Unclear Clauses in the Hambantota Port Deal – General Daya Ratnayake

CEYLON TODAY | Published: 2:00 AM Feb 6 2021
Interviews Unclear  Clauses  in the  Hambantota Port Deal – General Daya Ratnayake

In an exclusive interview with Ceylon Today, General Daya Ratnayake, Chairman of the Sri Lanka Ports Authority (SLPA), revealed how the Government is tackling the geopolitics embedded in the port business. He said, “Wrong decisions by politicians, people, experts and the intellectuals had landed the country is such a precarious situation.” Yet, he added that the incumbent government is resolving many of the hardest issues related to ports and is revisiting them, especially the Hambantota Port deal with the Chinese. “We have made bad decisions but we also hope India would understand the matter with the East Container Terminal (ECT), and they would go ahead with the West Container Terminal (WCT) as proposed to them, which is the largest of all terminals that can berth seven ships at a time, once fully developed,” said the General.

By Sulochana Ramiah Mohan

Excerpts of the interview: 

Why did the highest level discussions between Indian National Security Advisor Ajith Doval, Indian Foreign Minister S. Jaishankar and, President Rajapaksa and Prime Minister Mahinda Rajapaksa, that agreed to award the ECT to India, go downhill? 

A: Going back to the history of the SLPA, in 1875, we built the breakwaters and it took 37 years to build the whole Port of Colombo (PoC). We have to go beyond 97 years after the British left. In 2005, during President Mahinda Rajapaksa rule, we looked at developing the Southern Port of PoC that has three terminals namely Colombo International Container Terminal (CICT) the West Container Terminal (WCT) and the East Container Terminal (ECT). The Asian Development Bank funded USD 300 million and SLPA funded USD 100 million. Then President Rajapaksa said all three should be invested by Private Public Partnership (PPP), however he later said that SLPA should have one terminal solely operated by them and it was the ECT that was earmarked and the other two to be awarded on PPP basis. On a bid, China was awarded the CICT as they were the competitive bidder. The ECT was planned by our engineers. About 20 per cent of the ECT was developed. About USD 120 million was spent that includes a USD 80 million loan. SLPA was about to order the cranes; about USD 100 million worth of equipment, but then a new Government came in 2015 and its Ports Minister Arjuna Rantaunga cancelled that deal which was a wrong deal and they decided to offer it to India.

Today, we are suffering due to such decisions taken by him. Between 2015 and 2019, the ECT was developed without signing a Memorandum of Cooperation (MoC) with India and Japan. The MoC in 2019 didn’t go through the process. The incumbent government was unable to deviate from the MoC as it was an international agreement but when they went through the agreement there was a huge pressure from the public and Trade Unions (TUs). We met with the management of SLPA, the trade unions, but still we could not go against the sensitivities of the people. Also in all aspects, the ECT was an advantage for the SLPA. That is why the Government took the decision to revoke the MoC. So now the ECT will be run by SLPA 100 per cent. 

Are you still settling the loan taken for ECT?

A: We are in the last lap to settle the loan obtained from the local bank.

Why didn’t the Government’s stance clarify to the Indians before revoking the MoC which had ‘embarrassed’ them?

A: My personal opinion is that it was not right to do that, but in the national level, on seeing the geopolitics and the importance of India and Japan, they may have thought so to award it to them but that was not their final decision however. The Government said they would review the ECT proposal and the process involved. There were Cabinet -appointed committees for that. The project proposal committee and the negotiating committee approached the parties appointed by the Indian Government and we realised they were not in agreement with the new conditions we tabled.

What were the conditions tabled?

A: How to pay the funds, the outright payment methods, the advance payment, the down payment, royalty, etc., they were not in agreeing terms. We also spoke of the time period we need to complete the ECT and if not, the penalty. Also we spoke of the criteria’s Indian investors should meet but it came to a standstill.

Why did the Government say the Adani group will run ECT and then revisit the MoC? Shouldn’t it be the other way around?

A: That was not the final decision. Adani Group was nominated by the Indian Government and not us. When they nominated somebody we could not say no to them. We told them we are going through the MoC but they rejected our recommendations.

Do you think since CICT was awarded to China, India insisted on awarding the ECT to them because the PPP with CICIT ended up with an 85 per cent stake on a 35-year lease?

A: CICT offers 15 per cent of the stake to SLPA. The CICT was not an unsolicited proposal; a normal bidding system was followed. Initially the Chinese were offered 55 per cent stake and 35 per cent to a local company but later on, the local company sold its stake to China and that’s how they got the 85 per cent stake. They went through the process.

Has SLPA decided to give the WCT to India and Japan as Minister Keheliya noted? Did India accept the offer?

A: The Cabinet approved it but it’s a suggestion. What is left is for the Government is to talk to India and Japan whether they would take it and that would be the final outcome.

The Government could not revisit the Hambantota Port deal; however the ECT deal was revisited and was scrapped. How is that possible?

