Freshly minted Sino-Lankan agreement on Hambantota port to be put to parliament on Friday

By P.K. Balachandran

A freshly minted Sino-Sri Lankan agreement on the controversial Hambantota port will be submitted to the Sri Lankan parliament for a debate on Friday to secure political legitimacy for it, said the Minister of Ports Mahinda Samarasinghe at a press briefing here on Tuesday.

As per the new “Concessional Agreement” the Sri Lankan government via the Sri Lanka Ports Authority (SLPA), becomes an equity partner and investor in the port, along with China Merchants Ports Holdings Company Ltd. (CMPort).

Overall, the share split in the joint venture will be 70% for the CMPort and 30% for SLPA and not 80:20 as was the case in an earlier Framework Agreement.

Describing the agreement as a “win-win deal”, Minister Samarasinghe said that if parliament approves the deal, the pact will be signed on Saturday.

At the Sri Lankan cabinet meeting held earlier in the day the fresh agreement was approved unanimously after an hour’s sharp debate. However, at the end of it, President Sirisena suggested that the deal be run through parliament to hear the law makers on it and to secure added legitimacy, Samarasinghe said.

Basic Features

The SLPA will set up two special purpose companies to carry out various activities.

The first company, Hambantota International Port Services Co. Ltd. (HIPS), with a capitalization of US$ 606 million, will undertake the management of the common user facilities and services of the port such as port security, navigational services, pilotage, anchorage, provision of aids to navigation, dredging, widening (capital and maintenance), emergency responses, pollution control and other services.

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

The second company is the Hambantota International Port Group Ltd., (HIPG) which, with a capitalization of US$ 794 million, will undertake the management of operational assets of the port, further development of the Hambantota Port, its infrastructure and commercialization of cargo handling and related operations.

The SLPA will hold 15% and CMPort 85% of the shares in HIPG.

All assets of the Hambantota Port, including the land belonging to it, are to be transferred to the two companies HIPS and HIPG. The two companies will be capitalized to the tune of US$ 1.4 billion with the CMPort contributing US$ 1.12 billion.

Based on the above mentioned 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%.

Future

The CMPort has agreed to sell to SLPA a further 20% equity to the SLPA after a period of ten years. The SLPA will have the right to buy all the shares after the expiry of 70 years. The time period of the entire agreement is 99 years.

The SLPA will, in addition, get royalty and dividends from the joint venture.

In the previous Framework Agreement, signed in later 2016, the splitting of the stake was 80:20, with 80% for CMPort and 20% for SLPA. But the 80:20 ratio came under flak, as people considered it a “sellout” to a foreign country.

In the latest agreement, the land assigned the port has been reduced from 1574 hectares to 1115 ha in response to the criticism that agricultural land had been given away to foreigners.
India’s Security

To address the security concerns of certain countries (presumably India and the US), the present agreement says that port’s security will be entirely in the hands of the SLPA. A committee, which will have representatives of the Sri Lankan navy and defense ministry, will be overall in charge of security.

India has been apprehensive about China’s using the port for military purposes after two submarines berthed Colombo harbor without India’s knowledge in 2014.