Hambantota Port: White Elephant? Probably Not!



GODAKANDA ARACHCHI Australia Member of the Company of Master Mariners Sri Lanka.

The Port of Hambantota leased out in December 2017 to a company set up by China Merchants Port Holding Company (CMPHC) for a reported lease value of USD 1.12 billion for a"99 years lease". China Merchant Port Holding owning eighty five per cent of the company whilst it appears that SLPA, though not confirmed, holds the remaining share of fifteen per cent. Key words in the aforesaid deal are "99-year lease" and 85 per cent share; this means Chinese outfit has nearly full control of the port in terms of making all important decisions for the next 99 years.

Transshipment container business in the Port of Colombo has come a long way though it had a humble beginning with no gantry cranes available to handle containers in 1983, when Colombo initially commenced handling container ships. The Port of Colombo even withstood the global financial crisis, and has been growing ever since it commenced container operations. The Port’s geographical location in relation to the East West shipping route has been to our advantage, particularly during the global financial crisis, as ship owners trying all the time to save every dollar they possibly can, and diversion to another hub port in the region costing them extra.

As the global economic downturn is likely to come to an end in the future, it is quite possible the shipping industry too would come in from the cold with more future demand for shipping and transshipment business. The South Port, the new Port of Colombo having a land area of 285 hectares, is bigger than the old port (not a very deep port compared to new port); however it is likely even the South Port would run out of space in the future. With the Port City coming up South of South Port, the only available sea space for reclamation is North of Colombo port, which might not be possible due to further impact on environment, aquatic resources and fisheries etc.

It is interesting to note that the Hambantota Port has the potential to expand the port outward by constructing a closed loop breakwater, then a dredging channel etc and reclaiming. Hambantota being closer to East-West Shipping route than Colombo has a bigger advantage. Further advantages Hambantota has over Colombo are availability of a vast extent of land for development of lengthy wharfs, container transshipment and storage yards, crude oil import and product export wharves for a mega refinery (refinery in the outskirts of port), space for industry development etc again closer to the port. This is the ideal scenario for a new port with spending capacity, for a variety of businesses. Hambantota probably will be the planned port for the next fifty years and beyond.

A few refineries in Australia have closed down during the past decade due to high production cost; it appears it is far cheaper to import products for the domestic market than refining in Australia. That may well be the case in some other developed countries, too. Once the Hambantota port is developed, it will have the capacity to build a crude oil unloading facility for a mega refinery (then exporting petroleum products). Trincomalee being a natural deep harbour too, is suitable for a mega refinery; however due to the fact that much of the shipping activities and traffic will be happening in Hambantota and Colombo, Hambantota is the choice out of two ports, when considering the economics of bunkering business as well. Another interesting point to note is Hambantota is somewhat sheltered from monsoonal winds South West and North East, which becomes an advantage for berthing of ships, also any emission from industries less likely to move further inland.

Much has been spoken and published in the media about World War 2 (WW2) Trincomalee oil tanks, the latest reports informing us that the government is not able to maintain the tanks, and hence they are likely to be up for sale. Have those tanks ever been maintained post WW2? Those oil tanks built in early 1940s are nearly 75 years old, could have been corroding and the wall thickness would have drastically reduced making the tanks unusable. Technology used back in that era is very much different to tanks built today, without any support and structural controls (driving piles to hard ground for tank base) for ground movement etc. Therefore, it is very much likely that Trincomalee tanks probably are unusable even if repairs are done to tank walls and roof. However, the tanks in a deep natural harbour strategically located are priceless; investors no doubt are not looking for the tanks but for the deep natural harbour and the location. Irrespective of where the second refinery is located it would also secure Sri Lanka’s energy to a certain extent, provided contracts are signed thoughtfully.

It is highly likely that LNG (natural gas) will be the fuel of future in shipping as well as in other industries too, due to natural gas being a much cleaner fuel relatively. Hence there would be a demand for LNG from other ports too in the sub continent. Natural gas when cooled down to negative 161 Celsius converts to LNG; six hundred cubic meters of natural gas will make only one cubic meter of LNG. Therefore, any LNG terminal should be located well away from populous areas due inherent expansion and flammable characteristics. Hambantota then becomes the ideal location for LNG discharging and loading facility too, with a future LNG trans-shipment hub (import and export LNG to remote areas in sub continent etc.).

Energy sector in Sri Lanka has been having somewhat of a tug of war with a lot of argy- bargy among various interested groups in the recent past as to the type of power plants to be built, Coal or LNG. The fact at Sri Lanka is a small island, exposed to strong South West and North East Monsoons, will cause severe inland pollution if coal continues to be the fuel source, particularly as millions of tonnes of coal ash accumulating over the years for want of storing places; hence, hopefully sanity will prevail and those who call shots will opt for LNG as the fuel source.

The shipping industry is a big polluter of the planet as it burns heavy fuel oil and as stringent regulations come into force to reduce the impact on the environment by the shipping industry it is inevitable that future ships will be using much cleaner natural gas as the fuel. Hambantota will then be an ideal location for future LNG bunkering as well. Boil off gas does occur during LNG discharging. There are two options to save boil off gas, having a small LNG plant to covert boil off gas back to LNG which is an expensive operation or to utilize boil off gas somewhere as fuel gas without sending up the flare stack. A Natural Gas power plant then becomes the economically viable option to run alongside a future LNG terminal. Once Hambantota is established with aforesaid industries and businesses, it will no doubt see other industries following in the area. It will be boom time for Hambantota district in the years to come.

With two major container trans-shipment ports within 250 km of each other, it is important to have a motorway access between ports of Colombo and Hambantota in future for mutual benefit of both ports in the context of container trans-shipment business as well as for other shipping associated traffic. Therefore, the motorways from Colombo to Matara, and the proposed extension from Matara to Hambantota, are vital to link the two ports.

The CMPHC probably got the spending power for port development and it will be interesting to see whether or not SLPA (or any other party holding fifteen per cent) would be able to keep up to retain its share holding when dollars are spent for development. The Hambantota Port, post handover to the Chinese outfit, now has a huge potential, and no doubt will be in competition with Port of Colombo in the coming years. In fact, it will be interesting and somewhat concerning times for Port of Colombo for the next 99 years. The Hambantota Port would probably be a gold mine by 2035.




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