A: You are right. But President Rajapaksa did revisit the Hambantota Port agreement when he came to power in 2019. We are revisiting the proposal even now. It is unfortunate truly.  We shouldn’t have made such a deal on Hambantota Port. But the process of revisiting is going on. We are in the process.  The naval base in the port, according to the agreement, was on the location of the Chinese leased land. The President spoke to the Chinese and took to our side.

Aren’t the Navy servicing the Chinese inside the Port?

A: Security is now taken back for Sri Lanka in Hambantota Port. 

How was it before?

A: It was not clear; however the Navy had been operating on the side where the Chinese are.  Looks like there are so many unclear clauses in the agreement 

Was it an alarming MoU?

A: Actually, yes. The sensitive one was the security of the Hambantota Port. It has been cleared and they are now is with the Sri Lankan Government. 

If the Chinese submarines come should the Government approve it?

A: Definitely yes. There is a decision making process.

Does the SLPA have an office there?

A: We don’t have one inside Hambantota Port. We have some of our security personnel working there and two members in the board. But we are revisiting the agreement done with the Hambantota Port management.

What do you want to do?

A: We are trying the best we can do to obtain the best advantage for the country

You mean to reduce the number of years in the lease?

A: Too early to comment on that since we have started the process now.

Why are you doing this now?

A: Because we want to get the best advantage out of that port

That means we have not got the best advantage yet?

A: That is my personal feeling, that we have not got the best out of the port. The most crucial issue was the security issue where the naval areas were in Chinese jurisdiction. We sorted it out last year. Now we are starting to look at attracting certain businesses and all that discussion is ongoing. 

Can the Government interfere in this manner after leasing it for 99 years to China?

A: Yes. Certain areas we can and in certain areas we will have to negotiate and agree as the Chinese also want business. We want to see that the port is made use of and developed further as nothing much is happening there and we need them to develop it. Recently, a USD 300 million investment came in and other investments are in the pipeline. We are holding discussion on bunkering, ship repairing businesses etc.   We have already revisited the process further and finding resolutions to make the best advantage of that deal. The President, the Government and the SLPA are serious about it. It is too early to reveal all about the discussions as it is ongoing.

Why can’t the Government have the Hambantota Port open for international bids? The debt swap could have covered by an LNG project that was proposed at the same time by the Canadian Government for over USD 1 billion which was halted by the former government. The lawyers have filed the claim with the Attorney General of Sri Lanka, requesting to open the project for international bids.  Would you revisit this project? They also claim that the Chinese hijacked their project?

A: We are looking at the Hambantota deal and yes we can revisit and see how business can come to that port as it is for the best interest of the country.  We have many opportunities but time to time, person to person, we have not made the right decisions.  Details of the Canadian company are not known to me. Let me study that proposal as we are looking to bring business to the Southern port

With the large volume of cargo of transshipments is from India to the PoC, was it prudent to come out of the ECT deal without India?

A: The Indian factor and geopolitics are the entire crucial factor. Out of 82 per cent of our port business in Colombo is transshipment and 66 per cent of that is with India.  Yes it is definitely a factor to worry about if India is not on our side. Businesswise, it’s definitely a disadvantage. However, we need to renegotiate with them and so far no impact is seen with the shipping lines, the owners, operators, freighter forwarders are all our stakeholders. So a political decision alone cannot prevent business. Therefore, I don’t see we will lose India’s transshipments.

Doesn’t this erode Sri Lanka’s credibility in the international market especially when we are seeking international players to come here?

A: We are strategically located.  This is how we have been taking decisions. I also blame the politicians, the intellectuals, the people and ourselves for creating such a situation. This is the trend in the country. We have got advantages and more disadvantages. Commercial decisions are taken based on emotions and that is why we are in this stage.  Singapore started port business at the same time we started but they are doing 40 million containers annually and we handle only seven million containers despite having the advantages Singapore has. We have not transformed it to a competitive business due to short-sighted thinking.  

Government also wants India to favour them at the upcoming UNHRC session. Will not the ties between the two countries be hampered by such ad hoc decisions on the ECT derived due to trade unions’ actions? Do you see a significant danger here?

A: The leadership is capable of bridging these gaps with the Indians and they also have realised the sentiments of the people. I think India will understand our position as the decisions were not taken haphazardly based on emotions alone because there are other factors too. The Prime Minister said that 99 per cent of the Cabinet was also not happy.  I am sure the Government is having discussions with them and turn the situation to be more advantage to all parties. I am sure there will be no misunderstandings. When the new negotiations start over WCT; it would settle.  WCT is a good proposal as it is going to be the best terminal of this part of the world which is the future too. 

So what sort of an expression of interest is readying for WTC?

A: It’s for 35 years lease with 85 per cent awarded to the developer 15 per cent for SLPA.

Wouldn’t this also going to receive major displeasure among the locals?

A: This is according to our initial draft as the PPP similarly offer we did for CICT. 

How much do you need to develop WCT?

A: Roughly about USD 800 million.

Is that a good deal because we are awarding 85 per cent to the developer?

A: In the index of Ease of Doing Business, Sri Lanka ranks 104. We need to study the nature of the business as to who will come here etc.  That factor has to be taken in to consideration.  Our professionals have taken a decision to keep 15 per cent and rest offered to the private sector.  The reality of the business is that we need to use PPP too. I don’t think India will take the entire 85 per cent stake but all other agencies will join them. It’s a competitive deal and at the same time, a risky business. 

