Port City Project – Will it generate confidence amongst investors? By Raj Gonsalkorale

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Foreign direct investment (FDI) is an integral part of an open and effective international economic system and a major catalyst to development. Yet, the benefits of FDI do not accrue automatically and evenly across countries, sectors and local communities. National policies and the international investment architecture matter for attracting FDI to a larger number of developing countries and for reaping the full benefits of FDI for development. The challenges primarily address host countries, which need to establish a transparent, broad and effective enabling policy environment for investment and to build the human and institutional capacities to implement them – OECD, Foreign Direct Investment for Development MAXIMISING BENEFITS, MINIMISING COSTS

By Raj Gonsalkorale

Sri Lankan politics has not witnessed bi-partisan agreement amongst the major political parties on key issues that impact on the people of the country, the present generations and many more to come.

There has never been bi partisan agreement on foreign policy, on education, on health at least at the highest policy levels. Personality politics has dominated the political landscape and it has always been about the plaudits or damage a policy decision might make on a personality and as a consequence on the party or parties that person represents, and eventually whether or not that individual or the party would win the next election, and ones after that.

This absence of bi partisan agreement has now extended to one of Sri Lanka’s most daring, controversial to many and an out of the box venture, the Port City project. The absence of such agreement, and the statements made by the current Opposition that they will amend the Port Commission bill is bound to unsettle many would be investors. They will be wondering what would happen to their investments if the current regime is defeated at the next election and the terms and conditions in which they invested should change after 4 years or so. The investment period horizon would then be 4 years. It does not need an Einstein to conclude that investors would be very hesitant to invest in any long term project in such a climate.

The statement of the Opposition is not being questioned here as they have rightly said that although the constitutionality of the bill has been adjudicated by the Supreme Court, amendments made, but the policy contentions had not been addressed and amendments they had brought in had been rejected by the government. It is also not clear whether the amended bill, incorporated with the supreme court determined amendments, had been presented to the Parliament. The public certainly has not seen the amended bill. 

The bona fides of the current Opposition of course is questionable, as they were the government in 2016 when they signed a tripartite agreement with the China Harbour Engineering Company and the UDA to develop the Port City into what they termed the “Colombo International Financial City, which will be in the centre of the maritime city, will be one of the key phenomenon which will decide the future development of Sri Lanka” according to the then Megapolis Minister Champika Ranawaka at the signing of the tri partite agreement. He added that the project would also fuel the planned Maritime city, Aero city, Tech city, Industrial cities and Tourist cities. That agreement has not been made public to the best of the writer’s knowledge.

The Port City project and the Port City Commission are major undertakings that will bind many future generations to its positives, but more importantly to any possible negatives as well. It would not be out of place to say that the politics associated with this futuristic project could have been handled better in a more transparent and consultative manner.

In the first place, the origin of this project, the agreement signed with China, signed by the Presidents of China and Sri Lanka in 2014, to reclaim an area of the sea and to create a Port City, was not tabled in Parliament for discussion as far as can be ascertained. 

Reports indicate that the project concept goes back to 2011 and construction was set to begin in March 2011 but due to several circumstances the project had been stopped. In mid-2012, the Sri Lankan Port Authority (SLPA) announced that the construction of the then Colombo Port City project would commence on 17 September 2014. The budget was estimated to be $15 billion.

The reclamation was to be carried out by China Harbor Engineering Corporation, who has been engaged by the investor. 125 ha (310 acres) was the land was given to government as well as 88 ha (220 acres) while owned by the government was planned to be leased for 99 years to the Chinese company. 20 ha (49 acres) was planned to be given freehold to the Chinese company.

Construction of the Colombo Port City project was launched on 17 September 2014 by Sri Lankan President Mahinda Rajapaksa and Chinese President Xi Jinping.

The Sirisena/Wickramasinghe government that was elected in 2015 suspended the project on environmental grounds, but it is understood that this was granted approval again in 2016 having agreed to pay a penalty of USD 100 million to the Chinese company for the delay encountered in proceeding with construction as per a country to country agreement. It is learnt that in exchange for not paying this penalty, the Hambantota Harbour was sold or given on a long term 99-year lease virtually on a platter.

On 12th August 2016 the tripartite pact signed to construct a mega port city signed between Sri Lanka’s Urban Development Authority, the Ministry of Megapolis and Western Development and the China Harbour Engineering Company, and as far as known, this agreement too has not been tabled before the Parliament.

With the signing of the agreement, the Colombo Port City Development Project was newly renamed as the Colombo International Financial City with the government stating that the project would transform Sri Lanka into an international financial hub in the Indian Ocean region. 

It is still not very clear as to the extent of land involved in this project as different extents have been mentioned in different agreements. It is also not clear whether whatever land extent has been registered with the land registry. Clarity on these will be useful.

While there is no indication that any of these two agreements had been tabled and ratified by Parliament, these two occasions are not the first time Parliament had not ratified binding agreements, if indeed they had been tabled in Parliament. The Ceasefire Agreement that Prime Minister Wickramasinghe signed with LTTE Leader Prabakaran in 2002 was not tabled in Parliament, and in fact not even known to the Executive President of the country at that time Chandrika Kumaratunga who saw the agreement after it had been signed by Wickramasinghe and Prabakaran. The consequences of that agreement are well known today.

In this backdrop comes the Port City Commission bill. While it is true that there was an opportunity for litigants to go before the Supreme Court to ascertain the validity of the bill with the Constitution, the people’s representatives, however low they are in their credibility in the eyes of the people, and neither the business community, and civil society leaders, were given an opportunity to consider the policy aspects of the bill in some depth and to work together to make it a national project of great importance to the country. 

