PROJECT REPORT

ON

STRATEGIC LOCATION OF PORT OF COLOMBO AND PORT OF HAMBANTOTA AS

“TRANSHIPMENT HUBS FOR CONTAINER TRAFFIC”

SUBMITTED BY:

L.HIRANMAYI (1226113130)

MONIKA SRIVASTAVA(1226113134)

RAHUL SOMAN(1226113143)

RAJAT KUMAR(1226113144)

ROCKY MAHAPATRA(1226113146)

1

ABSTRACT

Improvement to the Colombo Port would be vital if Sri Lanka can advantage of its strategic

position. Port of Hambantota is planned to develop as a services and industrial port. It is one

of the lowest per capita income regions in Sri Lanka. Sri Lanka has become a key market, but

more importantly, a manufacturing hub in South Asia for automobile manufacturers. Sri

Lankas’s relations with the People’s Republic of China became stronger. China opened the

Colombo International Container Terminal(CICT), $500 million port 85% owned by a

Chinese merchant company to serve as a Hub between Singapore and Dubai.

2

CONTENTS PAGE NO

1. ABOUT SRILANKA 4

2. PORT OF COLOMBO STRATEGIC LOCATION 5

3. FINANCIAL PLAN 9

4. PORT OF HAMBANTOTA 10

5. HAMBANTOTA AND COLOMBO A TRANSHIPMENT HUB 13

6. CHINA SRI LANKA RELATIONSHIP 18

7. STRING OF PEARLS 19

8. REFERENCES 22

3

About Sri Lanka

In May 2009, the Sri Lankan military defeated the rebel Liberation Tigers of Tamil Eeelam,

ending 26 years of civil war and contributing to President Mahinda Rajapakse’s April 2010

re-election. The international outcry over the deaths of thousands of civilians in the final days

of the war has largely died down. Agriculture, apparel, and tourism are the main economic

sectors. Sri Lanka depends heavily on foreign assistance and remittances from workers,

primarily in the Middle East. China has become a significant lender for infrastructure

projects.

Open market

Sri Lanka’s average tariff rate is 5.7 percent. Government policies based on import

replacement and agricultural self-sufficiency distort trade. Investment in several sectors of the

economy is subject to government screening. The financial system, dominated by banking,

remains vulnerable to state influence. The central bank is not fully independent. High credit

costs continue to discourage more dynamic business activity.

Population:

o 20.7 million

GDP (PPP):

o $126.3 billion

o 6.4% growth

o 6.4% 5-year compound annual growth

o $6,107 per capita

Unemployment:

o 4.9%

4

Inflation (CPI):

o 7.5%

FDI Inflow:

o $775.5 million

PORT OF COLOMBO STRATEGIC LOCATION

Improvement to the Colombo Port would be vital if Sri Lanka is to take advantage of its

strategic position in the shipping lanes of world cargo movement.Salalah in the port city of

Raysut on the coast of the Arabian Sea could be a threat to the Colombo port because of its

placing at the entrance to the Persian Gulf, and could easily attract South Atlantic Shipping

transits in the Indian Ocean. The development of the port of Colombo had been in the

planning stage for many years .The plans envisaged are implemented with openness,

transparency, team work and mutual respect. It is of paramount importance that Sri Lanka

kept pace with fast moving development in the shipping industry.

New Terminal

The Ports Authority is also building another container terminal with an annual capacity to

handle 2.4 million boxes at the Colombo port. Colombo’s three other terminals had the

capacity to handle 5 million 20-foot equivalent units. China Development Bank provided a

$350 million loan to China Merchants in May 2012 for the company’s terminal, in which the

Hong Kong-based port operator holds an 85 per cent stake. State-run Sri Lanka Ports

Authority owns the balance. Sri Lanka’s port developments have helped attract $2 billion

worth related private investments.

The Asian Development Bank will promote more public-private infrastructure projects in Sri

Lanka. The ADB earlier provided a $300 million loan for the construction of breakwater

5

infrastructure for the Colombo port expansion.Sri Lanka is seeking economic growth of 7.5

percent this year, after its expansion cooled to 6.4 percent in 2012 as a faltering global

economy sapped demand for the nation’s tea and textiles. The country is experiencing a

resurgence in tourism after the nation’s armed forces defeated separatist rebels in May 2009.