Leading maritime liner Maersk, which does not work on a political line, had submitted its proposal to run the ECT but the Governments were silent.  It could have thwarted the SLPA being trapped in geopolitics. Do you agree?  

A: There was no room for Maersk because we had already signed the MoC with India. 

But you rejected ECT for India, why not give it to Maersk?

A: Simply there was no room for them. We had to either give it to India or run it on our own. We cannot scrap it from them and give it another international player. We already finalised the deal with India. 

The Port TUs said that they will handle the ECT and SLPA has some funds and also would go for a loan of some USD 125 million too. Why is that?

A: It’s not the TUs suggestion. It was the SLPA’s suggestion. Before 2015, we had a master plan to develop the ECT and estimated the cost etc and if we had handled the terminal, by 2017, we would have reaped 100 per cent in operation.  We would have had 2.2 million containers per year as well. Even if we had commissioned the half built ECT, 8,000 containers could have been handled per year and made some USD 50 million in revenue. Even the SLPA has been silent on the loss due to the delay in operating the ECT. 

How much funds needed for ECT to be developed?

A: USD 500 million and SLPA does not have that amount of funds but we have plans to earn the money in the next two years.

What are the plans for ECT?

A: In 2015 we obtained a USD 80 million loan from a local bank and we developed the ECT and we want to get the revenue slated to be some USD 50 million per year and go for another loan. We had a step by step plan. With the new Cabinet proposal, we are immediately going to start developing the ECT and mid next year we will have another berth ready, and by end of 2022 ECT will be fully operational. On financing, we are holding discussions.

On the official SLPA website there is nothing mentioned about WCT. What has to be done and how much is the total cost to develop the WCT?

A: It will be uploaded soon. We are finalising the information on the WCT and requesting for Proposal (RFP) will be called for.

Do you need to upload the call bidders for WCT if you have set priority to offer it to India? 

A: We had planned that, but issues came in. Now we have to revisit the plans and act according to the new Government’s decisions and the details will be out soon based on that.

If India rejects WCT what would be the next option?

A: There are many who would be interested in this mega project, the biggest terminal with a deepest draft of 18-22 feet. Initial stage would be 1,400 metres and there are provisions to develop up to 2,400 metres .Knowing how strategically we are positioned, surely there would be international bidders. The expression of interest is ready and we were to call in within the next three months. We have sent the Cabinet Paper for it, but we will have to reshape the proposal with the new development.

What is there to reshape?

A: Without calling for RFP, the Cabinet has decided to offer it to India. Now the Cabinet will appoint a negotiating committee and the project proposal committee to discuss it. 

Have you heard whether WCT has been accepted by the Indians?

A: Not at my level, I have not heard.

Will the SLPA operate ECT with existing equipment and facilities or increase the length of the terminal as originally planned under the MoC with India and Japan?

A: We have three smaller cranes which are new models but not suitable for ECT.  The previous government ordered it for JCT 5 which is not developed. But now we are using it at the ECT.  It was an outright purchase from China. We will be ordering six big cranes and another eight cranes for ECT as planned.

Are all these tensions due to SLPA not following a proper trade policy? 

A: We have a policy, a master plan and a blue prints etc, and are working on policies. We have all the stakeholders with us. We have to as we are the best connectivity port and rank 22 in the world. 

What is wrong here then?

A: It’s an international business and has guidelines from the Government, but policies change from person to person, Government to Government, Minister to Minister, Chairman to Chairman and that is our ‘trend’ and our ‘culture’. 

This is what is called no policy for SLPA to follow?

A: The SLPA alone having a master policy does not work.

The original cranes ordered to ECT in 2014 was overpriced and inflated by USD 7 million and then it was cancelled as some tried to make millions of dollars in the first phase of developing the ECT.  It is said that the outcome of locally running the SLPA leads to corruptions. Your comments?

A: Corruption allegations are present. I’m not denying them. So many unwarranted events are taking place in ports.  

Are you probing SLPA corruptions? We’ve heard reports.

A: From the entrance of SLPA gate to purchasing cranes and the operators working in all sectors handling freight, I see corruptions. 

How many in your files?

A: I cannot quantify how many, but within the last year I have recorded so many. Tackling corruption takes so much of time and one cannot engage in other activities. Best is to trace the cause of the issue where it is taking place and put the system in order. 

We’ve seen lots of corruption when buying gate passes so we have computerised it. Similarly, in payments for moving containers out of the premises so much more have been moved to an online network. 

What is the grey area to tackle?

A: We need to get the port structure in the right place with a high tech system.  There is corruption in the logistics services and management area where LCL cargo is. So far 80 per cent is set online.

Isn’t the SLPA overstaffed too?

A: We have almost 10,000 workers 

How many do you need?

A: We assessed that we need 3,500 workers to run all the port terminals.

Pix by Venura Chandramalitha

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CEYLON TODAY | Published: 2:00 AM Feb 6 2021

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