Sri Lanka’s state-run ports authority will seek a higher royalty from the sole bidder to operate a terminal at Colombo, while keeping open other options including re-tendering, an official said.

The bid to build and operate a container terminal at an extension to Sri Lanka’s main port is half the value of the cancelled first round, according to two sources.

Colombo-listed Aitken Spence and Hong Kong-listed China Merchant Holdings bid to build and operate the terminal were around half the value offered by bidders in a cancelled first round, according to two sources.

A Cabinet appointed negotiating committee (CANC), a 10 member body, will seek higher royalties.

"We are going to prepare a proposal and going to say this is the minimum," said an official involved in the deal.

"The rate (royalty offered) is very low; we have a huge investment from ADB (Asian Development Bank) which we have to repay."

The ADB, a regional lender, is financing a 300 million dollar breakwater which will protect ships from storms and tides and the deepening the water to allow large container ships to enter.

The sole bid has guaranteed a minimum 125 million dollars (at today’s value) over the concession’s 35-year life.

Royalty Flow

Government earnings are based on a royalty for every container handled subject to a minimum volume.

"We have to repay 300 million dollars to ADB and the income we are offered is not enough (125 million dollars)," the official said.

Aitken Spence and China Merchant are said to have offered 2.25 dollars for a container.

This compares to 3.0 dollars offered by South Asia Gateway Terminals, another privately owned terminal in Colombo, when it commenced operations in 1999, officials say.

Bidders in the abandoned first round had offered as much as 5.0 dollars a container, going up to 15 dollars in 20 years.

SAGT runs a 1.8 million 20 twenty foot container handling (TEU) a year, built inside the old Colombo port, which did not require additional investment from the state.

The proposed 2.5 million annual TEU terminal, is the first of three such facilities to be built at the expanded port.

Parakrama Dissanayake from Aitken Spence Holdings declined to comment about possible bid enhancement negotiations.

Spence together with Port of Singapore Authority (PSA), their earlier partners, were ‘preferred bidders’ in the cancelled first round when the net present value (NPV) of the future cash flows to government was 195 million dollars. In subsequent negotiations they upped this to 250 million dollars to fend off a rival bid from Hong Kong’s Hutchinson Port Holdings.

That tender was subsequently cancelled amid some controversy. The ADB de-linked the port construction loan form the container terminal tender so that breakwater construction could progress.

An official says re-bidding is an option. But re-tendering is time consuming and will need ADB clearance. The lender has already granted one extension.

"Another option we are considering if we can get ADB to agree for the SLPA (government port operator) to build this," the official said.

"Of course the current guidelines don’t allow this but they (ADB) will have to consider the loan repayment."

The Sri Lanka Ports Authority (SLPA) already operates JCT, the island’s first container handling facility, built with Japanese aid more than two decades ago. –(LBO)

He did not say how the SLPA will fund the estimated 500 million capital cost.

SLPA will however automatically get a 15 percent stake in the new terminal if a private operator is allowed to build it.

This means the port, as part owner, will also get a profit share and a dividend as well.

The negotiations committee is due to meet on 17 August.

Competition for the concession to build the new terminal fizzled out following the global financial crisis and falling trade volumes hitting both shipping lines and port operators.