Hambantota deal before P’ment, signing on Saturday

• MPs to debate Cabinet-approved new PPP on Friday but no vote
• Ports and Shipping Minister insists the agreement a win-win for both parties
• Total value of $ 973m by CMPort to be paid within 9 months

By Chathuri Dissanayake

The Cabinet-approved new deal on Hambantota Port under a Public-Private Partnership will be presented to Parliament today, followed by a debate on Friday, Minister of Ports and Shipping Mahinda Samarasinghe said.

On Saturday the Government will sign the Hambantota Harbour Lease agreement with China Merchant Port Holdings Company Ltd., which will form a joint venture with Sri Lanka Ports Authority, the Minister told journalists yesterday.

“There was a long discussion in the Cabinet about the agreement and although some gave their opinion, no one objected to the agreement. President Maithripala Sirisena advised the Cabinet to present the agreement in Parliament and then follow up with a debate,” Samarasinghe told reporters.

However there will be no vote following the debate, he said.

Any positive recommendations can be incorporated, he insisted, although the agreement is scheduled to be signed on Saturday.

As reported exclusively by the Daily FT yesterday, the terms of the concession agreement is for 99 years and two joint venture companies will be formed. 

One is Hambantota International Port Services Co. Ltd. (HIPS), which will undertake the management of the common user facilities and services of the Hambantota Port such as port security, navigational services, pilotage, anchorage, the provision of aids to navigation, dredging, widening (capital and maintenance), emergency responses, pollution control and other port services. 

The shareholding of this company will be SLPA 50.7% (42% of shares directly by the Ports Authority and a further 8.7% of share indirectly through (HIPG) and CM Port 49.3%.

The other company is Hambantota International Port Group Ltd., (HIPG) which is to undertake the management of operational assets of the port, further development of the Hambantota Port, its infrastructure and commercialisation of cargo handling and related operations.

The composition of shareholding will be identical to the terminal operation projects at the Port of Colombo i.e. the South Asia Gateway Terminals (SAGT) and Colombo International Container Terminals(CICT), which means SLPA will hold 15% and CMPort 85%. Based on this composition of shares, the overall shares held by CMPort will be 69.55%, while the overall shares held by Ports Authority will become 30.45%, as opposed to the initially proposed 80:20 split.

The value of $ 1.12 billion pledged in the framework agreement remains, however only $973 will be received by the Treasury, while the remaining $146 million will be pumped to the Hambantota Port as investment, the Minister said.

Out of the $973 million, 10% will be payable immediately after signing the agreement, with another 30% to be paid within three months. The remaining 60% is to be paid within the next six months, the Minister said.

“This agreement is a win-win situation for both parties. We were able to negotiate the shareholding to increase Sri Lanka’s share. When I took over negotiations, there was no reference to royalty payable to the Ports Authority, it only included dividends. The new agreement includes royalty payments. We have also been able to ensure that no amendments were made to the Port Authority Act, which was a huge hurdle for us,” the Minister said.

According to Samarasinghe, all 488 employees attached to Hambantota Port will be absorbed into the new company. However, they will have to face a performance appraisal in six months after CMPort takes over.

“The company will then decide whether or not to retain them. If the company decides to let go, then they will be offered a Voluntary Retirement Scheme as per the labour laws of the country,” the Minister said.“This is the first time that such a clause has been included in an agreement to ensure that the employees will be treated as per the labour laws of Sri Lanka.”

Highlighting that he was also able to negotiate down the extent of land allocated to the port, Samarasinghe said of the 1,574 hectares of land area which was acquired for Hambantota Port through a gazette in 2008, the agreement only allows 1,115 hectares to be controlled by Hambantota Port.

“The Ports and Shipping Minister will retain the right to appoint a port regulator and management of security-related matters will remain with the Government of Sri Lanka. Accordingly, overall port security, customs handling and immigration and emigration activities will be carried out by the Sri Lankan side deploying local personnel,” Samarasinghe said.