ADB Country Director Richard Vokes said the bank has agreed to a government request to amend the loan agreement to enable the project's harbour infrastructure works, including a new breakwater, to proceed.

"Originally, for the loan agreement to become effective, the government had to issue a letter of invitation for the negotiation of the Concession Agreement to the selected private operator for the South Terminal," he said.

"Under the new agreement, the loan now will become effective immediately, while the government has agreed to award the terminal concession within 18 months after the new effective date," Vokes said in an e-mailed reply to queries from LBO.

The government has also started a new tender process for the terminal project after it cancelled the original one.

"The concept of the project as a Public Private Partnership (PPP) remains unchanged," Vokes said.

"In view of this, selection of the terminal operator following an open competitive procedure in accordance with Sri Lanka’s laws and procedures remains part of the amended loan agreement as well, with award of the concession to be within 18 months."

The Colombo port expansion project is the largest PPP project in Sri Lanka, Vokes said.

"The breakwater construction will now go ahead," he said. "ADB is very pleased to see the physical construction of the project start and looks forward to working with both the government and the ports authority in bringing the project to its successful completion. The project is on track, after a delay of a few months."

The project was delayed last year when the government cancelled bids to build the container terminal as it said it was unable to decide between the two main contenders, Singapore's PSA Corp and HPH of Hong Kong.

Disbursement of the ADB loan was linked to the government awarding the terminal contract through open competitive bidding, and the cancellation delayed the release of the funds.

Meanwhile, Sri Lanka Ports Authority officials said Hyundai had been doing dredging work on the new port since December and site preparation work is in progress.

Fresh tenders for the contract to build and operate the first container terminal in the South Port are expected to be called "hopefully" by July, they said.

The request for proposals is also expected to be changed, officials said.

The government will also try to attract interest from major port operators and shipping lines which did not bid in the original round.