Port Contracts Sans Tenders

In an age where the Government of Sri Lanka (GoSL) is giving contracts to the Chinese without calling for tenders, thereby going against accepted norms of transparency and good governance, and leaving room to suspect corruption playing a role in the awarding of such contracts, it may be moot to point out that the Chinese contractor building the Hambantota Port was the same contractor knocked out in the ADB funded Colombo South Port tender on price, having had quoted Rs. 24.7 billion more than the lowest bidder, Hyundai, Korea, which  won that contract.
While Hyundai which is building the Colombo South Port breakwater quoted Rs.33.5 billion and clinched that tender in 2008, China Harbour Engineering’s (CEH’s) bid was Rs. 24.7 billion more at Rs. 58.2 billion.
CEH’s bill for the Hambantota Port which was awarded to it without calling for tenders is reported to have had been US$ 336 million. Such projects are generally funded from loans obtained from the Chinese Exim Bank on commercial terms, of which the terms and conditions, unlike in multilateral donor funded projects (such as the Colombo South Harbour Project) are not made public, with public money however ultimately footing in the bill.
For instance the ADB soft loan of US$ 300 million to build the Colombo South Harbour (CSH) breakwater is payable over 25 years (beginning from 2007, the year in which the contract was signed) and carries an interest component of six months LIBOR plus 0.6%. At present LIBOR is under 1%. But no such details of Chinese funded projects are made public.
Meanwhile the Government owned Sri Lanka Ports Authority (SLPA) which is the implementing agent of the Hambantota project is expected to award the second phase of this project which includes the building of container terminals, again to the Chinese, without calling for tenders, for a cost of US$ 800 million, in the present quarter, according to reports.
When this reporter asked the Institution of Engineers of Sri Lanka President Professor Ananda Jayawardena the wisdom of building this port on the basis of the “supply and demand” principle, he said that development works need not operate that way, with the infrastructure thus built, naturally generating demand.
Jayawardena said that when Dubai invested in a port, critics condemned it as being a waste of money. But now Dubai is reaping the dividends of that investment.
However former Deputy Central Bank Governor W.A. Wijewardena speaking at a seminar organized by the Organisation of Professional Associations recently said that Mexico, with the earnings derived from oil, built a world class port in the 1980s, but in which port no ships docked.
An SLPA official speaking on the grounds of anonymity said that in the Colombo Port’s masterplan which encapsulates the Government controlled Jaya Container Terminal (JCT), the privately run South Asia Gateway Terminal (SAGT) and the CSH project, it’s envisaged, that once CSH, which, upon completion will include three container terminals, will, together with SAGT and JCT, be able to cater to Indian sub-continent transshipment traffic upto 2025.
But if in the event Hambantota is also functional during this period, that may lead to an over-supply situation, with both ports, ie Hambantota and Colombo suffering as a result.
However an SAGT source told this reporter that they don’t consider Hambantota Port as a threat, but rather welcomed it, due to the increased volumes expected.
One of the major reasons being India’s phenomenal growth (it grew at the rate of 8-9% in the past four years, he said) and increased exports from China to the US and European markets, thereby opening up greater opportunities for growth.
He further said that the Colombo Port masterplan was drawn up in the 1990s, when India’s phenomenal growth was not factored in.
Even last year, despite the recession, volumes in Colombo grew, though not necessarily in value.
A new masterplan for Colombo was to have had been drawn up last year, but it was put aside due to the global recession.
New lines which want to call at Colombo could not be accommodated due to Colombo’s current limited capacity. The four markets that Colombo caters to are Europe, USA, India and China.