Blems reshuffle

Wants more changes in port deal; mits 42-page response to Special nments minister

Presidential Secretariat, the atmosphere seemed electric. Finance Minister Ravi Karunanayake was to hit out at SLFP Ministers. He said that those who joined the Government after the elections could not clamour for change in portfolios. Where were they during the elections, he asked. It was only now that they were criticising, he charged. He said that the UNP was dedicated to winning the next presidential election. Sirisena responded to Karunanayake: “You (the UNP) did not get a clear majority. You wanted to form a National Government. Don’t blame the SLFP. They are saying we should pull out of the Government. I am managing with great difficulty.” Minister Patali Champika Ranawaka was to remark that the proposed Provincial Council elections (after September) would show what voters think of the Government. He noted that other than party cadres, most of the people appeared to veer away. Those party cadres too are unhappy.

Other than political issues, the final draft of an important document -- the Concession Agreement (CA) between the Government and the China Merchants Port Holdings Company Ltd. (CM Port) came up for approval. On May 3 this document had been referred to the Sri Lanka Ports Authority (SLPA) for its comments. The SLPA’s 42-page response with a letter to Minister Sarath Amunugama was also tabled together with the Concession Agreement. The SLPA said “CM Port (the Chinese Company) has added several terms/phrases/words, to the Concession Agreement which cannot be justified or agreed upon.”

In view of Premier Wickremesinghe’s impending departure to China, the passage of the document through Cabinet, became an extreme necessity. Therefore, the SLPA objections notwithstanding, ministers agreed to provisionally approve the final draft of the CA. Premier Wickremesinghe was to make clear he planned only to sign a Memorandum of Understanding with China and not the CA. The MoU was to incorporate a reference to the Concession Agreement.

It has now come to light that President Sirisena did not receive an early copy of the CA formulated by Sarath Amunugama, Minister of Special Assignments and Chairman of the Cabinet Sub Committee of the Hambantota Port Project. In this backdrop, on Friday night (just before Premier Wickremesinghe was set to leave) Sirisena made clear he did not want the matter proceeded with until the concerns raised by him and other arms of the Government are fully addressed. Hence, he did not wish any formal references be made to the Concession Agreement in the Memorandum of Understanding.

President Sirisena and Premier Wickremesinghe held talks on Friday night, just hours after Indian Prime Minister Narendra Modi emplaned for India. This is just ahead of Wickremesinghe’s flight from Colombo en route to Beijing. Sirisena asked Wickremesinghe not to make any reference to the Concession Agreement during his visit nor incorporate any provision in the proposed MoU. The Premier, an authoritative source said, agreed. There was also a discussion on the impending Cabinet reshuffle. Wickremesinghe agreed that the reshuffle should take place and the UNP Ministers Sirisena mentioned should be moved around. This will be carried out after Wickremesinghe returns to Sri Lanka on May 19 (Friday).

Thus, the deal on the Hambantota Port project will be delayed after President Sirisena’s directive to Premier Wickremesinghe.

The Sri Lanka Ports Authority (SLPA) has complained in a letter to Minister Amunugama that “key clauses of the Concession Agreement and/or opinion provided by the Attorney General “were not taken into consideration.” This included Development and Operating Rights, Term, Consideration and Shareholding, Profit Sharing vs Royalty, Exclusivity and Further Development, Site Lease, Port Services, Tariff, Employees, Outsourcing, Termination Compensation and Taking over of the Port Property.

One of the areas of serious concern the SLPA pointed out is the inability of those negotiating with the Chinese company to reduce the lease period from 99 years. President Sirisena had recommended that a period between 50 to 70 years could be considered. He had also wanted the shareholding to be 60 percent for the Chinese company and the remaining 40 percent for the Government. Provision was also expected to be made for 20 percent of the Chinese company’s shareholding to be sold locally. However, recommendations made by President Sirisena were not reflected in the final draft CA formulated by Minister Amunugama with the help of Minister Malik Samarawickrema, the line Minister.

The SLPA points out that; “We are of the view that the term (99 years) proposed in this Agreement (Reference is to the Concession Agreement) is excessive and should be limited to a term as proposed in the report of the Project Committee. There is no rationale between the Term and the Investment Value given in the CA. The SLPA is of the view that the Term of the draft Agreement to be determined based on the Investment Value, Business Plan and benefits to the SLPA and to the Country. Whereas per this draft Agreement, SLPA or GOSL will get lease rentals only for 1,235 Acres of lands contiguous to the Port without any royalties and site lease for the entire Lease Area unlike in the case of other PPP (Public-Private Partnership) projects in Colombo Port as benefits. It may be kindly noted that there is no specific Clause pertaining to the Business Plan. Here are some of the other key areas where SLPA has raised objections:

The Scope of the Development and Operating Rights is stipulated under the draft Agreement is very wide. In terms of Clauses 2 and 24, PPP Operator is entitled to provide all port services and entitled to exercise almost all the powers enumerated in Sections 6 and 7 of the SLPA Act throughout the term of the Agreement. The SLPA is of the strong view that this arrangement is against the spirit of the provisions of SLPA Act. In the event the proposed agreement in its current form is executed, SLPA will not have a role to play in the Port of Hambantota. Further it may lead to the creation of a separate independent Port Company without any statutory control. CONSIDERATION AND SHAREHOLDING: As per the terms and conditions contained in the draft Agreement, it is proposed to grant following to the PPP operated by the GOSL: - I. Operating rights of providing entire port servic

es for entire term. II. Development rights in and out of the lease area

for entire term. III. Leasehold rights of Ports property in an extent

of 780 hectares. IV. Leasehold rights of Logistics area in an extent of 1,235 acres. Transfer of movable assets: As per draft Agreement, only the development cost of the Project has been taken into consideration when determining the ‘Transaction Value’ and the ‘Investment Value.’ SLPA is of the strong view that all the factors should be considered in determining the consideration and the shareholding. TARIFF: The Tariff related issues pertaining to Hambantota Port cannot be compared to CICT (Colombo International Container Terminal) and SAGT (South Asia Gateway Terminal). The Port users had an option in Port of Colombo to obtain services either from SLPA or Private Terminal Operators. However, in the event of the entire Port of Hambantota is operated by the PPP Operator, the Port users have no option but to obtain services based on the tariff determined on the discretion of the PPP Operator. Further it is to be noted that if the PPP Operator is allowed to determine the tariff on its discretion, this arrangement will cause a threat to Port of Colombo and other Ports and the National Economy of the country. It may be noted that there is a reference to the Port Regulator in the draft Agreement. However, in the said Clause there is no reference to the effect that the Port Regulator has the power to control the Tariff related to issues. Therefore the respective clauses have to be re-drafted considering the above concerns. The SLPA has cautioned that “the CA is the legally binding document to be executed between the parties which covers the entire term of the project. Hence, it is the responsibility of parties to finalise the terms and conditions of the CA in line with the existing legislation and acceptable for the parties.” OUTSOURCING: As per the provision of this Agreement, PPP operator is entitled to outsource the performance of any of its Port Services to any person. This arrangement is not acceptable since the operating rights will be granted to the PPP operator that it should provide relevant Port Services and not by a third party. Other than the ‘key areas,’ the SLPA has also made some other strong observations. They include the following: The GOSL (Government of Sri Lanka) and the SLPA have to fulfil several Condition Precedents in order to obtain Tranches of consideration which may take considerable time to fulfil. Further the Attorney General has already advised that the 180 day period is inadequate for the compliance with the Conditions Precedents. V. Therefore, it is observed that this arrangement cannot be considered as a solution of the present foreign currency issue of the country. There are references that the due diligence process to be continued even after the signing of the CA. We are of the strong view that due diligence to be concluded prior to signing the CA in order to avoid unnecessary complications. The SLPA is of the view that until the Independent Port Regulator is appointed, the PPP Operator shall adhere to tariff published by the SLPA from time to time for the services provided by the PPP Operator relevant to all types of domestic cargo (import and export). Neither SLPA nor GOSL can commit, in commercial agreements on change of Law as such changes require amendments to existing legislation or enactment of new laws by Parliament. The Port should be managed on non-discriminatory common user basis as per agreements signed by the GOSL/SLPA. Colombo Port practices the following berthing priority which is applicable to all ports of Sri Lanka: (1) Men of war, (2) Cruise Vessels, (3) mainline international Container vessels, (4) Vessels carrying dangerous cargo or high security cargo (including arms and ammunition), (5) Feeder vessels (namely containerized vessels plying between Sri Lankan Ports, Colombo, Pakistan, India, Maldives, Bangladesh, Mauritius, Reunion and other Indian Ocean Island states, Myanmar and Africa (6) roll-on-roll-off vessels, (7) car carriers, and (8) all other types of vessels. Other than the Concession Agreement (CA), Premier Wickremesinghe’s delegation is carrying a Framework Agreement that will be signed between Sri Lanka and China. This new deal has been finalised by Development Strategies and International Trade Minister Malik Samarawickrema. Projects and activities to be implemented “under a broader framework” of this Agreement are Agriculture, Manufacturing, Transportation, Infrastructure, Public Works, Energy, Electric Power, Information and Communication, Tourism and Urban Constitution. The planning outline covers a five year implementation period from 2017 to 2021.

The Chinese Government had handed down to Samarawickrema its own draft of the Framework Agreement to “give full play to the role of governments, enterprises, financial institutions, research institution and other organisations in promoting bilateral investment and technical co-operation…” The Chinese version is more detailed than the one Samarawickrema has formulated for Cabinet approval. In addition to agriculture, there will be food processing, processing and manufacturing industry, tourism, hydro power industry and water resources management among others.

China has specifically listed 18 “Priority Project List.” They include the Central Expressway, Operation of Port of Hambantota, Shipyard at the Port of Hambantota, Operation of Dock and rear oil tank area at Hambantota Port, Hambantota Port Industrial Park, Colombo International Financial City and a number of road and water projects.

Besides Minister Samarawickrema, Law and Order Minister Sagala Ratnayake, Special Assignments Minister Sarath Amunugama and the Prime Minister’s Secretary Saman Ekanayake are among those in the Prime Minister’s entourage.

The difficulties within the coalition may resolve, at least to some degree, when a ministerial reshuffle takes effect after May 19. This is when Premier Wickremesinghe returns from China. What remains unclear is whether President Sirisena would hold a Cabinet meeting on Tuesday (May 16) in the wake of Friday night’s assurance from Premier Wickremesinghe or still wait until the re-shuffle is carried out. Either way, some of the rumblings, the result of the reshuffle, are bound to continue.