Colombo Port, the major port in Sri Lanka, is a natural transhipment hub for the entire South

Asian Region. It has been operative under the Ports Authority of Sri Lanka (SLPA), a

statuary body functioning under the Ministry of Ports and Highways. As at present the port is

equipped with four terminals, namely, Jaya Container Terminal (JCT), Unity Container

Terminal, Bandaranaike Quay, Queen Elizabeth Quay and the operation arrangements are as

follows

Table 1

Terminal Name Operation Capacity (TEU –

Twenty Foot

Equivalent Units)

Jaya Container

Terminal

Sri Lanka Ports Authority 2,000,000

Unity Container

Terminal

Sri Lanka Ports Authority 300,000

Bandaranaike Quay Sri Lanka Ports Authority 200,000

Queen Elizabeth

Quay

South Asia Gateway

Terminals (Pvt) Ltd (SAGT)

1,000,000

Source: Sri Lanka Ports Authority

6

However, of late Colombo has come under various kinds of market threats due to the facts

like fundamental of shipping market changing around the world and Colombo had not been

able to adapt and also due to competition from other ports.

Therefore, in order to ascertain sustainability of Colombo Port, expansion and bringing about

modern shipping market practices to operations of Colombo Port have become mandatory.

Opportunities

Colombo Port has several natural advantages: It has a well-protected deep water harbour and

is located near the east–west trunk routes between the Asia-Pacific, Europe, and the United

States East Coast regions. It is thus the closest transhipment port to the huge, rapidly

expanding markets of the ISC (Indian Sub-Continent). For Europe-bound cargo for the east

and south segments of the ISC, using Colombo Port as a hub port is more advantageous than

using Southeast Asian ports because of the shorter distance to Colombo Port.The Colombo

Port Expansion Project provides for dredging and breakwater construction sufficient to

accommodate three terminals, which will be constructed sequentially. The Project includes

the establishment of a new marine operations centre, relocation of a submarine oil pipeline,

provision of navigational aids, and construction of shore utilities. The Project will be

developed on a public-private partnership basis (BOT). The harbour infrastructure works, i.e.,

dredging, breakwater construction, and other works, will be implemented by the Sri Lanka

Ports Authority. The first terminal started and the second terminal will be operational in 2015

respectively and constructed by operators chosen through open competitive bidding under a

build-operate-transfer concession agreement. The first concession bid will be for one

terminal. Third terminal will be operative from 2024.

Specifications for the bulk work of the construction are as follows (a, b, c, and d to be done

by the SLPA)

7

a. Dredging and reclamation (basin area of 275 ha to 18 meters with provision to

deepen to 23 meters)

b. Breakwater construction sufficient to accommodate three new terminals

(Length 6 km, depth 18 meters) (can accommodate 400 m length and beam

55m draft 16m vessels) and secondary break water (length of 1094)

c. Two way channel – depth 20m, length 7000 m and width 570m

d. Construction of shore utilities – construction of electrical power plant, water

mains and storage tanks, sewage treatment plant.

e. Private operators chosen will construct and operate as per the BOT agreement

three new terminals (length 1.2km, 62 ha each to accommodate TEU 2.4

Million totalling to 7.2 Million by 2024)

Risks

The project being a PPP itself creates a risk due to the possibility of attracting a private

investor. It has been mitigated by making provisions to select a prospective bidder even

before the SLPA completes the construction phase.

Investors and shipping lines are deterred by security factors at the inception of the project. A

delay in the consolidation of the ceasefire in the country may also have some impact on

private sector interest. However, the private sector has been interested in Colombo Port as

indicated by the implementation of the South Asia Gateway Terminal Project even before the

ceasefire. The Government has declared Colombo Port as a high-security zone and appointed

the Sri Lankan Navy as the designated authority for port security. Added to that, the three

decades over war had been ended in mid-2009, making Sri Lanka a war-free country. This

has definitely removed the security risk.

8

Delays in construction due to weather conditions could be identified as environmental risk.

However, the project planning had been done in such a way to incorporate possible adverse

weather conditions during implementation.

Financial Plan

Financing of the project will be as follows.

Source Total (US $ Million)

Public Sector Component

Asian Development Bank 300.0

Government 180.0

Subtotal 480.0

Private Sector Component

South Terminal 301.0

East Terminal 301.0

West Terminal 324.0

Subtotal 926.0

Grand Total 1406.0

A loan of $300,000,000 from the ordinary capital resources of the Asian Development Bank

(ADB) will be provided under ADB’s London inter-bank offered rate (LIBOR)-based lending

facility. The loan will have a 25-year term including a grace period of 5 years, an interest rate

determined in accordance with ADB’s LIBOR based lending facility, a commitment charge

of 0.35% per annum, and such other terms and conditions set forth in the draft loan and

project agreements.

