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East Container Terminal blunder: Learn from

Chinese

Tuesday, 18 September 2018

Minister for Ports and Shipping Mahinda Samarasinghe informed the press in
August that Cabinet has approved the development of East Container Terminal
(ECT) of Colombo Port by the Ports Authority.

According to approval:
 Ports Authority would develop and run the ECT.
 Ports Authority would procure equipment required to run the Terminal.
 Until delivery of procured equipment, equipment would be leased to
function the Terminal as early as possible.
The Minister denied reports that the ECT would be managed as a Public-Private
Partnership. The Minister would submit a Cabinet proposal for the procurement
of equipment and obtain required equipment on lease until arrival of ordered
items within 15 to 20 months.

History

Colombo’s old harbour was developed by the British; by 2002 was capable of
handling ships of length 500 ft. The harbour was dredged periodically and depth
reached maximum of 12 m, still insufficient to receive container ships. To meet
demands of increasing cargo traffic, SLPA proposed the “Colombo Port Expansion
Project” in 2005. The project proposed a 5.14 km main breakwater, secondary
breakwater of 1.65km and basic infrastructure. The harbour would comprise an
area of 600Ha, 18m deep, with 3 terminals South, East and West, each 1,200m
long, capable of accommodating three alongside berths, allowing total of nine
deep-water berths. The 13.5m deep old harbour with seven container berths and
four feeder berths, serve smaller carriers.

The breakwater construction was carried out with ADB funding. With various hick-
ups the construction of breakwaters and quay walls commenced in April 2008 and
completed in September 2012.

Tenders were called for the development of South Terminal and China Merchant
Holdings became the successful bidder. CICT commenced construction work in
December 2011 and the terminal commenced operations on August 2013, almost
15 months ahead of schedule. With completion of South terminal, total handling
capacity of Colombo Port increased to CICT operated 1,200m-long 3 berths 18m
deep, SAGT has three berths in 940m long quay 15 m water depth, while SLPA
owned JCT has two berths in 660 m quay, 15 m water depth. Two berths in JCT at
12m and 13m depths handle smaller ships.

Improving East terminal
The next in line was East Container Terminal (ECT) with a
1200m long quay wall, 18m deep berthing three mega ships. Also a 57Ha
container yard built with reclaimed sea-sand. Colombo South Harbour
Development Business Plan proposed operation of ECT by 2017 to avoid ship
congestion.

Progress

When the Rajapaksa Government ended its term, SLPA had almost completed the
400 m long first phase of the terminal with an investment of $ 80 million, allowing
one berth and a container yard. SLPA had ordered container handling equipment
to make terminal operational.

Progress under Arjuna Ranatunga

With the government change, Arjuna Ranatunga became the Minister of Ports
and Shipping. The Minister’s first action was to cancel the cargo handling
equipment order claiming that previous management’s action was corrupt.
Cancelling international contracts results paying heavy penalty. However, the
sums involved was not disclosed.
Minister Ranatunga in a low-key ceremony opened the 400 m first phase of SLPA
developed ECT in April 2015, when a Chinese vessel unloaded some cargo with
ship’s cranes. But container handling requires cranes and handling equipment.

In June 2015, upon Minister’s request Cabinet approved calling tenders for four
handling cranes and 12 gantry cranes to make the terminal operational.

Second stage of ECT

In February 2016 cabinet decided to invite expressions of interest and business
proposals from interested parties for the development of East Container
Terminal. The Ports Authority called for Expressions of Interest (EOI) for the $ 400
million project in June 2016, to complete the balance section of part built ECT.
The cabinet accepted appointment of Asian Development Bank as the project’s
Transaction Adviser. The proposal expects operation of terminal as joint venture
arrangement with an investor with 51 percent of Equity owned by the Sri Lanka
Ports Authority.

The bids closed in July 2016. However, in December 2016 Ports Minister Arjuna
Ranatunga cancelled the tenders as committees overseeing the project sought to
introduce new conditions to the tender process. The revised procedure
disqualified five international consortia and two single bidders that have
submitted expressions of interest (EOIs).

ECT delay cost SLPA Rs. 4 b

In May 2017 SLPA was brought under a new Minister, Mahinda Samarasinghe.
The new Minister making a statement claimed: “SLPA during the last two years
has lost approximately Rs. 4 billion due to the delay in completing the ECT. This
money could have been earned by the Ports Authority easily. It is a shame that we
have wasted two years in not developing the East terminal. The previous
Government went through a tender process and received Cabinet approval.”
President’s policy

On 7 August 2017 President Maithripala Sirisena informed that ECT will not be
privatised but will be run by the Sri Lanka Ports Authority. The President had
continued: “We are committed not to hand over the Eastern Terminal to any
party because such an action will lead to close the Sri Lanka Port Authority in
another 10 years.”

