Hambantota Agreement Palpably one-sided

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By 2017-04-20

By Prof. G.L. Peiris

GIST OF REPRESENTATIONS BEFORE THE COMMISSION ON INTERNATIONAL TRADE AND INVESTMENT C0-CHAIRED BY FORMER VICE CHANCELLOR PROF. W.D. LAKSHMAN AND FORMER ATTORNEY GENERAL PALITHA FERNANDO PC.

The alienation of national assets should be contemplated with the greatest reluctance and in all cases as the last resort. Every other avenue should first be explored to manage and deploy these assets as a viable commercial venture in the national interest.
There is every prospect of developing the Hambantota Port as a profitable enterprise by 2020, by adopting a comprehensive strategy.

The previous government ensured that investors would be required to pay a minimum of US dollars 50,000 as lease rent per hectare per year, with a 3% increase each year.

Raw materials

Companies had to pay for export of their finished goods, as well as for the raw materials imported through the port.
There was a payment levied for each container.
Additionally, investors were required to bring in US dollars 1,100 million.
Bunkering was to be developed as a lucrative enterprise, and royalty payments were also to be levied.
In any event, no provision detrimental to the sovereignty of the country should be included in an agreement with a foreign country or company.

Personnel and cargo

Decisions relating to admission of vessels and security of ships, personnel and cargo within a port should always be within the competence of the Sri Lankan State.
The right of the State to make decisions with regard to the economic development of the country, should in no way be compromised or diminished.

The clause in the proposed Hambantota Port Agreement, preventing the Ports Authority of Sri Lanka from establishing a terminal within a 100 kilometre radius, until the Hambantota port accomplishes 50 per cent of its total capacity, is unacceptable.
Valuation of the asset must be done scientifically, in keeping with proper criteria, in an entirely transparent manner.

Valuation

In the case of Hambantota Port, the valuation is based solely on construction cost, and leaves out of account the land value and commercial value. The result is a horrendous distortion.
At the point of acquisition of shares by the Chinese company, there is no valuation by reference to international standards, but when the shares are transferred to a Sri Lankan company within ten years, payment by the latter has to be on an international evaluation. This is a double standard, very much to our detriment.

The proportion of shares has to be carefully considered, with the national interest in focus.
Our agreement with China Harbour was on the basis of 65% shares for SLPA, and 35% for the Chinese company. The proposed agreement with China Merchant envisages 80% for the Chinese company, and only 20% for SLPA.

Investments

In fact, the transaction is even more adverse. SLPA is required to make investments pro rata, when the Chinese company incurs expenditure for expansion and development of the port. If SLPA is unable to do this, the share percentage for the Chinese company increases, while the SLPA percentage of shares is reduced.
The estimated cost of the 3rd Phase of development of Hambantota Port is 2,000 million U.S. dollars. The 1/5 share of SLPA, then, is 400 million U.S. dollars. This sum is clearly not within the means of SLPA. The result is that the share distribution will be about 90% for the foreign company, and 10% for SLPA.

The land to be leased out within the port is grossly undervalued.
There are 2, 000 hectares within the Hambantota port. Five-hundred hectares are to be leased out.
If the foreign company pays upfront, it secures a lease of 500 hectares (approximately 1, 200 acres) for 99 years for Rs 12, 100 million.

Private sector

When tenders were called for a lease of six acres within the Port of Colombo, the private sector offered Rs 60,000 million for the leasing of 6 acres for a period of 33 years. The disparity is glaring.
An international trade agreement must necessarily be governed by the principles of mutuality and reciprocity.
The proposed Hambantota Agreement is palpably one-sided, with the foreign company acquiring all the assets but taking on none of the liabilities.

The principle of employment security is of crucial importance.
The workers in Hambantota Port have no assurance of continuity of their employment. The contractual stipulations confer on the foreign company the discretion to make decisions in this regard.
There must be a clear assurance of financial viability.

Dividend

The effect of the proposed Hambantota agreement is that there will be no income accruing to the SLPA at all for 15 years; and, even after that period, an income will be forthcoming only if the Chinese company declares a dividend.
However, in the meantime, the debt to the Chinese continues, and will have to be serviced. There is no debt-equity swap. The government has admitted that the funds received from the Chinese company will not be utilized to retire the debt, but will be credited to the Central Bank and used for other expenses. This means that the public will be burdened with further taxes to generate the funds required to settle the continuing debt, with interest.

The issue of legal competence (or vires) is paramount.
There is a written Legal Opinion by the previous Attorney-General, the Hon. Palitha Fernando, PC, to the effect that the SLPA is not legally competent to be a signatory to an agreement of this nature, without an appropriate amendment to the SLPA Act. All statutory authorities must act strictly within the limits of their powers.

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