9

SLPA’s income stream arises from royalties, lease cost, port entry dues, harbour tonnage

dues, light dues, and handling charges. This income is calculated using the forecasted

demands of the Project and the rates applicable to South Asia Gate Terminal (SAGT), a

privately operated terminal in Colombo Port.

PORT OF HAMBANTOTA

‘The right to development is an inalienable human right by virtue of which every human

person and all peoples are entitled to participate in, contribute to, and enjoy economic,

social, cultural and political development…’ UN Declaration on the Right to Development

Since the end of the war, the district of Hambantota located in the deep south of

Sri Lanka has been singled out for intensive economic development by the Government of

Sri Lanka (GoSL). The development drive has thus far included; the new Ruhunu

Magampura international port, Mattala international airport, Southern Highway and

other road infrastructure, Matara-Hambantota railway, Mahinda Rajapaksa International

cricket stadium, irrigation schemes and bridges, Siribopura Administration Complex,

Ranminithanna cinema village, Mirijjawila dry zone botanic gardens, Samodagama

wind-power plant, the largest international conference hall in South Asia, Chamal

Rajapaksa Ayurveda Hospital and Sri Lanka’s largestInvestment Zone of 2,717 acres. The

State hopes for further foreign direct investment, including the establishment of a 1000

room Shangri-La hotel. Most projects are funded through foreign loans rather than foreign

direct investment, with China leading the list of lenders..

Hambantota although having served as a commercial

hub in ancient times, is no longer a critical nucleus or indeed even located close to one. The

populationis primarily dependent on agriculture and fishing and consists of the rural poor.

Consequently the area lacks both human and financial resources to develop as an industrial

10

hub. Logical analysis fails to explain the focus on Hambantota for large scale infrastructure

development and foreign investment promotion. Hambantota does however lay claim

to being the ancestral home and electoral seat of the incumbent President and other

members of his family who are actively engaged in politics. The scale and style of

developments in Hambantota only makes sense when viewed as a long term political

investment strategywhich spans generations.

Objective and Concept

The Law & Society Trust (LST) undertook a field mission to Hambantota in November

2011 to observe the impact of mega development projects in the area. The visit was a

follow-up to a previous field mission in 2009. This report is based on the findings of

these visits and supplemented by research data. The primary objective of the 2011 field

research was toanalyse the development strategies of the State inlight of its benefits if

any, to the local population. This would include an examination of the effects of

development on living standards and livelihoods, access to basic amenities, eviction

and relocation, redress sought and received, and issues directly and indirectly related

to both relocation due to development and development projects. Both qualitative and

quantitative information through face to face interviews based on open-ended

questionnaires. It engaged with government officials from the Divisional Secretariats of

Hambantota and Sooriyawewa, the Hambantota Urban Development Authority, civil

society organisations and activists and members of local communities who were directly

and indirectly affected by state development projects.

Background

Situated in the Southeast of Sri Lanka, the district of Hambantota occupies an area of 2,609

km in size and approximately 3.97% of the 65,610 km total surface area of the

11

country. Major inland bodies of water cover just over 113 km of the district area. At

its widest, the district extends for 106 km from Ritigala in the West, to Kumana in the

East. From Hingurakanda, in the North, to Welladdoragoda, the furthest South, the

distance is 39 km. Hambantota consists of 12 Districts, 11 DS Divisions and 576

Grama Niladhari Divisions. The total population of Hambantota is approximately

571,000. Of this population, 97.1% are Sinhalese with 0.4% Tamil population and a

combined 2.5% of Moors and Malays. This is made up of 96.9% Buddhist with 2.5%

Muslim, 0.3% Hindu and 0.1% Christian population. Hambantota is therefore a

predominantly Sinhala-Buddhist area. Whilst 95.6% of the population is engaged in the

rural sector, the urban population consists of 4.1%.Interestingly though, of the total

employed population of 164,923 (43.5%), the percentage of nonagricultural / fishery

workers (58.7%) is higher than the agricultural and fishery workers (41.3%). Total

unemployment rate is 10.8% with high female unemployment at 17.4% and male

unemployment at 8.4%.Total university admissions from Hambantota for 2009/10 have

been a meagre 725 students. The highest level of unemployment prevails amongst those

with G.C.E A/L qualifications (21.6%) highlighting the lack of opportunities for skilled

work.Although a geographically rich area, poor socio-economic development and lack

of local entrepreneurship and investment capacity makes megadevelopments in Hambantota

a highly debatable state policy which is pushing the country further into debt.Economic and

Infrastructure Development in Hambantota.

