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Colombo South Harbour: East Container Terminal operation should be by Ports Authority

Tuesday, 05 January 2021 | 01:00

East Container Terminal (ECT) of the Colombo Port has again come into the limelight after the previous trade union action by the Port Unions paralysed the Port prior to the General Elections earlier this year. As there is no definitive direction for the future of ECT even today, further discussions are emerging.

Colombo Port earned the hub port status in the South Asian region primarily due to its strategic location equally supported by factors like timely enhancement of port capacity, availability of modern equipment, efficient operation and competitive commercial tariff with simplified clearing process.

New South Harbour was built in 2012 as a major public investment to cater to the increasing demand for handling seaborne container cargo, and to overcome limitations of water depth, water basin size restrictions of the existing port. It is pertinent to note that the existing port had been built by the British more than 130 years ago.

This South Harbour enclosed a water basin of 285 hectares at 18 m depth and designed to accommodate three large container terminals each on the south, east and west sides. Whereas the existing port had 240 hectares water basin at 11.5 m depth initially and developed finally by 2002 to around 190 hectares mostly at 15 m depth, accommodating Ports Authority owned JCT and private sector operated South Asia Gateway Terminals (SAGT).

The loan of $ 300 million taken from the Asian Development Bank (ADB) helped the Ports Authority to build a massive breakwater without which there would be no South Harbour. The first terminal offered for private participation under Public-Private Partnership (PPP) concept was the South Terminal and the successful party was China Merchants Holdings International setting up the Colombo International Container Terminals (CICT). The terminal was fully operational around April 2014.

CICT development

It was a requirement/covenant in the ADB Loan Agreement that two of proposed three terminals shall be operated under Public -Private Partnership (PPP) approach by going into open bidding process. The first viz. the South Terminal complied. Subsequently, the Ports Authority had obtained the concurrence of the lending agency ADB to proceed with the East Container Terminal (ECT) as the next to develop by themselves.

Consequently, Ports Authority with a local bank loan built a 400 m long quay wall from the total planned length of 1.2 km and also ordered the container handing cranes prior to the Good Governance Government that took over in 2015. But that new regime utterly failed during its tenure under three different ministers along the way, wasting five years.

The first terminal in South Harbour viz. CICT is operating very successfully thereby elevating the global position of the Colombo Port. Colombo Port recorded a total throughput 7.23 million TEUs in 2019, of that 40% handled through CICT and 31.5% through Ports Authority JCT and the balance by SAGT.

It is logical to permit Ports Authority to operate the partly completed ECT with container handling cranes already in place and thereafter proceed with the third terminal namely the West Terminal with private sector participation. That provides the logical balance.

The cranes now at ECT are temporarily positioned there since last August but have to be moved out to Jaya Container Terminal (JCT) which is under construction and expected to be ready in 22 months. Hence suitable bigger cranes have to be procured for ECT commencing the bidding process now allowing time for bidding and further 12 months lead time for the supply of new cranes.

This will ensure the continued operation of ECT. The revenue stream of the Ports Authority should be adequate for this. It is pertinent to state that the ADB loan of $ 300 million (April 2007) for the South Harbour breakwater was transferred to the Ports Authority by a subsidiary loan agreement from the Finance Ministry so that the Ports Authority took the responsibility to repay the loan and interest.

Status of Ports Authority

Ports Authority is an important economic nerve centre of the country. According to performance reports submitted to the Parliament at an earlier Budget debate, total profits of the Ports Authority during the period 1996 to 2001 (inclusive) was Rs. 23.773 billion and total tax payments Rs.19.30 billion. Tax payments included Income Tax, Deemed Dividend, tax surcharge and Special Levies.

Special Levies amounting to Rs. 11.95 billion is an amount taken by the Treasury in addition to normal due taxes to meet other Government expenses. During this period total container throughput varied from 1.36 to 1.73 million TEUs without growth and almost stagnant due to lack of capacity expansion. Now with more than fourfold throughput increase the revenue streams should be stronger and financial standing better.

A private sector led development model is the best as expressed by the Ports Authority recently at a media briefing. That being the general view, it is worth examining at ground level performance. Records show that the CICT facility which is 1.2 km long and berths 18 m deep handled 2.89 million TEUs in 2019.

In the same year, SAGT with 940 m long and 15 m deep handled 2.05 million TEUs. Ports Authority’s JCT being 660 m long and 15 m deep and two shallower 12-13 m 600 m berths having 35-year-old cranes handled 2.28 million TEUs. Therefore the productivity and efficiency of JCT is very comparable with the private sector.

It is best that the Ports Authority invite proposals from local and foreign investors in a transparent manner indicating landlord side terms and conditions if it is the intention not to let Ports Authority to operate ECT.

There is reference to a Memorandum of Cooperation (MOC) signed during the last regime involving Japan and India. And it was reported that the Japanese side brought in the Indians into the equation. In addition a $ 500 million soft loan was included for completion of the ECT.

The present administration seems to have decided not to obtain any loans and in such a situation the MOC is not workable unless fresh agreement is reached to obtain the Japanese loan to the future ECT company.

On the subject of loans it is pertinent to state that unlike multibillion dollar loans taken for highway and other road projects that do not generate revenues to repay loans though bringing in economic benefits that is non-encashable.

Also there are multibillion dollar white elephant projects added to the debt burden. On the other hand all loans obtained for port development including the ADB loan for South Harbour Development (2008) are being paid by the Ports Authority. For a viable commercial development it is reasonable to take loans after examination of repayment ability of that institution.

Indian contribution to transshipment traffic

Those in the port and shipping industry know that Colombo domestic base load is small and transshipment cargo volumes is critical in order to attract main line vessels. During the past two decades transshipment containers formed 75% of total container traffic and most of that coming from the Indian Sub-Continent.

Now there is an opinion expressed that an Indian company involvement will attract business. Since Colombo has sustained its position over the past three decades, this opinion is questionable.

Statistics analysed few years back illustrated that 26% of all Indian containers formed the transshipment fraction and India had 67% direct destinations. Colombo received less than 40% of all Indian transshipment containers while the balance moved to Singapore, Malaysia and West Asian ports. Present situation with larger ships in operation requires a fresh examination.

Colombo has to realise that Indian ports like Cochin Vallarpadam and now Kerala Vizhinjam are competing to be transshipment hubs. In fact Cochin Port Trust Chairman in September 2006 announced that Cochin Port is set to give Colombo transshipment hub a run for its money. All these threats originated or were encouraged due to slow decision making and slow capacity expansion in Colombo.

Conclusion

Those in the port and shipping industry and others who wished the success of Colombo Port have repeatedly expressed concern over the delay in operation of the ECT. Lately ECT has been operating from 27 October but at low efficiency primarily due to affects from the pandemic.

Now there seems to be uncertainty hovering over the port employees about the future. It is advisable as suggested above for the Ports Authority to proceed with ECT with the blessing from the Ministry. An important and urgent step is for the Ports Authority to prepare a project proposal for ECT including financial aspects.

Assuming relief from the pandemic in the near future, capacity shortfall will become critical that would result in congestion, ship diversion and such affects as experienced during the pandemic. Hence uninterrupted operation of ECT will be crucial.
Source: Daily FT

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