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Transforming Sri Lanka Into A Global Financial Hub

  • CIFC To Bring In 12% Of GDP

by Wiraj Silva

Ongoing construction at the Colombo Port City

With the proposed Colombo International Financial Center (CIFC) anticipated to luring in foreign exchange worth nearly five percent of Sri Lanka’s GDP (Gross domestic product) within five years of operations whilst within a decade this  share is to reach at least 12% of GDP; Colombo Port City has once again come to limelight.

Last August, Sri Lanka signed a Tripartite Agreement for the development of the CIFC, replacing the Agreement signed by the former Government on 16 September 2014 for the construction of a Port City.

The tripartite agreement encompasses the vision of the President and the Prime Minister to create a new international Financial City in Colombo, to be governed under a new Act titled Colombo International Financial Centre Law, to be introduced in Parliament. This Act envisages the creation of an “International Financial Zone” within the land area to be reclaimed by the Project Company. The Financial Zone will create an environment to attract the international financial services industry by attracting reputed international banking and financial services companies to locate within the CIFC. This initiative, together with the development plans envisaged for the entire reclaimed land area, is expected to have far reaching economic benefits to Sri Lanka and the creation of higher-paying service sector jobs.

The Tripartite Agreement has many features that are beneficial to Sri Lanka that was lacking in the 2014 Agreement that is now being replaced. Firstly, the Project Company will not be granted any freehold land as envisaged under the Agreement entered into by the previous Government. All lands to be allocated will be on leases executed by the Government and under no circumstances will the Project Company get any land for a lease period of more than 99 years. Furthermore, when the Project Company attracts investors to its lands, such lands will be leased to such third party investors also on a 99-year lease executed by the Government.

Additionally, the entire reclaimed area of 269 hectares will be first declared as territory of Sri Lanka under the Lands Ordinance by His Excellency the President. Thereafter the reclaimed area will be declared as an area of authority under the UDA Act and/or the proposed CIFC Law.

Many other benefits have been secured by the Government for the benefit of the general public and the country’s economy. In particular, the following areas can be highlighted as more favourable conditions obtained after detailed negotiations between this Government and the Project Company:

1.  The lands used for public purposes such as roads, parks, pedestrian walkways etc. has been increased by 44% from 63 ha to 91 ha. This has been the primary reason for the expansion of the reclaimed area from 233 ha as contained in the 2014 Agreement to the current 269 ha.This means that lands allocated to the Government for use by the general public is 91ha and for purposes of development and investment is 62 ha.

2.  Of the public areas identified 45 ha has been devoted to parks for use by the public. This is an area 8 times larger than the 5.7 ha available at Galle Face Green. In addition, the project will create 13 ha of beach areas also for public use.

3.  A suitable land area will be developed as the CIFC. In fact, the new Agreement states that the Project Company is willing to consider an additional investment to construct this building, upon the feasibility study being concluded in consultation with the Government.

4.  The previous agreement placed the entire burden of providing utility and infrastructure connections to the periphery of the reclaimed area on the Government. (All infrastructure within the reclaimed area will be built by the Project Company.) Under the new Agreement being signed today, the Government has the right to request the Project Company to enter into a Public-Private-Partnership for the provision of such infrastructure.

5. Under the previous Agreement, the maintenance of the reclaimed area and associated infrastructure therein was a responsibility assigned to the Government/SLPA. Now, a new JV company between the Project Company and a party to be nominated by the Government will undertake the Estate Management responsibility on self financing basis.

6. The 2014 agreement placed restrictions on the possible developments to be undertaken on marketable lands allocated to the Government for 3 years after the reclamation. Under the new agreement, this restriction has been relaxed so that the GOSL can without any restriction commence development of exhibition & convention centres, hospital and medical facilities etc.

7. The 2014 agreement placed the entire financial burden of implementing the environmental studies and the fishermen’s income support program on the SLPA. Under the new Agreement, the Project Company will meet all costs incurred by the Megapolis Ministry in undertaking the environmental studies (including studies already completed) and allocate Rs 500 million to meet the costs of the fishery community livelihood improvement program.

It should also be pointed out that the suspension of the Project was a result of incomplete environmental study. This was rectified by this Government via a comprehensive new Supplementary Environmental Impact Assessment study. This study further restricted the area from which sand could be obtained to more than 3-4 km from the shoreline and sand to be dredged by scraping the sandy areas of the ocean floor only up to a depth of 3 meters(leaving at least ½ meter of sand at the ocean floor), and at areas where thewater depth is more than 15 meters. Therefore, this will eliminate any possibility of coastal erosion. Moreover, the new Development Permit issued by the Department of Coast Conservation in 2016 contains 70 conditions designed to protect the environment (almost double the number of conditions issued under the 2011 Permit)

Importantly, as a consequence of the goodwill generated after the visits to China by His Excellency the President and the Hon. Prime Minister, the Project Company has already issued the required written undertakings to withdraw all compensation claims submitted to the Government thus far, effective from the signing of the new Tripartite Agreement.

 

First hurdle cleared 

 

In 2015, the much-debated, Chinese-funded Port City cleared the first of its major legal hurdles with the release of Supplementary Environmental Impact Assessment (SEIA). (See http://www.thesundayleader.lk/2015/12/20/port-city-passes-major-hurdle/)

The head of the country’s investment promotion agency – Board of Investment (BoI) of Sri Lanka Chairman Upul Jayasuriya earlier told The Sunday Leader that unfortunately a transparent and a people-friendly process was not adopted by then President Mahinda Rajapaksa, which naturally caused lot of animosity against the project .