Old cars to sustain a new port

The GoSL declared during the first quarter of 2012 that in order to ease long

berthing delays experienced by Roll on-Roll off vessels at the Colombo port, the Ports

Authority in consultation with shipping lines and importers has decided to route all such

vessels to the Magam Ruhunupura Mahinda Rajapaksa Port (MRMR Port) from 31 May

12

2012. This is commonly viewed as an effort to compulsorily generate revenue for the

Hambantota port. The government’s proposition to unload all importedvehicles in

Hambantota met with fierce opposition at first and is now receiving mixed reactions.

Used car dealers say they are experiencing cost effectiveness due to 20% off from the

clearance charges and free port charges up to seven days but importers of new

vehicles expect a sharp increase in costs which will ultimately be transferred to

customers.Chairman of the Ceylon Motor Traders’ Association (CMTA), Tilak

Gunasekara has stated that the 20% relief on clearance costs is applicable only toSri

Lanka Ports Authority charges and not excise duty. He has also pointed out that it is

primarily used car dealers who take longer to clear their vehicles and importers of new

vehicles usually clear them within a couple of days and therefore, the relief provided

is relatively redundant Ports Authority Chairman Priyath Bandu Wickrama stated that the

importers will be granted a 14 day relief for clearance at Hambantota port. Port charges

will not be levied for seven days and a 50% subsidy will be given for the other

seven days. (‘Mixed reactions over Port Shift’, The Nation, Attempts by relevant

authorities to divert vessels to Hambantota from Colombo, although addressing the

problem of congestion, fails to account for issues of poor infrastructure and commercial

facilities, long distance transportation and transport clearance, increased chances of

damages, and consequent increase in prices which is to be borne directly by the consumer.

Hambantota and Colombo-a transshipment hub

Sri Lanka has become a key market, but more importantly, a manufacturing hub in South

Asia for automobile manufacturers. The harbour in Hambantota will be geared to support

international and domestic sea cargo transshipment. In conjunction with the Mattala Airport

in Hambantota, the harbour will perform as an air-sea cargo transshipment hub. The Sri

Lanka Ports Authority (SLPA) reportedly deems the vast area available for parking at

13

Hambantota as an added asset for the transhipment trade. China funded construction of the

first phase of the port, costing $360 million, the second phase is expected to be concluded by

2014 and will cost an additional $750 million, “There is a drastic drop in the domestic vehicle

imports, but Hambantota automobile transshipment handling is growing steadily. Sri Lanka

was a shining jewel that attracted traders who used the silk route. Strategically located at the

center of the Indian ocean just close to the main sea route from far east and Australia to

Europe and America, Colombo is a major port of call for more than 30 main lines including

almost all the top container carriers and more than15 feeder carriers. Most of the larger

container carriers do not call the Indian, Pakistan and Bangladesh ports because they do not

have sufficient depth and adequate port facilities to handle such vessels and also they are

handicapped in other ancillary marine services vital for shipping trade. The newly expanded

Colombo Port formally opened for business today, a move that will allow Sri Lanka to regain

its role as a leading South Asia trans-shipment hub. Sri Lanka President Mahinda Rajapaksa

opened the port, which was also attended by Xiaoyu Zhao, Vice-President at the Asian

Development Bank (ADB). With a new breakwater, deeper basin, and the first of three

modern new terminals now open, Colombo Port can accept the latest generation of 18,000

20-foot equivalent units (TEU) container ships and has facilities to send goods faster and

more cost efficiently to other ports in the region. “The Colombo port is extremely well

located to serve the Indian subcontinent region. The enhanced deepwater facilities at

Colombo Port will strengthen its strategic position on the key Asia-Europe shipping route,

and would significantly boost regional trade,” said Mr. Zhao. The project was developed on a

public-private partnership basis. The ADB provided a $300 million loan for the construction

of breakwater infrastructure. With government counterpart funding of $100 million, this was

successfully completed by the public sector. The South Container Terminal, the first of three

container terminals to be accommodated on the breakwater, is being implemented with about

14

$500 million of private sector investment from the Colombo International Container

Terminals (CICT) – a joint venture established between China Merchant Holdings

International and the Sri Lanka Ports Authority. The first 400 meters of container operations

will start operations , providing additional capacity of 0.8 million TEUs per annum. The East

and West Container Terminals are currently in planning stages. When fully opened, the three

terminals will add a combined container handling capacity of 7.2 million TEUs to the

existing port operations. The expansion of Sri Lanka's Colombo port will make the island

country the largest transshipment base in South Asia, according to project lender Asian

Development Bank (ADB). The expansion project of the port involves the construction of a

new deep breakwater with a length of 5.15 km (3.2 miles), which was completed last April.

