Port City is bad for the country as developer neglected socio-economic and opportunity costs of the project
“Why the Port City Is Bad for the Country” written by Carmel L. Corea, published in The Sunday Times of June 12 2016 is a good eye opener for the President, the Prime Minister and the Minister of Megapolis & Western Development to re-design this project to meet the ‘SocioEconomic, Financial Implications and to achieve the best Benefits’ from this Project in addition to meeting Environmental Impact Assessments and the long term cost of maintaining the subsidiary services required for this project to operate and for maintenance of this mega project for the duration of the project.
I am not against this project, but my opinion is based on, why the developers CCCC Ltd, ignored the practicability of applying social discounting and economic parameters using a cost-benefit analysis for a project of this magnitude to make it a sustainable development, where environment has become a very sensitive issue. I would like to share my knowledge in applying discount rates for environmentally sensitive projects of this nature and how high discount rates have a very bad economic ‘Effect on Environmentally Sensitive Major projects in Developing Countries’ like Sri Lanka forced me to enter into this discussion.
Sustainable development
The theory of Sustainable Development touched on many issues, but this government, promised during the 2015 presidential election campaign to abandon this “Colombo Port City” project, calling it an unsustainable white elephant project. Since suspension of this Contract, (I brought up this issue with the President) without using proper legal avenues allowed in the “Condition of Contract”, they appointed an Expert Committee to mitigate the environmental implications, and to prepare a supplementary Environmental Impact Assessment, ignoring more essential economic requirements (factors) to make this project a Sustainable Development, ignoring that these resources, necessary to maintain the environmental implications can be mitigated.
An economy needs to develop a system of resource allocation among members of society. In allocating these resources the economy should consider the future members of the society or the future generations. But this Government due to its ignorance to understand what a Sustainable Development is, failed to consider the future members of society or the future generations are a party to this project. It has become important to consider how economists value the distant future, when planning a Sustainable development project, as the members of present society now possess the ability to irreversibly alter the resources, environmental qualities and total level of welfare available for the future society.
Sustainable development is not necessarily limited to sustaining and protecting the environment alone, as generally agreed by many economists, Sustainable Development lies in optimising and achieving the goals set across the three systems identified as basic development: the economic system, social system and biophysical resource system. For sustainable development, the goals of these three systems should be captured and sustained. Economic growth of a country depends on its human, education, industries, employment and the environmental resources. Environment falls into two categories – those to do with protecting the environment and to do with the sustainable use of the environment.
Concessions granted for this project as a method of discounting
Tax concessions to China for 25 years: Why concessions, profits and other benefits should be granted to China? If this tax concession is to be granted what extra benefits Sri Lanka is expecting from this project, to the cost of materials and other expenses the taxpayer is going to support to complete this project, but not taken into account by the developer or any other party to this contract? As I have not seen the agreements, I am not in a position to include other extra services Sri Lankan Government is going to provide for this project?
The concessional agreement places the obligation of obtaining approval on the Sri Lanka Ports Authority (SLPA). Why is this burden placed on the SLPA when the investor pronounces it as a PPP Venture? The entire burden of the approvals should be taken care by the Consultants CCCC Ltd under this contract, if this is a PPP venture? Is the Developer CCCC Ltd misleading the Sri Lankan public for its own benefit? Unsolicited proposals are the responsibility of the developer as the client is not responsible for construction obligations of unsolicited bids.
The Concessional agreement states (according to the writer of the article) that the government of Sri lanka is responsible for providing all service utilities such as water, power, sewage and solid waste disposal, telecommunication required for the operation of the Colombo Port City with an estimated population exceeding one mil- lion people. Under International Contract Law if a developer is placing an unsolicited bid for a project then the developer should undertake all the subsidiary services required to make that project workable.
Has the original agreement now been changed? If so, is the Central Engineering Consultancy Bureau (CECB) responsible to estimate the cost of this massive financial burden taxpayers should undertake to provide these services for the Colombo Port City to be workable or has Project Director Nihal Fernando obtained estimated costs from service providers, as this is going to be a massive cost to the Sri Lankan Government? Will this burden come under the responsibilities placed on the CECB as Consultants.
As myself a Cost Engineer (with over 40 years’ experience in costing major projects), in the absence of detailed site plans and detailed drawings I assume all these services may cost around US $ 1 (One) Billion or close upon that amount, using the square metre workable floor area.
After reading Port City Project Director and Dy. Director General UDA Nihal Fernando’s “Right of Reply” statement in response to the June 19, 2016 article headlined “Port City is Bad for the Country” by Carmel L. Corea, , I strongly believe Mr. Fernando has failed to impress me or any other reader with a little knowledge in major construction, with his answers as he does not answer the important points raised by the writer of the first article but trying to cover-up his inability to understand the contents of that article. It is my professional opinion that this gentleman may be an engineer, but I wonder whether he is fit to handle a complicated project like this as the Project Director.
