New Laws for Port City – Malik Samarawickrama
By Ravi Ladduwahetty
Minister of Development Strategies and International Trade, Malik Samarawickrama, in an interview with Ceylon Today said new laws will be passed to cover the economic criteria such as exchange rates at the Colombo Port City, but when it comes to criminal offences, the general law will be applied. He also said the Port City will have desalination plants and renewable energy in case of a shortfall in water and power and that there will be no geopolitical conflicts.
"Government inherited a whopping US$ 64 billion debt from the previous regime. China was the best deal for the Hambantota Port. The process is totally transparent and not under a cloak of secrecy," he added.
?: The government has expressed willingness to convert the Port City into a financial city. Do you think that the necessary regulations are in place to implement the project?
A: The legal regulations are in place now. We have consulted firms in the UK and the USA to set up the legal framework, which will be based on British laws. We have also studied the similar systems which have been operated in Singapore, Dubai, Abu Dhabi and Malaysia.
?: Don't you think that the building a financial city would have serious geopolitical consequences with India?
A: Not really. We are also targeting Indian business houses to invest in Sri Lanka and we are very confident. Now, there are some large Indian businesses investing in Mauritius. They will find Sri Lanka much closer and even better investment conditions. They will also realize that Colombo is only a few hours from New Delhi, two hours from Bombay and 45 minutes to an hour from Chennai. We are also looking at investors from Hong Kong due to the changed situation there.
?: Will a separate law be applicable to the financial city? If so, wouldn't it be a threat to sovereignty?
A: There will certainly be a separate law for the Port City. But it will be based on the British law with amendments to suit the country.
?: So, how can you firmly assure that in a spirit of transparency?
A: It will be based only on commercial laws which will be applicable only to the Port City region and will not be a threat to the sovereignty of the country.
?: What kind of an authority will the Sri Lankan Government have over the Port City? What would be the limit of intervention?
A: There will be separate laws for the Port City region. But, that will be only of an economical nature and applicable to aspects like exchange rates and issues related to that. But the law of the country will apply in criminal cases.
? What are the steps taken to minimize the adverse impact of the construction of the Port City?
A: This is one of the aspects that we objected to at the beginning. But, we have ensured that all the environmental regulations of the Central Environment Authority (CEA) are followed to the letter.
We also told China Harbour Engineering (CHE) that the environmental regulations have to be followed to the core. There were some errors in the laws that the previous government had been violating and they have been corrected. Now the land is on a 99-year-old lease and not on a freehold basis and all the amendments has been put in place to carry on with the project.
?: So, what is your estimation of the time frame for the completion of the project?
A: The project will see that the land filling is completed in two years. The rest of it will be completed in another five years. The construction will have to start after the land filling is completed.
?: One major concern is the supply of water and electricity to the project which will be in large proportions.
A: That will not be a problem at all. We have coordinated the matter with the National Water Supply and Drainage Board (NWSDB) and the Ceylon Electricity Board (CEB). We are very confident that the supply of both could be met. However, in a bad situation, if there is a shortage, we could rely on renewable energy to supply the power and we also have the option to get desalination plants to supply the water.
?: Will the sand mining for the project leave huge impacts on the Gampaha District?
A: That issue also has been solved because the sand mining will be done just 10 kilometres from the shore. There is no issue there. The Ministry of Megapolis Development has also spoken to the fishermen of the Negombo area and those related issues have now been solved.
?: You and Minister of Special Assignments Dr. Sarath Amunugama were the signatories to the Joint Cabinet Memorandum for the Hambantota Port which is widely perceived as done in cloaks of secrecy. Even your State Minister of International Trade, Sujeewa Senasinghe in an interview with Ceylon Today published on Christmas Day last year, was unable to answer most of the key questions saying that the Minister knows best. Why?
A: This was certainly not done under cloaks of secrecy. The Cabinet was aware and the Cabinet Subcommittee on Economic Affairs was also aware of the discussions. I don't know whether Arjuna has really said this but he was present at both meetings and he knew what was going on. We had to rush this decision as we had inherited a total debt of US $64 billion from the previous government.
The Governor of the Central Bank told us that there were debts which had to be settled and around US $3 billion were needed to settle loans per year as a start. Those were the power dynamics! We did not want to pass on these debts to the next generations.
Therefore, our leaders, both President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe and a few other Ministers, decided to take some immediate decisions with regard to the loans owed to China that had been taken by the previous government. The Chinese Government suggested that we talk to two of their State owned enterprises, which are China Harbour Engineering that built the Hambantota Port and China Merchant Engineering which was rated as the best port operator in the world last year.
