Major shipping lines have expressed interest in partnering with the Sri Lanka Ports Authority (SLPA) to run the East Container Terminal (ECT)—but its agreement with the Adani-run West Container Terminal (WCT) prevents it from doing so.
The agreement blocks the SLPA from directly or indirectly allowing a third party to operate any new facilities in the Colombo Port for seven years from the effective date of the WCT contract or until the total throughput of the port exceeds 5.5 million TEUs over a period of six consecutive months, whichever happens sooner.
The effective date of a contract is when it comes into effect and when the obligations within the agreement need to begin to be fulfilled.
One of the expressions of interest—an unsolicited proposal—was submitted by Maersk and APM Terminals (as consortium lead), in partnership with Mitsui & Co and Ocean Network Express. While other shipping lines have also come forward, the SLPA will neither call for open tenders nor entertain any private parties for ECT, said its Chairman Admiral (Rtd) Sirimevan Ranasinghe.
The ECT will “definitely” be run by the SLPA for the next few years, Admiral Ranasinghe said. He cited two reasons. The first was that “this was something the workers of the Ports Authority demanded and won for themselves.” (In 2021, the Gotabaya Rajapaksa administration cancelled a 2019 Memorandum of Understanding to develop ECT alongside India and Japan, citing union opposition to the deal and vowing to operate it as “a wholly owned” facility).
The other reason, the SLPA Chairman said, was the “exclusivity clause” in the Colombo West International Terminal (CWIT) build-operate-and-transfer agreement, which prevents the entry of any new third party to the Colombo Port till the terms of the contract are fulfilled.
“Until then, we cannot do any new terminal if it’s privately operated,” he maintained. “ECT can continue as long as it is manned by SLPA and nobody else. There is no way we can go into a contract with someone.”
Admiral Ranasinghe confirmed that “there are many lines that are interested in this (ECT), in fact, everybody.”
“It’s basically a shipping line business, so they continue to do that promotion,” he said. “But whenever they come to talk to me, I have told them that this is something they cannot do right now.”
Clause 4.1 of the WCT concessions agreement reads, “The Port Authority and the Government have represented and undertaken that the East Container Terminal shall be developed, equipped, operated and maintained solely by the Ports Authority.”
It continues: “Neither the Ports Authority nor the Government shall directly or indirectly grant the right to any third party to operate any new facilities (including the East Container Terminal) for the purpose of performing container terminal activities at the Port of Colombo for the period commencing on the Effective Date and ending on the completion of seven (7) Years from the Effective Date or until the total throughput of the Port exceeds five and a half million (5,500,000) TEUs over a period of six consecutive months, whichever happens sooner (“Exclusivity Period to the Terminal Operator”); PROVIDED THAT that the Terminal Operator executes the Construction Works in accordance with the terms of this Agreement. “
CWIT is expected to be fully operational by 2027. Shipping industry analysts have long urged the Sri Lanka Government to renegotiate clause 4.1. “This clause is a travesty considering WCT also got so many tax breaks,” said one expert, who requested anonymity.
“We are almost doubling port capacity in 18 months, whereas for us to get to the current level of capacity has taken us 18 years,” he said. “And ECT is going to open after WCT. So this is going to completely undermine the financial standing of the ECT unless a shipping line is brought in as a partner because we are going to have overcapacity for seven years after both these terminals are opened.”
“Who better to compete than the private sector guys?” he asked, stressing that there must be an open tender. “By virtue of ECT now coming after WCT, they’re going to be so compromised to make a return that it is imperative that ECT enters into an alliance with a shipping line. But that is compromised by virtue of this clause.”
The ownership of WCT is split between Adani (51%), John Keells Holdings (34%) and SLPA (15%). Profits are tax-exempt for 25 years, while equipment is exempt from border taxes. Up to 20 expatriate employees too will get tax exemption on salaries. The commercial terms for WCT are similar to those agreed upon between the China Merchants Port-run Colombo International Container Terminal and SLPA. The latter does not, however, have an exclusivity clause.