The facility is also deeper than the older one, facilitating access of larger cargo vessels that

need deeper docking berths. The port will also have two new terminals, to be built by July. A

third terminal is also to be developed and is currently in planning stages. The USD 500-

million (EUR 389.3m) Colombo Port Expansion Project (CPEP) was started in 2006 in a

drive to meet the growing demand for services in the international shipping segment. It was

jointly financed by ADB and the Sri Lanka Ports Authority (SLPA), with the bank providing

USD 300 million of the funds. After completion in 2015, the container handling capacity of

the port will be increased to 8.1 million twenty-foot equivalent units (TEUs) from 3.3 million

TEUs in 2006. Investors are attracted to Sri Lanka because of several key advantages such as

location, low operation cost and the enthusiastic and motivated labour force. Easy access to

South Asia and many other regions, the open economy and the literate labour force are

among its strategic advantages. Many foreign investors have noted that Sri Lanka's

advantages make it a strong contender to be developed as an air-sea cargo transshipment hub.

Considering this situation, the Ports and Highways Ministry took steps to declare the

Hambantota Mahinda Rajapaksa harbour as a free port. The Hambantota port named after

15

President Mahinda Rajapaksa would be established as a preferred transshipment hub for

vehicles. The China has funded construction of the port. First phase cost USD 360 million

while the second phase expected to be completed by 2014 will cost further USD 750 million.

Sri Lanka Ports Authorities (SLPA) is planning to develop a new major greenfield seaport in

Hambantota, situated on the south coast of Sri Lanka. Hambantota Port is expected to relieve

Colombo Port and is intended to support the growing demand for servicing large vessels.

Developing one of the largest ports in the region. The new seaport is planned to have a water

depth of 23 metres upon completion, meeting future demands for accommodation of mega

container ships. The entire area reserved for the port is 15 square kilometres. Situated in the

main transport corridor between Europe and Asia, SLPA envisages Hambantota Port to be

developed as a major container transhipment hub. The seaport is expected to contain a wide

variety of terminals, including a dry bulk terminal, liquid bulk terminal, break bulk terminal,

Ro-Ro terminal for vehicles and a Container transhipment terminal. The harbour basins are

located inside an existing natural lagoon and the entrance channel will be protected by the

construction of two breakwaters that will be 500-1500 metres long. 1nm away from

international shipping line . Sri Lanka is not a manufacturing country. Transhipment hub is a

place where the containers are moved from one ship to another. It connects east and west

parts of the world.

Sri Lanka has become a key market, but more importantly, a manufacturing hub in South

Asia for automobile manufacturers. He has said that initially, they are considering an

assembly line with US$ 20 million in shared investments with Micro Cars Limited. The

establishment of the factory will start in the middle of next year. The first phase is to be

completed by the end of 2014 and the first car will be rolled out in January 2015.Sri Lanka's

advantages and attractive location on the main East-West shipping route convinced them to

invest in the island. The harbour in Hambantota will be geared to support international and

16

domestic sea cargo transshipment. In conjunction with the Mattala Airport in Hambantota,

the harbour will perform as an air-sea cargo transshipment hub. The Hambantota Port has

enabled the reduction of congestion at the Colombo Port, introducing a quicker clearance

system with Sri Lanka Customs where the document processing could be done in either

Hambantota or Colombo without any delay, and promote transshipment business with a

dedicated automobile handling terminal facility at the Magam Ruhunupura Mahinda

Rajapaksa Port.[ The Dipolomat,2014]

To ease congestion at Colombo port, Sri Lanka has decided to develop the southern port of

Hambantota as a transhipment hub for vehicles. The Sri Lanka Ports Authority (SLPA)

reportedly deems the vast area available for parking at Hambantota as an added asset for the

transhipment trade. According to SLPA, congestion and delays at the main port in Colombo

had caused a fall in the transhipment business, besides triggering a rise in freight charges for

cars imported into the country. While China funded construction of the first phase of the port,

costing $360 million, the second phase is expected to be concluded by 2014 and will cost an

additional $750 million, “There is a drastic drop in the domestic vehicle imports, but

