With the Vallarpadam International Container Transhipment Terminal in Cochin, Kerala, scheduled to be launched in January 2010 the situation becomes more unnerving for the Colombo Port. 

The debate in Colombo still continues as to what the Sri Lanka Ports Authority (SLPA) will do for the future of its Colombo port while the sword of Damocles hangs over. By March 2010, the Cochin terminal is likely to go full stream, handling 42 million tonnes of cargo. The project is being developed by Dubai Port World in two phases with the first phase ready for launch while Phase II would commence immediately after the launch of the terminal.  An Indian news portal Cochin Square says "This would help the trade reduce the need to tranship their containers through ports like Colombo, Singapore or Salalah."

A present a very, very large part of the cargo handled by the Colombo Port is transhipment for India, and the SLPA spends its time debating what they should do for the South Harbour expansion in Colombo whilst all the time, the Colombo Port is nearing capacity.  

Shipping sources say that even with the development of the southern Indian port, Colombo can still stay ahead, if we can keep attractive enough for the world’s biggest ships (super post panamax) especially considering that Sri Lanka still has an edge when it comes to facilities and expertise. However, if we run out of capacity then these super post panamax will have no option but to go to India.

Expansion plans for Colombo are almost on hold as the bureaucracy within the Port of Colombo is trying to figure out the best formula to be employed for the next terminal to be built to increase the port’s capacity.  The big question is whether to give or not to give the contract to the consortium of Aitken Spence/China Merchant Holdings (CMH), the sole bidder at the recently floated tender. 

Understandably, SLPA officials are in a quandary as they weigh the future against the present, since the bid price was far below any expected amounts.  Can we trade the future for the present?  Trading means accepting a low bid and forgoing any opportunity to raise benchmark prices and charges in the future.  If a low royalty is accepted now, future tenders for the East and West terminals will be based on the accepted benchmark.   Trading also means accepting a low figure and having to live with future loan repayments for loans totalling 500 million US dollars.  The issue is not just about the South Terminal.  It is also the future viability of Colombo.  Awarding the South Terminal will destroy the long term economics of the Port of Colombo as it sets a low benchmark for royalty payments.  We must not trade our present for a future we know is not tenable.

There has been discussion since the tender closed in August 2009.   Some thoughts have been expressed and questions have been raised as to whether the SLPA should take up the project and move forward.  Discussion and debate is good and indeed justified as this is about the long term interest of the nation.  But, it is time to make bold and visionary decisions.  The SLPA should not be held to ransom.  It is time the Government of Sri Lanka and the SLPA made a decision to move forward to build on their own.  The project cost of building the terminal is approximately US$300 million. 

One of the sources of funding could come from the disposal of SLPA’s shareholdings in South Asia Gateway Terminals (SAGT).  The government could still retain a sovereign share in order to exercise its voice on matters of critical importance

Understandably, there is the agreement with the funding parties that the construction of the terminal is required to be undertaken by the private sector.  However, the parties are all in the same boat.  We sink or float together. If the tender being awarded to a private party would result in a situation where the money is not even enough to pay the ADB loan, the situation calls for flexibility.  A solution then needs to be found for this issue.

As reported and suggested by some officials, the SLPA can itself take the lead and form a special purpose vehicle (SPV) to terminal project.  This SPV could be used to source the required funding and take on negotiation with contractors for the construction of the terminal. International shipping lines and terminal operators should be invited to participate in the project to spread the managed risks of construction.

The world economy is back on track towards recovery.  In approximately two years time – also the length of time needed to construct the terminal, the world economy is slated be in good shape.  If and when the terminal is completed in two years’ time, it would be well in time for the SLPA to invite tenders to equip and operate it.  The economics of the project and value added initiatives of the SLPA can only bring economic gain to Sri Lanka and help us stay a step ahead of the competition which is looming.