Cochin Terminal to be launched soon, Colombo Port under pressure

By P. Suraweera

With the Vallarpadam International Container

Transhipment Terminal in Cochin, Kerala,

scheduled to be launched in January 2010

the situation becomes more unnerving for the Colombo Port.

The debate in Colombo still continues as to

what the Sri Lanka Ports Authority (SLPA) will

do for the future of its Colombo port while the

sword of Damocles hangs over. By March 2010,

the Cochin terminal is likely to go full stream,

handling 42 million tonnes of cargo.

The project is being developed by Dubai Port

World in two phases with the first phase ready

for launch while Phase II would commence

immediately after the launch of the terminal.

An Indian news portal Cochin Square says

"This would help the trade reduce the need

to tranship their containers through ports like

Colombo, Singapore or Salalah."

A present a very, very large part of the

cargo handled by the Colombo Port is

transhipment for India, and the SLPA

spends its time debating what they

should do for the South Harbour expansion

in Colombo whilst all the time, the Colombo

Port is nearing capacity.

Shipping sources say that even with the

development of the southern Indian port,

Colombo can still stay ahead, if we can keep

attractive enough for the world’s biggest ships

(super post panamax) especially considering that

Sri Lanka still has an edge when it comes to facilities

and expertise. However, if we run out of capacity then

these super post panamax will have no option

but to go to India.

Expansion plans for Colombo are almost on

hold as the bureaucracy within the Port of

Colombo is trying to figure out the best formula

to be employed for the next terminal to be built

to increase the port’s capacity. The big question

is whether to give or not to give the contract to

the consortium of Aitken Spence/China Merchant

Holdings (CMH), the sole bidder at the recently

floated tender.

Understandably, SLPA officials are in a quandary

as they weigh the future against the present,

since the bid price was far below any expected

amounts. Can we trade the future for the present?

Trading means accepting a low bid and forgoing

any opportunity to raise benchmark prices and charges

in the future. If a low royalty is accepted now,

future tenders for the East and West terminals will

be based on the accepted benchmark.

Trading also means accepting a low figure and

having to live with future loan repayments for

loans totalling 500 million US dollars. The issue

is not just about the South Terminal. It is also

the future viability of Colombo. Awarding the

South Terminal will destroy the long term economics

of the Port of Colombo as it sets a low benchmark for

royalty payments. We must not trade our present for

a future we know is not tenable.

There has been discussion since the tender closed

in August 2009. Some thoughts have been expressed

and questions have been raised as to whether the

SLPA should take up the project and move forward.

Discussion and debate is good and indeed justified

as this is about the long term interest of the nation.

But, it is time to make bold and visionary decisions.

The SLPA should not be held to ransom. It is time the

Government of Sri Lanka and the SLPA made a decision

to move forward to build on their own. The project cost

of building the terminal is approximately US$300 million.

One of the sources of funding could come from the

disposal of SLPA’s shareholdings in South Asia Gateway

Terminals (SAGT). The government could still retain

a sovereign share in order to exercise its voice on

matters of critical importance

Understandably, there is the agreement with

the funding parties that the construction of the

terminal is required to be undertaken by the private sector.

However, the parties are all in the same boat.

We sink or float together. If the tender being awarded

to a private party would result in a situation where

the money is not even enough to pay the ADB loan,

the situation calls for flexibility. A solution then needs

to be found for this issue.

As reported and suggested by some officials,

the SLPA can itself take the lead and form a

special purpose vehicle (SPV) to terminal project.

This SPV could be used to source the required funding

and take on negotiation with contractors for the construction

of the terminal. International shipping lines and terminal

operators should be invited to participate in the project to

spread the managed risks of construction.

The world economy is back on track towards recovery.

In approximately two years time – also the length

of time needed to construct the terminal, the world

economy is slated be in good shape. If and when

the terminal is completed in two years’ time, it would be

well in time for the SLPA to invite tenders to equip and

operate it. The economics of the project and value added

initiatives of the SLPA can only bring economic gain to

Sri Lanka and help us stay a step ahead of the

competition which is looming.