Hambantota automobile transshipment handling is growing steadily. Last year MRMRP

Hambantota handled 4,338 transshipment vehicles, but due to the decline in vehicle imports

the port handled only 3,873 transhipments during the first quarter. Due to shortage of land

availability and non-availability of a dedicated automobile terminal in the port of Colombo,

we could not promote automobile transshipment handling. However, since SLPA decided to

shift a part of the automobile carriers to Hambantota the transshipment business has picked

up gradually. This clearly proves that Hambantota would become the transshipment hub for

automobiles in the future. The prompt berthing of vessels, ample secure parking facilities

would assure speedy turnaround of vessels.[Sunday observer,2013]

17

The Colombo South Harbour (CSH) will bring in a large revenue if it attracts

transshipment business. The CSH has enormous potential to attract transshipment

business and boost the hub status of the Colombo port. The Colombo South Harbour

Development Project nearing completion will be positioned as the best

transshipment hub in the South Asia region. The harbour will focus on handling

transshipment cargo in the subcontinent. Currently the Colombo port handles

around 15 percent of transshipment cargo in the subcontinent. There should be

government policy in place to get the private sector involved in infrastructure

development projects. The private sector has a major role to play in steering

economic development. Sri Lanka currently does not have a private-public

partnership (PPP) specific legislation. Laws in Sri Lanka are sufficient to

accommodate PPPs but lack of clarity can cause confusion.

The 2020 country partnership strategy for Sri Lanka focuses on three pillars such as

inclusive and sustainable economic development, catalysing private investments and

enhancing effectiveness of public investments and human resources and knowledge

development. The ADB is mapping scientific research in areas of investment for Sri

Lanka. Focus on science and technology is not adequate.The bank is cross cutting

priorities in environment, climate change, gender, good governance and regional

cooperation.

Port of Hambantota is planned to develop as a Services and industrial port .It is one

of the lowest per capita income regions in Sri Lanka. Thus, the construction of a

Port in Hambantota will be an important catalyst for a major economic development

in Sri Lanka and further it will reduce the prevailing higher unemployment

percentage in the Hambantota region. Colombo tries to project that “the Chinese

18

interest in the Hambantota port is purely commercial.” However, the harbour is

strategically located not only for the Chinese merchant vessels and cargo carriers

sailing to and from Africa and the Middle East to make a stopover, but can also be

used by any military fleet. As part of the port, a $550 million tax-free port zone is

being started, with companies in India, China, Russia and Dubai expressing interest

in setting up shipbuilding, ship-repair and warehousing facilities in the zone. When

all phases are fully complete, it will be able to berth 33 vessels, which would make

it the biggest port in South Asia. Construction of the port began in January 2008.

And soon it will be Sri Lanka’s largest port, after the Port of Colombo. The Port of

Hambantota will service ships traveling along one of world's most busiest shipping

lines - the east-west shipping route which passes six to ten nautical miles (19 km)

south of Hambantota.

The construction of the Hambantota Port is strategically important to Sri Lanka as

the country would be in a position to handle general cargo and the repair work

speedily and concentrate on container handling at the Colombo Port. China has lent

$400 million for the first phase of the new port in Hambantota. The port is part of

Rajapaksa's push to turn Hambantota, a fishing village ravaged by the 2004 tsunami,

into one of Asia's leading commercial cities. Hambantota is set to be Sri Lanka's

biggest port once the second phase is completed. Today, this sea route is operational

with 36,000 ships passing through Sri Lanka’s southern port of Hambantota

annually, including 4,500 oil tankers. The first vessel was ceremonially berthed at

Hambantota Port on 18th November this year. A number of foreign and local

entrepreneurs have already expressed interest to invest in the business opportunities

at the port. In view of the deeper berths and location advantages at Hambantota, it

19

may be possible to attract most of the port related industries. Since the maximum

draft at Colombo is about 10m for general cargo vessels, manufactures may invest

at Hambantota to get the advantage of “economies of scale.” Hambantota is close to

the Asian and European international shipping routes - the Suez Canal and the Strait

of Malacca. These routes through Hambantota are used by about 36,000 ships,

including 4,500 oil tankers. The port saves about three days of sailing time and fuel.

It also offers advantages of ship repair, bunkering, food, medical and water supplies,

plus logistics support. It is expected to generate about 50,000 direct and indirect

jobs.

