Apr 06, 2017

Comparison of SOT and CM Port agreement

The then government signed a Supply Operate and Transfer (SOT) management contract with a joint venture between China Harbour Co. and China Merchant Co in 2014 to supply the equipment such as cranes other terminal handling equipment and operate the Hambantota container terminal for 40 years. The Ports Authority was to receive a rental of 35,000 USD (Rupees Million 5.25) per hectare, per year for the 56 hectares in the container terminal (a total of 1.96 million USD per year), a royalty of 2.5 USD on every container loaded or unloaded, warfrage of 30 USD per container for cargo coming into Sri Lanka and all other usual harbour charges for navigation, piloting, tonnage, etc. Other than the container terminal, all other terminals in the harbour and around 1300 hectare industrial zone was to be controlled by the Ports Authority and they would have derived the income from the cargo of the free port passing through their terminals.

A proposed agreement to be signed with the govt. and China Merchant Co to lease out the entire free port for 99 years for a payment of 1.12 billion USD on 80:20 profit sharing basis. No other income will accrue to the Ports Authority for 15 years, after which they will receive dividends for their 20% stake only if dividends are declared. There is provision for the construction of another 20+ berths and the rights over these too have been given to the lessee without considering future market values of those two terminals and the potential revenue options.

In this proposed concession agreement, there are many closes detrimental to the port and also to the country in general. Also, under the development and operation rights of this agreement their going to get all the functions currently handled by the Ports Authority, including Piloting, navigation and security of the port challenging souring rights of the county. This cannot be done without amending the act.

Even though they say this is a lease, they don’t get the rights of the land, but according to the clause 30.1 of the agreement (“the right, title and interest as applicable in and to the port property including the portions constructed by the PPP operator shall at all times during the term of this agreement, be with the PPP operator”) rights of the title of the land will be given to the CM port which is contradict with what the Government say.

Close no 3.4 of the previous draft agreement which says “in the event the PPP operator need any further funds then, subject to the provisions of the shareholder agreement the aforementioned shareholding pattern may be changed /diluted based on the further capital contribution by the shareholders of the PPP operator, as the case may be.” But in the latest version of the agreement, clause No 3.5 says “in the event the PPP operator need any further funds then, subject to the provisions of the shareholder agreement such additional funds shall be contributed by the respective shareholders in proportions corresponding to their shareholding of the PPP operator, at the time of the required investment”. Even though this latest clause does not mention anything about a change or diluting shareholding, it does not say what happens if the port does not have money to invest in any additional fund requirement for future development

In this agreement, during first 10 years, China Merchant port is willing to offer additional 20% shares to Sri Lankan investor but, when they transfer it after first six months of signing of the agreement, they must get international valuars valuation to value the shareholdings. But when government is selling the Hambantota port to CM port, they have not even taken government valuation for the overall infrastructure, land and the commercial value of the infrastructure. This is a violation of internationally accepted share transferring norms and regulations.