ADB’s reaction

Responding to the President’s speech, Asian Development Bank (ADB) reacted: “It
would move away from Colombo Port East Container Terminal project if the
Government was no longer interested in completing it. ADB had assisted in
issuing the expression of interest (EOI) and SLPA have already finished the
evaluations. But it was put on hold by the Government without shortlisting from
EOI,” ADB Country Director told journalists in Colombo.

Indian Reaction

Colombo Port was a transhipment hub handling 75% of Indian exports and
imports. Thus Indian shipping companies were interested in investing in the East
Container Terminal and had submitted expressions of interest proposals.

At the time EOI was announced, Ports Minister Arjuna Ranatunga had said that
the Government was looking for an investor from India, Pakistan or Bangladesh. It
was hoped getting an investor who would balance the Chinese firm holding South
Container Terminal.

Port capacity and future
Currently in Colombo Port, CICT managed South Terminal with three berths 18 m
deep capable of accommodating biggest container ships. In addition privately
owned South Asia Gateway Terminal (SAGT) with three berths in 940 m quay and
15 m deep.

Meanwhile, SLPA owned Jaye Container Terminal (JCT) has two berths in 660 m
quay wall also 15 m deep. In addition two berths in JCT are 12m and 13m deep
could handle only small ships. But most cranes at JCT are 20-30 years old working
far below their capacity. In container handling SAGT has outperformed JCT.

Currently Colombo port, handles over five million containers a year, is the second
fastest growing port with growth rate of 10.6% in 2016. According to Alphaliner
world ranking Colombo was elevated to 23rd in 2016 from 26th position in 2015.
Assuming a 6% growth rate, Colombo should handle 6.5 million TEUs in 2018, but
further increase of handling capacity would be difficult with physical constraints
at Jaye Container Terminal and South Asia Gateway Terminal.

Tripartite agreement

A tripartite agreement was entered in July 2018 by the three main terminal
operators at the Port of Colombo to operate as one unit to further smoothen the
activities at Sri Lanka’s main port.

The ambitious agreement will result in the three main terminals at the Colombo
Port – South Asia Gateway Terminal, Jaye Container Terminal and Colombo
International Container Terminal – functioning as a single unit mainly in respect of
container handling, transhipment and ship handling and related activities. The
agreement is expected to promote the Port of Colombo as one of the busiest
main ports in Asia and elevate it further up among leading ports in the world from
the current position.

According to Alphaliner Monthly 2018, Port of Colombo has been ranked as the
world’s fastest growing port from among the top 30 container ports for the first
half of 2018.
In container handling, the Port of Colombo recorded a 15.6% growth for the first
half of 2018. But Colombo port has reached its capacity limit and may not be
possible to increase container handling unless East Terminal is brought into
action.

Messing up of East Terminal

Above shows the history of attempted development of ECT since 2013, when
SLPA developed 300m of the terminal with own funds. In addition, SLPA had
awarded the tender for the supply of handling cranes. If the process was allowed
to continue first state owned deep-water East Container Terminal would have
been operational by 2016.

Today, after three years and having paid the penalty for terminating handling
equipment, operation of ECT is further two years away. Obtaining gantry cranes
on lease as the Minister expects may take six months to a year and would the
hirer be willing to hire for a six-month period. The entire proposal does not sound
practical, especially with the current procurement delays.

Let’s look at how Chinese handled the Port City and the Hambantota Port.

Colombo International Financial City

The Colombo Port City project was launched in September 2014 proposed an
offshore city, spreading over 230Ha reclaimed from the sea. After construction
stoppage by Yahapalanaya Government and recommencement, land to be
reclaimed increased from 230Ha to 269Ha. Mostly due to lands allocated for
roads, parks and pedestrian walkways being increased from 63Ha to 91Ha. Most
important change was the “Offshore City” became “Colombo International
Financial City (CIFC),” that had better scope. Thus current Financial City is
completely different from earlier plan.
Port City is a project of China Communication Construction Company (CCCC)
implemented through its subsidiary China Harbour Engineering Corporation
(CHEC). In 2017, CCCC and its affiliates were listed No. 3 on ENR’s list of ‘Top 250
International Contractors’.

Among the similar projects carried out by CCCC and CHEC in the past are:

nThe Hong Kong New Airport Platform Project: Listed among the top 10
construction projects of the 20th Century.

nThe man-made island at Macau International Airport: Land reclaimed 172Ha.

nHong Kong Zhuhai Macau Bridge: A 50km long bridge and tunnel.

nHangzhou Bay Cross-sea Bridge, South China: The longest sea crossing bridge in
the world totalling 36 km in length.