So, we formed a three-member committee comprising Secretaries to the Ministry of Strategic Development and International Trade- Chandani Wijayawardhana, Finance- Dr. R.H.S. Samaratunga and Ports and Shipping- L. M. Jayampathi.
They evaluated the proposal and concluded that China Merchant Engineering was the best at US $1.4 billion while China Harbour Engineering offered US $1.1 billion, which was US $300 million less, despite being aware that they had already spent US $1.3 billion on the construction. So, naturally the Secretaries Committee proposed that the contract be given to China Merchant Engineering.
?: Even Ports Minister Arjuna Ranatunga says that he was kept in the dark. Why?
A: I do not know whether he has actually said that he was not informed. He cannot plead ignorance as he was present at both the Cabinet meetings and the Cabinet Committee on Economic Affairs.
?: Will the money be used to write off all the debts taken to build the Port or for some other purpose?
A: The Central Bank Governor Dr. Indrajit Coomaraswamy told us that some of the immediate loans which have very high interests will have to be settled at the earliest. So, we will be using around US $400 million to settle some of these loans out of the US $1.1 billion which we got from the CME. We will see how best we could utilize the remainder.
?: Why didn't the government pay heed to the advice of the SLPA Project Committee that was totally opposed to it?
A: That allegation is also wrong. The project committee would have made their recommendations to the Cabinet appointed Committee of the three Ministry Secretaries. They were also aware of the dire straits that the economy was in.
We could not have taken populist decisions as we were walking on an economic tight rope. We had to take very rational decisions due to the dire economic situation that the country is in.
?: Why was Minister Arjuna Ranatunga totally opposed to this?
A: That is also wrong. He was also present at the Cabinet Meetings and he did not voice any dissent in that regard. He also naturally wanted the best deals for the ports of Sri Lanka. We are still negotiating the agreement with the Chinese.
We will get the best for Sri Lanka. The Chinese have already agreed to pay the Sri Lanka Ports Authority for the land which has been offered to them on a 99-year-old lease, in addition to the US $1.1 billion that they have already paid for the 80 per cent stake of the company which is valued at US 1.4 billion.
?: So, how much will the SLPA earn from the lease rentals?
A: The total land extent of that area is around 1,200 acres. The Chief Government Valuer will assess the value of the land and inform us and the Chinese will have to pay that rate for the lease of the land as well. We have to realize that this was the best deal that we got under the circumstances and also at a time when the global shipping industry and the global trade has plummeted. We might even extend the lease.
?: The Chinese company which submitted the winning bid said they were given just an hour to decide to own 80 per cent of the stake of the joint venture company, which was earlier at a mere 65 per cent. Why did the government give them such a limited time?
A: These are the terms that they offered. One company offered to buy 65 per cent of the company for US $7.3 million and the other offered US $ 1.1 billion for 80 per cent of the stake.
?: But the biggest allegation was that there were no international bids called for the Hambantota Port and the Government negotiated only with the Chinese. Why?
A: The heart of the matter is that the original loans were taken from the Government of China and EXIM Bank. So, the Chinese Government wanted us to talk to these companies – China Harbour Engineering and China Merchant Engineering and they agreed to develop the Port while taking over the debt.
That is the real reason behind the debt equity swap. The shipping industry is going through a recession. A multinational Korean shipping company named Hanjing closed down. Three Japanese companies have merged to meet the recession. So, we have got the best deal.
?: But the real reason the Chinese looked at the Hambantota Port was not out of real affection for Sri Lanka, but considering the strategic regional geopolitical location that Hambantota has to China's meat exports to Africa through ports of Durban and Johannesburg?
A: This could well be. There would be various synergies which will develop when this project is completed. It is not only to Africa, but also to Europe.
?: It is also alleged that there was a conflict of interests. Some of the members of the Project Committee are also members of the Cabinet Appointed Negotiations Committee (CANC). Don't you think this is unprecedented?
A: No. The CANC members were the three Ministry Secretaries while the project committee comprised members of the SLPA.
?: The government was emitting mixed signals. You said no privatization, but now you talk of restructuring, which is believed to be a euphemism for privatization. Is this the start of privatizing resources?
A: No. We are looking at Public- Private Partnerships. That is the way forward as the Government is bankrupt.
? OK. You went to China because the original loan was from China. But if an American or Japanese investor offered better terms would you not have taken that?
A: We could have. But, the framework agreement has also been signed. I am confident that this is the best deal we could have got. Running a port alone could not reap real profits. We have to have other industries, power plants and other operations as well.
? Then what about an oil refinery?
A: Yes. That is also true. Refineries, dockyards, manufacturing units and others have to be there to make it viable.
(Picture by Gemunu Wellage)
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