Port: A New Dawn For The South

By Savan Wijewardena

Pictures By Ishara S. Kodikara

Modern infrastructure is essential for a country’s long-term economic development, but 60 years after independence, Sri Lanka continues to manage with just a single international airport, a single port, and a massively inadequate electricity generation capacity. In fact, the nation is still without a single multi-lane highway.

Rapid Transformation : Anyone who has visited the deep south in the past few months can only have been stunned. The South is quite literally rising. Cranes dominate the skyline and tiny Hambantota is caught in an ocean of development.

The present government promised to rectify the situation with massive investment in ambitious infrastructure projects. The Hambantota port, the Southern expressway, the Norochcholai power plant and a host of other projects would, claimed the Mahinda Rajapaksa administration, provide the country with the infrastructural base it needs to meet the economic demands of the 21st century.

Three years into the government’s tenure however, these projects are yet to materialise. While it is understood that infrastructure development takes time, given the vital importance of these projects, every month Montage will feature one of the proposed mega-infrastructure projects, and consider in detail the potential, the progress made and the future prospects of each proposed scheme.

The Hambantota port project - A new dawn for the South?

Bringing economic development to the neglected southern corner of the island was a cornerstone of Mahinda Rajapaksa’s election manifesto. A region starved of investment and infrastructure is, according to the government, going to be transformed into the economic and industrial heart of the country.

An international port, airport, highways, enormous free-trade zones and power plants have been promised.

But what is the reality behind these claims?

Anyone who has visited the deep South in the past few months can only have been stunned by the region’s transformation. The South is quite literally rising. Cranes dominate the skyline and tiny Hambantota is now caught in an ocean of development. Giant windmills loom surreally over the landscape and an army of workers is busy transforming the arid landscape into an enormous industrial centre. While its easy to miss the sleepy laid-back feel of Hambantota as it used to be, development is a necessity and it is clear that in Hambantota at least, development is really taking place – on quite an enormous scale.

But amidst all the pylons and pile drivers what is actually happening?

Though it will be several years before the port is fully operational, the government claims that even the construction work for the project will attract much needed investment and employment in the region.

By 2010, the government has promised the first stage of the port will be complete. A 1000 metre jetty will allow the harbour to function as an industrial port, for the import and export of industrial chemicals, fuel and heavy machinery.

However the project is a long term one which envisages 15 years of development and Hambantota will eventually house a Liquefied natural gas refinery, aviation fuel storage facilities, three separate docks giving the port a transshipment capacity and dry docks which will allow ship repair and even construction to be undertaken in Sri Lanka.

It is also envisaged that the port will serve as a base for bunkering and refuelling. Ships plying the busy shipping lanes between Europe, Africa, the Middle East and Asia will have the option of

refuelling at Hambantota.

Though it will be several years before the port is fully operational, the government claims that even the construction work for the project will attract much needed investment and employment in the region.

Ultimately the government claims the project will transform not just the South but the East and Central provinces as well by facilitating the export of agricultural and industrial products from those regions. And various press releases proudly assert that over 40,000 skilled employment opportunities will be created with the proximity of the port drawing investment from and all over the world to Hambantota.

While it will be several years before the port is fully operational, the government claims that even the construction work for the project will provide the South with much needed employment and investment.

The army of labourers that can now be seen toiling in Hambantota’s dry heat attests to the truth of this claim and the benefits of investment are already being felt with hotel operators in the area reporting full occupancy and even small traders saying business is being boosted by the influx of workers.

But who is paying for all this?

The port is well sited in close proximity to major shipping lanes and as a refuelling location Hambantota has many advantages over the Colombo port or rival Indian ports.

The project is financed by concessionary loans from the Chinese government and the construction is being undertaken by a number of Chinese firms. The Chinese Harbour Engineering Company and the Sino Hydro Corporation are contracted to complete the port while China’s Exim bank is providing the line of credit that will fund the project.

The government maintains that it has obtained sufficient credit to complete the project and that the port will, upon completion, generate enough revenue to recover the cost of the government’s initial investment.

The exact basis on which the loans and financing for the project have been provided remains unclear. However there are claims that the rate of interest charged by the Chinese government is considerably higher than the interest charged by traditional sources of development aid – Japan, the ADB and the World Bank.

While a $360 million contract for the construction of the port was signed in 2007, the overall cost of the 15 year project may well amount to over a billion dollars which is certainly more than a government spending $1.5 billion of its limited revenue on its defense budget can bare independently.

Will it be worth it?

While the project has been welcomed with scarcely any opposition raised in parliament or in public, investment/ debt on such an enormous scale must raise some questions.

Will the port really generate enough of an income to justify the expenditure?

The government claims that the port will earn enough revenue to pay back the initial investment but such enormous investment into an underdeveloped region can quite easily produce white elephants; Prestige projects that are financially and conceptually unviable and go on to bleed government money for years and decades.

Will the Hambantota port project be financially viable?

The answer according to most sources is yes. The port is well sited in close proximity to major shipping lanes, and as a refuelling location, Hamabantota has many advantage over the Colombo port or rival Indian ports. Refuelling and bunkering activities alone could generate substantial revenues while future transshipment revenues would add to profits. The space available at Hambantota in contrast to Colombo, also gives the port ample growth potential so it should remain competitive for decades to come.

Given that finding the expertise for ship building and heavy engineering in Sri Lanka will take time and huge foreign investment, some of the government’s ambitions such as making Hambantota a centre for ship building will likely remain pipe dreams. However the space available at Hambantota and rising costs for ship building elsewhere, mean that even these lofty ambitions aren’t entirely unfeasible.

Ultimately the Hambantota port project is a well-conceived and viable project – and with genuine progress made in a short period there is every possibility the port will begin operation in and around schedule in 2010.

But over the last 60 years, the people of this country have seen several many much vaunted infrastructure projects fail and stall – the half built Katunayake expressway, the still struggling Norochcholai power plant, assorted foundation stones for international airports, etc. The Hambantota port project is arguably the country’s largest development project since the Mahaweli scheme and simply cannot be allowed to fail. The financial, economic and environmental cost of leaving the project unfinished will be too much for the country to bear.