Planning Financial City

With changeover from Port City to Financial City, CCCC took steps to get highest
calibre consultants to plan the project and arranged an ideas competition for
proposals under the International Union of Architects guidelines.

The objective of the ideas competition was to inspire the best design and plan
concepts for the financial district and the marina of the Colombo Port City. All
participants were required to use certain aspects of the master plan as a guideline
such as specified roads and services networks, public areas and the overall
development value. The three participants were given the freedom to re-organise
the land use, mix, height and other development parameters provided they kept
to the allocated boundaries.

The three top international consultants pitted their skills against one another over
a period of four months. In accordance with the rules of the competition names
of the competing companies remained anonymous until the final announcement.
The proposals submitted by the three consultants were evaluated by a panel of
top international jurors who judged the competition and the winner was
announced as the internationally renowned American firm Skidmore, Owings &
Merrill. Other participants were Nikken Sekkei of Japan and Gensler,
headquartered in San Francisco. The winner would be the consultant for the
architecture, interior design, engineering, and urban planning for the Financial
City.

In the competition consultants were paid for the efforts and their proposals
would become property of CCCC. Accordingly the Client is permitted to
incorporate components from unsuccessful participants in the final design of
Financial City.

Hambantota Port

China Merchants Port Holdings Company (CMPort) took over the majority share
of Hambantota Port. The Chinese Government owned organization also owns
Colombo International Container Terminal Ltd.

Hambantota Port’s First and Second stages are complete. The first phase consist
of two 600m long 17m deep berths capable of handling mega container ships, a
310 m bunkering berth and a 120 m small craft berth. The second phase includes
a 2,240m long quay wall accommodating four 100,000t and two 10,000t wharf
berths or total of 8 mega container berths.

In deep water berths Colombo Harbour’s 1,200m long South Container Terminal
handles three mega container ships, comparing Hambantota with 3,440m long
berths, nearly three times the capacity. Today, the port handles only Roll-on-Roll-
off (Ro-Ro) cargo as done previously, but Chinese were able to double the
turnover. Chinese took over Hambantota last year end, but seems slow in
attempting lucrative cargo handling.
Atkins preparing Master Plan

CMPort engaged consultant Atkins Plc, British multinational engineering firm to
prepare the Master Plan for Hambantota Port. A spokesman for CMPort
informed: “The shipping business changes rapidly. We had a plan back then but
it’s not the best option today. Atkins is a renowned port consultant, which had
developed ports all over the world. When Atkins makes a master plan, it will come
up with long-term plans for five or six years.” The first cut of Hambantota port
master plan from Atkins is expected by November 2018.

Discussion

Port City and Hambantota harbour works commenced under Rajapaksa
Government and the new Government suspended both projects. But Prime
Minister Ranil Wickremesinghe faced with penalties payable under the signed
international agreements was forced to surrender.

The Chinese were careful never to ridicule or antagonise SL Government. But
used the opportunity to increase the sand-filled land area and SL Government
agreed to Colombo Financial Centre proposal. In Port City and in Hambantota the
Chinese used the world’s best consultants’ advice to improve goals. For Port City
they obtained proposals from three world’s top consultants and would
incorporate best ideas of all three during implementation.

In East Container Terminal Arjuna Ranatunga cancelled the purchase order raised
by SLPA to procure container handling equipment claiming the order may have
been corrupt. SLPA would have paid a huge sum for the cancellation; details were
not publicised. Ports Minister and his brother as Chairman of SLPA failed to get
the container handling equipment for ECT approved by the Cabinet. Subsequent
Minister Mahinda Samarasinghe claimed, “SLPA lost Rs. 4 billion due to the delay
in completing the East Terminal”. But after two years he too failed to deliver.

Regarding balance 800m of ECT, Cabinet is wavering with Ministers, PM and the
President acting as specialists. Once finalised implementation would require
another two years. If equipment was procured as planned by SLPA, first berth of
ECT would have operated since 2016. Today, Colombo Port’s operational capacity
is at maximum and soon vessels would be queuing outside the harbour. By then
Hambantota harbour would be operational and grab a share of Colombo Port’s
market. For Bangladesh and eastern India, Hambantota Port is closer. If Indians
were allowed a share of ECT they would stick with Colombo.

The Chinese, irrespective of their in-house knowledge, engaged best international
consultants to advice on their projects. At least now, if our politicians could learn
from Chinese, in future projects, handling large investments under guidance of
experienced consultants would result efficient planning and project management,
achieving timely competition within the budget leading to a prosperous nation.
Posted by Thavam

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