China-dominated joint venture taking control of Hambantota port

A Chinese-dominated joint venture (JV) will be granted comprehensive control of Hambantota port -- including its internal security -- under a framework agreement signed this week between the Sri Lanka Government and China Merchants Port Holdings Company (CMPort).

The agreement, which was seen by the Sunday Times, was entered into between CMPort and the Secretaries of the Ministries of Finance, Port and Shipping, and Development Strategies and International Trade.

The final deal is to be signed in January. The Framework Agreeement provides for the setting up of a JV company between CMPort and the Sri Lanka Ports Authority in which the Chinese company will hold 80% of shares and SLPA 20%. This will entitle the SLPA to a single seat on its board. The term of the lease and concession period is 99 years.

The SLPA had proposed a share split of 65% for CMPort and 35% for SLPA. But the Chinese had insisted that, since the Cabinet Committee on Economic Management (CCEM) and Cabinet had already approved the 80-20% split, the formula could not be changed, documents seen by the Sunday Times show.

CMPort has not consented to immediate royalty payments to the SLPA. “It was explained that the Chinese side is in agreement to consider the request of the SLPA on royalty payment, on a revenue sharing basis, once the port utilisation reaches a mutually-agreed level of performance,” a joint Cabinet memorandum signed by Development Strategies Minister Malik Samarawickrama and Special Assignments Minister Sarath Amunugama states.

The framework agreement sees the Chinese-led venture gaining authority over pilotage (directing ship movement) service, navigation service, tug service, berthing service, port security service, lighterage (use of lighters in loading, unloading and transporting ships) service, shipping and transhipping, warehousing, mooring service, wharfage, supply of water, fuel and electricity, bunkering and inner anchorage service.

The Chinese also gain control of diving and ship repair including underwater ship repair service, handling petroleum, petroleum products and lubricating oils to and from vessels and between bunkers and depots, and any other service incidental to all services stated above.

The JV will acquire or lease (as the case may be) all operational assets and common user facilities, including container terminals, multi-purpose terminals and oil terminals with fuel storage and supply facilities, the manmade island, sea channel, breakwater, access road, turning basin, navigation, cofferdam and common user terminals.

The SLPA had wanted the security of the port to be handled by the Authority. However, the Chinese had insisted on the JV doing this on its own. Accordingly, the framework agreement states that the national security of Hambantota port shall be controlled by an Oversight Committee consisting of representatives of the Sri Lanka Navy, Sri Lanka Police and SLPA.

“However, all internal security within the Hambantota Port premises, the safety of the cargo, vessels, and the personnel, including but not limited to manning of the entry/exit gates shall be the responsibility of the JV, who will be guided and monitored by, and work in close coordination with the said Oversight Committee, so appointed,” it holds.

The Government has consented to appoint an Independent Port Regulator “to enable operational efficiency and to ensure effective regulation of port operations”. This will require amendment to relevant legislation.

The JV is to collect all the revenue from provision of services, etc. Meanwhile, any and all debts, loans, claims and liabilities in relation to the Hambantota port, including any accumulated debts in relation to design, development and construction of the Hambantota Port, existing prior to or relating to the period prior to the transfer of assets of the project to the JV, “shall be and continue to be to the account of and be the responsibility” of the Government of Sri Lanka.

The parties have agreed that, for the period till the JV attains 50% throughput utilisation or during the first 15-year period, whichever occurs first, there shall be no container port/ terminal development directly in competition with the activities of Hambantota port within a 100-km perimeter from the periphery of the port. Such exclusivity shall not restrict the development of fishery harbours, cruise terminals or marinas within the said exclusive limit, and similar and general cargo terminal developments in the ports of Galle and Oluvil.

For avoidance of doubt, the ports of Colombo, Trincomalee and Kankesanthurai are excluded from the exclusive limit and are free to carry out their own developments.