By Kapila Bandara in The Sunday Times, Apr 30, 2023
Sri Lanka has granted sole and exclusive rights to the Chinese state enterprise China Merchants Port Holdings Company for a logistics centre in the Port of Colombo for 50 years.
The public-private venture on build, operate, and transfer (BOT) terms, involves Sri Lanka Ports Authority (SLPA), and civil engineers Access Engineering Plc as minority shareholders.
SLPA is not allowed under the BOT agreement, “to grant any third party the right to carry out port-related logistics or warehousing services at the Port of Colombo at a rate lower than the royalty fees payable by the project company”, filings by China Merchants Port show.
China Merchants Port has set up a fully-owned subsidiary, Fortune Centre Group Limited (FCGL) to build and run the ‘South Asia Commercial and Logistics Hub’. FCGL, a private limited liability company incorporated in the British Virgin Islands, gets the rights to name the chairman, managing director/chief executive officer, and appoint five directors, to the project company, ‘South Asia Commercial and Logistics Hub Limited’, while Access Engineering and SLPA can name one director each.
According to the shareholder agreement, FCGL will commit US$ 58.8 million cash to the Sri Lanka incorporated ‘South Asia Commercial and Logistics Hub Limited’, which will have an issued share capital of US$ 84m, China Merchants Port filings show.
China Merchants Port also owns 85% of the Colombo International Container Terminal (CICT) of the Port of Colombo. SLPA has a 15% interest in CICT. According to China Merchants Group’s annual filings for 2022, CICT handled 3.2 million containers. The group also notes a 10.44 million yuan (Rs 465m) dividend payable to SLPA.
The proposed at least five-story logistics centre will cost US$ 392 million (Rs 126.2 billion) and the cost includes the deposit, royalty fees and guarantee payable under the BOT agreement. Royalties are based on the minimum logistics throughput during the 50-year term. ‘South Asia Commercial and Logistics Hub Limited’ must pay SLPA a lump sum of US$14m in royalties no later than 90 days from the day when all conditions of the BOT agreement are met.
The cost considers the value of existing assets, the lease area and construction and development as well as expected revenue and other income the China Merchants Group may get from the logistics centre.
Also, US$ 126m must be deposited to a bank account in Sri Lanka within 60 days of the letter of intent, accepted by China Merchants Port on April 21, 2023.
‘South Asia Commercial and Logistics Hub Limited’ is required to give a US$ 4.5 million guarantee produced by a bank in Sri Lanka to SLPA once all conditions under the BOT agreement are met. “The guarantee ends on completion of all development-related obligations and shall be replaced with a demand letter of guarantee in the amount of US$ 7.5m which shall remain valid for the remaining term of the BOT agreement.”
At the end of 50 years, ‘South Asia Commercial and Logistics Hub Limited,’ “shall hand back” the leased site and transfer all assets of the logistics centre to SLPA”.
China Merchants Port says the logistics complex will allow it to gain a greater market share of South Asian ports and increase its influence in the region. A statement said it is “a giant leap forward’’.
Ports, Shipping, and Aviation Minister Nimal Siripala Silva said at the event announcing the venture, it was a “highly important turning point”.
The Minister said SLPA was providing the land and that rental (kuliya) was based on Government valuer’s estimate. He also said SLPA would receive about 15% of the logistic centre’s profit. But, such a term was not mentioned in the filings. The site agreement is to be signed. Not all conditions are disclosed.
FCGL signed the shareholders agreement with Access Engineering and SLPA, on April 21, 2023. FCGL will contribute US$ 58.8m cash (70% of the issued share capital of US$ 84m) to ‘South Asia Commercial and Logistics Hub Limited’, Access Engineering will contribute US$ 12.6m cash (15%), and SLPA will commit US$ 12.6m (15%).
Access Engineering, has among its top 20 shareholders, the Employees Provident Fund which holds 2.048%, while Sri Lanka Insurance Corporation Limited — Life Fund holds 0.361%.
The company is heavily involved in Government projects such as Kohuwala and Getambe flyovers funded by Hungary, the Kompanna Veediya (Slave Island) flyover, the 452-unit Bloemendhal housing project and the 1,000-unit Stadiumgama. It built the Mannar wind power project and Mirigama-Riloluwa part of the central expressway.
It is also building the East Container Terminal of the Port of Colombo with another Chinese state company, China Harbour Engineering Company. CHEC JV (Private) Limited is 51% owned by Access Engineering. China Harbour Engineering, a part of China Communications Construction Company owns the Port City Colombo real estate venture and Port of Hambantota.
SLPA’s 2021 annual report shows that it booked as net profit, lease rent of Rs. 12.91bn from 2016 to 2021, from South Asia Gateway Terminal, and Colombo International Container Terminal, and royalties of Rs. 19.58bn. In 2021, royalties from CICT were Rs 174.077m.
https://www.sundaytimes.lk/230430/news/sri-lanka-gives-chinese-company-50-year-exclusivity-for-port-logistics-venture-518549.html