“SEIA report of Colombo Port City (CPC) is now in public domain and it is a statutory requirement to call for public comments. Once responded if there is any merit in such comments, steps would be taken to rectify. It is unfortunate that such a transparent process was not adopted by the previous Rajapaksa regime,” lamented Jayasuriya.

He added that the government held consultations with all relevant parties including the contractor and was chaired by veteran public servant – R. Paskaralingam.

“However there should be scientific basis in these concerns and should not be mere rhetoric”

 

Eco-friendly township

 

According the recently released Supplementary Environmental Impact Assessment (SEIA) report, Colombo Port City (CPC), upon completion of reclamation works, will incorporate solutions for integrated management of energy, water and waste for long-term environmental sustainability and for creating a comfortable environment for its occupants, according to an eco-cycle concept.

The eco-cycle model describes the interaction between reduced demand-side and highly developed supply systems. The overall goal is to reduce the negative environmental impact from Port City’s emissions of greenhouse gases and pollutants. In order to achieve these goals the eco-cycle systems will contribute to the lowest possible demand of electricity and fossil fuel for transport; the lowest possible demand of fresh water in buildings and public areas; and lower demand of energy for heating and cooling. It will also include high quality recycling of water, energy, material and plant nutrients, and interaction between functional demand side solutions and the overall infrastructure.

 

Integration with Megapolis

 

Port City’s eco-cycle concept requires integration with the existing and future plans and implementation strategies of the Government of Sri Lanka and Ministry of Megapolis and Western Development in order to realize its full potential and benefits. Therefore, constant and effective dialogue and cooperation between all stakeholders are essential.

 

The power requirement for CPC will be a based on the rate of development that will take place on the reclaimed land.

 

The overall strategy of CPC is to secure electricity supply during the building phases and during the operational phase, and to reduce the dependency of fossil fuels in order to reduce environmental impact. This will be achieved through a combination of minimizing cooling demand through energy efficient building design (solar shading etc.); using solar heaters and photovoltaic cells on roof-tops; and a well-designed electricity grid design to minimize impact of grid failure.

 

Regional business hub

 

The Supplementary Environmental Impact Report (SEIA) for the Colombo Port City (CPC) report also spells out that the main objective of the CPC is to create a regional business hub – a distinctly branded city, with high quality public spaces and infrastructure facilities, which would attract local and international developers and investors.

The ultimate goal is to establish the city as a centre for finance, tourism, shopping and entertainment, attracting new investments and new buyers of real‐estate and tourists who will spend more money and entrepreneurs who will invest in new businesses in Sri Lanka.

The SEIA says that the structural changes of the economy over the past ten years indicate the dominance of service sector economic activities, particularly in the areas of tourism, ICT, ports and shipping, retail, transport and financial services. The report states that the CPC has the capacity to contribute towards service sector oriented growth and development by attracting high profile FDI’s and generating a wide range of direct and indirect benefits to the national economy.

The project, which is to be implemented over a 25-year period, does not involve replacing any economic activities in the area of its location or its immediate neighbourhood. Thus, the benefit generated by the entire reclaimed land becomes an additional asset to Sri Lanka as a result of a Foreign Direct Investment (FDI).

According to an integrated master plan which is to be developed, the development of the CPC will create a significant amount of additional oceanfront land thus providing opportunities for expansion of Colombo’s Central Business District (CBD).

Further, through planned development, the government of Sri Lankan will be able to envision part of its objectives outlined in the Regional Structure Plan of 2004 (the CESMA Plan), without the burden of spending state resources.

Additionally, the oceanfront land within CBDs emerging business cities would encourage finance, commerce and residential living within close proximity to each other. The CPC project therefore creates new land that will generate economic returns to the government, the investor, the city and the country as a whole.

 

Positive impact

 

The positive impacts of the project include employment creation, enhanced foreign investment, positive revenue generation to the government, transfer of technology and value added contribution to the national economy. Once the physical, socio‐economic and environmental impacts of the CPC are identified and quantified, the next step of analysis is to monetize these impacts with economic prices.

The report further states that the proposed CPC has the capacity to significantly contribute to the economic well‐being of the Colombo city and the Colombo Metropolitan Region (CMR). The long‐term employment figures include jobs generated at the CPC and multinational firms, jobs supporting local purchases made by local and foreign employees within CPC and firms that provide services to the CPC companies including office supplies and equipment, utilities, communications and professional services.

The CPC project has the potential to generate a wide range of indirect socio‐economic benefits such as high profile FDI which will thereby create direct employment mainly for professional and technical occupations in areas such as Information Communication Technology (ICT), banking, fund management, investment banking, real estate, and retail and tourism sub‐sectors. The employees of these occupational groups are expected to be well paid and have the capacity to create indirect employment in the national economy due to high disposable income. Additionally, the project has the capacity to attract high profile FDI particularly for high value added service sector investments and headquarters of export manufacturing establishments. The immediate impact of such investments would be an increase in GDP and also an increase in foreign exchange earnings.

In addition to job creation, other long‐term outcomes include fostering modern management practices in various fields that will upgrade the living standards of Colombo. Through the utilization of world‐class residential spaces, the project will also extend socio‐economic benefits. Additional economic benefits include an increase in higher paying jobs related to international trade and the movement of greater amounts of imports and exports through the Colombo Port.

 

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