My opinion is based on his inability to answer any of the questions raised by the writer in a sensible manner. But he seeks redress using CECB (Central Engineering Consultancy Bureau) as a scapegoat.
Mr. Fernando, before seeking solace by trying to explain the capabilities and the efficiency of CECB, should look into to the following projects handled by CECB during its founding chairman’s time and explain why they failed to extend their “Duty of Care” in providing their ‘best consultancy services’ for the Sri Lankan taxpayers who paid them to design, construct and manage these projects creating massive mistakes, costing millions to the taxpayers even today.
The two most important projects CECB failed to provide the Duty of Care are:
The Samanalawewa Hydro Power Project – the local Consultants CECB (to External Consultants) without discussing with the main Consultants shifted the Dam 300 metres away from the original position without any site investigation and this unwise act forced the Contractor to construct the Dam on a lime stone bed and the dam started leaking ‘34 thousand litres’ a minute when completed, sufficient to run another turbine to provide electricity and this leak reduced the power output by half. The leaks other than this leak were mud bath costing US$ 200,000 to pump mud to stop the leaks. If the CECB did a proper site investigation this costly blunder could have been averted. Will they do the same with the Port City, as the lead consultants for the SEIA is the CECB?
Upper Kothmale Hydro Power Project and Housing for the displaced Estate workers was another project where CECB took the lead role as a Consultant. In 2001/2 there was a big discussion about this project, and the Sunday Times allowed experts to express their opinion about the “10% Discounting factor” included by the Lender, and the CECB designed of OxfordLindula scheme became a strong point of discussion. As I had a better understanding about Discounting of projects as I completed a doctoral thesis on “Effects of Discounting on Environmentally Sensitive Major projects’ I took part in those discussions and managed to prove that CECB proposal was not economically viable and the then Prime Minister Ranil Wickremesinghe agreed with our arguments. CECB failed to estimate the actual construction cost for the Oxford-Lindula project in its proposal and after I proved that the estimate was short of US$ 200,000, CECB withdrew its argument. I noticed massive design defects in the Houses designed by the CECB and some of the houses were re-designed to meet the required living conditions.
Sink or Swim with Colombo Port City
Mr. Fernando, without considering the knowledge of the people who wrote about this project at the early stages, is trying to condemn their work as poorly researched inaccurate articles written by various persons. This is unprofessional. The article headlined “Sink or Swim with Colombo Port City” written by Eng. Channa Fernando, Coastal and Port Engineer and member of the Expert committee appointed by Prime Minister Wickremesinghe was an excellent one. He enlightened most of us about the hidden flaws in this project.
As I know CECB Chairman Eng. Piyathilake well, I believe he may take appropriate precautions to see that this project is well handled, but my question is why everyone is running after the environmental aspect of this project while ignor- ing the economic and contractual damages this project may heap on the Sri Lankan people.
The consultants working for the CCCC Ltd are Atkins of UK, AECOM of USA and SWECO of Sweden. They are responsible for all Engineering (Civil & Structural) Architecture, Quantity Surveying, Environmental Engineering, Cost Engineering, Coastal protection Engineering and Contract law Etc.
Mr. Fernando must read Eng. Channa Fernando’s article about the opportunity cost lost by allowing free sand, as he says he is not an economist to further discuss about the subject. But Sea sand and quarry metal is not provided free to a development project where the International Investor is going to make or earn the profit, as the opportunity cost of these materials are part of Sri Lanka’s contribution to this project.
Most politicians and others supporting them are not aware these small amounts exceeding US$ 2 billion is the amount “discounted” by developer CCCC Ltd from this investment proposal, just allowing Sri Lanka to suffer the loss due to this discounting, and if economists are correct, this huge discount will cripple the economic viability of this projects -- 40 to 60% per year for the duration of this project, as the Developer CCCC Ltd will wash its hands of after 25 years.
Sri Lanka has thrown its valuable resources to satisfy the Investors thinking they are going to make Sri Lanka a miracle for many years. Salawa Plywood Factory later became the Salawa Central Armoury is one project we talked very loud during the early 60s. There is a Sinhala saying that even when you throw anything to the sea, keep account of the things you throw away, as Consultants like Atkins of UK will count every cent they can get for their client due to any mistakes made by the UDA whose record of handling Construction Projects are very weak. I learned this during my days working as a Consultant to the then Minister of the Urban Development Authority.
[As Port City Director is very keen to know the Technical Qualifications of the people who discuss about the weaknesses of this project, I give my qualifications to satisfy him. I am a Former Construction Expert CFTC/UN, Former Senior Academic University of Technology, Sydney, Dip. St.Eng (Lond), Dip Q.S (London), G.Dip.Edu (Tech) (UTS), M. Proj. Mgt (UNSW); PhD, LLB, Mast Build Sc (UNSW) , FRICS, MICost Eng.; MCIArb; (Construction Economist). [Former Volunteer Consultant to the SL Government]