner was taken out and a mere 15% was allocated for SLPA. With its uniqueness and exclusiveness, CICT is the catalyst of the Colombo port’s growth up to now. However, in 2013 no one questioned this high-handed act.

President Sirisena’s and Minister Samarasinghe’s stance taken latterly against the previous cabinet decision led to the confrontation which the country have seen in the recent past. India was an interested party and will not be happy with the way things are handled and the current developments politically. The whole saga is happening at a time when the Indian government is aggressively restructuring its shipping and the ports industry giving clear signals to Colombo that they would take all actions to minimise transshipment in the interest of Indian cargo owners/shippers. The Indian reforms include port liberalisation, shipping liberalisation, tariff liberalisation, coastal shipping liberalisation and opening the legal system for transshipment in Indian ports along with the progressive national/state GST reforms.

Sri Lanka has lost pragmatic decisions as patriotic rhetoric is killing the absolute advantage of Colombo

It’s not a secret that strong geopolitical currents are at work in this part of the world. While Sri Lanka service Indian shippers, it has a major presence of BRI in Sri Lanka with the Chinese investments. Whether one would like it or not Sri Lanka needs to recognise the Indian factor and its proximity and the potential economic growth which will have many opportunities for the country to grow as a small island nation hub. But inconsistent policy, political arrogance and ignorance may result in dramatic effects on our transshipment hub aspirations in the medium to long run. Selfish politicians have ruined the country’s progress in all economic activities according to most Sri Lankan industry leaders.

Sri Lankan industry has repeatedly requested the governments to make SLPA a landlord and avoid the role of being the owner, operator and the regulator at the same time. Many have requested to follow the Singapore model where government can build infrastructure by themselves or with partnerships or build and contract them on management agreements with international investors, be it terminal operators or shipping companies. What is important for Sri Lanka is shipping being a real global business, balancing and getting everyone to be part of the port development in Sri Lanka is the healthy way of doing things and becoming a globally recognised hub.

Whoever who govern this island will need to understand this and act fast. The country is already very late as competition in the region has already moved. In the event the shipping and the port sectors are further mismanaged due to short sightedness, exporters and traders too will lose out, not to mention the country at large. Hopefully all organisations interested in the shipping hub developments will collectively take a stance and write and inform their position to the elected rulers Sri Lanka in one voice as to what the industry wants irrespective of who they are or what party they come from in Sri Lankan politics. 

The way thing are moving, chances are that within 10 to 20 years’ time Colombo will be just another port, whilst Chinese Hambantota port will be Sri Lanka’s number one port for transshipment.