The third phase is expected to be completed by 2023. It will add a dockyard.A tax-

free zone is being set-up near to port area for shipbuilding, repairing and

warehousing, with an estimated investment of $550m.The port area will include

cement grinding, storage and bagging facilities, a fertiliser manufacturing, storage

and packaging plant, LP Gas distribution facility, a warehousing complex, a vehicle

assembling facility, flour mill, a food processing and packaging facility and other

associated import-export businesses. While China funded construction of the first

phase of the port, costing $360 million, the second phase is expected to be

concluded by 2014 and will cost an additional $750 million, “There is a drastic drop

in the domestic vehicle imports, but Hambantota automobile transshipment handling

is growing steadily. Last year MRMRP Hambantota handled 4,338 transshipment

vehicles, but due to the decline in vehicle imports the port handled only 3,873

transshipments during the first quarter. Due to shortage of land availability and non-

availability of a dedicated automobile terminal in the port of Colombo, we could not

promote automobile transshipment handling. However, since SLPA decided to shift

20

a part of the automobile carriers to Hambantota the transshipment business has

picked up gradually. This clearly proves that Hambantota would become the

transshipment hub for automobiles in the future. The prompt berthing of vessels,

ample secure parking facilities would assure speedy turnaround of vessels.[CIL TLS

blog,2013]

With such attractive concessions being afforded, it is expected that vehicle

importers will avail themselves of this facility at Hambantota. The SLPA is

vigorously campaigning to establish the MRMR Port as a preferred transhipment

hub for vehicles and attractive incentives are being afforded to shipping lines to

avail themselves of this facility too. The vast areas available for parking of vehicles

will be an added boost for the transhipment trade. The additional safety and security

precautions there will also result in towards the maximum standards of reducing

damages and pilferage. Colombo’s new deep draft terminal constructed under the

Colombo Port Expansion Project (CPEP) received its first container carrier, an

11,000 TEU Ultra Large Container Ship (ULCS) “MV CMA CGM PEGASUS”

operated by CMA CGM, the world’s third largest container group and number one

in France, on the 5th of August, 2013. Colombo International Container Terminal

(CICT), the latest addition to the Colombo port, is a 500 million dollar investment

undertaken with the help of the China to uplift the capacity and infrastructure. This

investment stands as the largest single project undertaken to date, in monetary

terms, in a port in Sri Lanka.

CHINA SRILANKA RELATIONSHIP

Sri Lanka was among the first countries to recognize the People’s Republic of

21

China. Sri Lanka’s relations with the People’s Republic of China became stronger;

since then, the two countries have regularly exchanged high-level visits resulting in

a variety of agreements. China has provided Economic, Military and Technical

assistance to Sri Lanka.

China cooperation with Sri Lanka has reached high economic points with

substantial investment from China in Sri Lankan infrastructural expansion,

including the noted project in the Sri Lankan port in Hambantota. China and Sri

Lanka also share a close military relation, with China supplying a range of modern

armaments to the Sri Lanka Armed Forces.

Sri Lanka has an enduring, multi-dimensional and deep-rooted relationship with

China. The long-standing ties of friendship between the two countries are

underpinned by mutual trust and confidence. A close identity of views and

mutuality of interest remain the hallmark of bilateral ties.The Chinese leadership

has always appreciated Sri Lanka’s steadfast support on issues of their concern.

China has always supported Sri Lanka on all issues of importance to the latter, The

Sri Lankan leadership has always appreciated China’s steadfast support on issues of

their concern.

China offered technical assistants to modernize Sri Lanka Railways. Sri Lanka

Railway modernizing work begun & China will provide latest railway engines &

power sets.

China Sri Lanka Development project – The Hambantota Development Zone, which

the China will help build, will include an International Container port, a

bunkering system, an oil refinery, an International Airport and other facilities. It is

expected to cost about US$1 billion and the China are said to be financing more

22

than 85% of the project. Construction on the first phase of the project is begun and

is due to be completed in three years. The entire project is scheduled to be

completed in the next 10 years. China Sri Lanka Cooperation on the project in

Hambantota, 240 kilometres South of the Sri Lanka capital, Colombo, into a

major transshipment hub. Hambantota Infrastructure will help service hundreds of

ships that ply the waters to the south of Sri Lanka.

In August 2013, China opened the Colombo International Container Terminal

(CTCT), a $500 million port 85% owned by a Chinese merchant company to serve

as a hub between Singapore and Dubai

STRING OF PEARLS

The Indian Ocean has 36 states around its littoral belt. In addition, nearby are eleven

surrounding states, which however landlocked, are ardently concerned in the Indian

Ocean politics and trade. Highest tonnage of the world goods, 65% of world oil, and

35% of the gas, located in the littoral states, passes through it. Presently

international relations are dominated by geo-economics and energy security is

considered the most crucial part of a country’s economic growth. Energy security is

one of the vital national security interests for both developed and developing

countries.

Issues

Transforming commercial ports into military bases by China would face severe

practical impediments. Converting commercial ports into defendable forward bases

involve high levels of technical, logistical and strategic expertise. Even with the

People's Liberation Army Navy (PLAN) increasing adeptness, the demands of this

23

enormous task would most likely go beyond China’s potential for at least an

additional decade. India is also striving for a leading role in the Indian Ocean

region, given its great power potential; it could ascend as a challenger of China over

the long term. Agreed to these dynamics, every Chinese endeavour to direct events

in India’s geographic environs would almost certainly meet with Indian counter

measures. The perceived “string of pearls” strategy in near future – can be

discounted as more fevered imagination than tangible military intimidation. Gwadar

port advantageously located near the Strait of Hormuz, represents a new economic

gateway. Gwadar port has the potential to act as a catalyst for such projects as the

trans-shipment of bulk cargo, oil storage, refinery, petrochemicals, export

processing and industrial zones, export of minerals and ship repair industry. When

fully functional, it has the potential to benefit many neighbouring and landlocked

counties in the region in one way or the other. India was quick to react, on China-

Pakistan synergy over Gwadar, calling it a matter of concern for reasons not too

difficult to understand. It seems to be an established pattern now that whatever is in

Pakistan’s interest is a matter of concern for India. Direct access to the Indian Ocean

through Gwadar would also give China a strategic post of observation and a key

location for its navy in future, whose ships recently participated in a multination

exercise in the waters south of Gwadar. China has spent the past decade attempting

to build closer diplomatic relations with numerous Indian Ocean nations. China has

signed multimillion dollar aid, trade and defence deals in capitals across the region,

while Chinese state-owned corporations have financed commercial ports in Pakistan

(Gwadar), Sri Lanka (Hambantota and Colombo), Bangladesh (Chittagong) and

Myanmar (Sittwe and Kyaukpyu).China’s “pearls” emerge to be what Beijing

24

declares they are: conventional shipping facilities designed to connect China’s

landlocked western provinces to maritime trade routes in the Indian Ocean. It is

important to emphasize that, Indian and US concerns regarding “string of pearls”

remain largely in the realm of abstract assumptions.

REFERENCES:

1. Port Strategy insight for senior port executives (2013)

.http://www.portstrategy.com/news101/lng/bunkering-in-sri-lanka

2 Sri Lanka port authority (2011)

.http://www.slpa.lk/news_events_303.asp

3 Sri Lanka port authority

.http://www.slpa.lk/news_events_148.asp

4. Hambantota, an ideal transhipment hub ( Shirajiv Sirimane),(2013)

http://www.sundayobserver.lk/2013/11/24/fea07.asp

5.Port Finance international ,(2012)

http://www.portfinanceinternational.com/features/item/232-hambantota-hub-to-be-brings-sri-lanka-and-china-closer

6.Chinese interest in hambantota(B Raman),(2010)

.http://www.c3sindia.org/southasia/1411

7.The Diplomat knowing the Asia Pacific (Jack Goodman),(2014)

http://thediplomat.com/2014/03/sri-lankas-growing-links-with-china/

8. 6.CILTSL Blog ( C. Akalanka Samarasena) ,(2013)

.http://blog.ciltsl.com/archives/2013/08/colombo-international-container-terminal/

9‘Chinese loans for Mattala airport and for upgradingrailway network’, Media Center for national Development of Sri Lanka,

http://www.development.lk/news.php?news=573

25

10.‘Mattala airport to be ready by end 2012’, Sunday Observer, 22 July 2012,

http://www.sundayobserver.lk/2012/07/22/fea12.asp

11.‘Hambantota rock blasted’ The Daily Mirror, 31.11.2011 http://www.dailymirror.lk/news/15142-hambantotarock-blasted.html

12.’Sri Lanka to receive over US$ 1 billion loans from China for two infrastructure projects in the South’,Colombo Page, 24 August 2012, http://www.colombopage.com/archive_12A/Aug24_1345749477CH.php

13.‘Development projects to expand ports’, Sunday Observer, 20 May 2012,

http://www.sundayobserver.lk/2012/05/20/fea05.asp

14.srilankan economy (2014)

http://www.heritage.org/index/country/srilanka

26