The SJB, and the residue of the UNP, as well as those who supported the Yahapalanaya government in 2016, cannot afford to oppose this bill in principle while they have the right to oppose sections of it if they differ with what they agreed to in 2016. As stated earlier, the writer stands corrected if the government and the Opposition could clarify to the public whether these important agreements were in fact discussed in Parliament and whether any attempt was made to have bi partisan agreement on them. Besides being an important consideration for the public in Sri Lanka, it would be vital to generate confidence amongst would be investors in the Port City project for long term projects. Unless there can be such a bi partisan agreement, it is unlikely that the objective of large and long term investments will be made in this project. 

While some may entertain philosophical arguments against the concept of the Port City, and suspicions and fears about China getting an extended foothold in Sri Lanka, it is also true that Sri Lanka needs to raise its economic platform if the future generations are to enjoy the opportunities they need and deserve in years to come. The current economic platform, based on Tea, Rubber, Coconut and other agricultural exports, Apparel and IT products and services exports, foreign remittances, and tourism, is very volatile and inadequate to meet future challenges associated with investments required for infrastructure development, service improvements and social upliftment. 

The longer term future of Tea and Rubber is uncertain, and foreign remittances may not be long lasting even once the COVID pandemic subsides. Sri Lanka needs a different approach and lateral thinking on economic policies if it is to free itself from debt and generate enough revenue to service its infrastructure development and service improvements. Besides the Port City project, there is no other innovative project that has been presented for discussion that would address the future economic needs of the country. While the management of its politics has left much room for improvement and some policy aspects may need adjustment, the fact remains that there is nothing else on the table to compare it with.

While it is not a critique of the bill itself, as the writer feels that should be left to the politicians as well as experts who are more competent to do so, there are a few questions pertaining to the clauses 64 and 65 in the agreement that needs some clarification as there appears to be a legal provision in the bill to extend the authority of the Port Commission to land associated with projects approved by the Commission, beyond the reclaimed land area that constitutes the Port City. In addition, these clauses appear to make the Board of Investments (BOI) irrelevant and an unnecessary entity as all its activities, past, present and future could easily be managed by the Port Commission.

1. Firstly, what does section 65. (1) mean? It says, “from and after the date of commencement of this Act, all land comprising the Area of Authority of the Colombo Port City, shall be vested with the Commission in the manner set out in subsection (3)”. Sub Section (3) reads as follows.  “For the avoidance of doubt, it is hereby stated that on the coming into operation of this Act, the President may, issue a Land Grant under the Crown Lands Ordinance (Chapter 454) in the name of the Commission, in respect of all land comprising the Area of Authority of the Colombo Port City as set out in Schedule I to this Act”

It is understood that President Sirisena by way of a gazette notification granted a land deed for the reclaimed land in favour of the UDA as mentioned by Presidents counsel Jayantha Weerasinghe at a recent press conference. The land given to the UDA on this grant apparently was given on a lease to the Chinese company by the UDA in 2016.

Is it to be understood that as per section 65, the present President is giving another grant of the same land to the Port Commission under section 65 when the land is owned by the UDA and leased to the Chinese company? This convoluted situation may not be accurate, and it would be good if the government could clarify this. 

None of these land deeds have been registered as far as known and therefore no one has been able peruse them and ascertain the status of the grants and deeds. No wonder the Public is confused. It is also understood that the gazette which contains the deed signed by President Sirisena has the new plan as per the tripartite agreement under Cadastral system. It would be helpful if these documents are made available to the public. If the above confusion could be cleared, this sub section and what is referred to in Section 65 of the gazette notification looks harmless and innocuous if it is read as it is without any reference to any other Section. 

1. However, a question does arise as to what this Section (65) and Sub Section (3) mean in effect? 

Is it that only the reclaimed land area referred to as the Port City, will be vested with the Commission? If not, what other land?

Some confusion and doubt does occur when it is read in conjunction with Section 64 which reads as follows. Clause 64 

(1) The Commission may, where it considers necessary to do so, as an interim measure, permit an authorised person to engage in business from a designated location in Sri Lanka, outside the Area of Authority of the Colombo Port City, as may be approved by the President or in the event that the subject of the Colombo Port City is assigned to a Minister, such Minister, for a period not exceeding five years from the date of commencement of this Act. Such business shall, for such period of five years be entitled to all the privileges accorded to, and be deemed for all purposes to be, a business situated within and engaged in business, in and from, the Area of Authority of the Colombo Port City.

(2) Where an authorised person has been permitted to engage in business from a designated location in Sri Lanka, outside the Area of Authority of the Colombo Port City in terms of subsection (1), such business shall be subject to the provisions of this Act and any regulations made hereunder.

This Section raises two questions

1. Would such a project have to be approved by the Authority, meaning, will it have to be a new project and not an existing project? Does this not virtually open any part of the country for such a project to be located for 5 years? If so, effectively, the Authority has island wide authority for 5 years for approved projects. In this event, what is the role of the BOI, and why should projects seek approval from the BOI?

1. When this is read in conjunction with Section 65 and sub section (3) does it mean that not only the reclaimed land but also any land allocated for an approved project for 5 years under clause 64 could also be vested with the Authority for 5 years with President issuing a Land Grant under the Crown Lands Ordinance (Chapter 454) in the name of the Commission? 

1. Section 65, sub section (2) reads as follows – “Where any deed of transfer, indenture of lease, agreement or other similar document has been executed in respect of any land situated within the Area of Authority of the Colombo Port City, prior to the date of commencement of this Act, by the Urban Development Authority, established under the Urban Development Authority Law, No. 41 of 1978, such deed of transfer, lease, agreement or other similar document shall, from and after the date of the commencement of this Act, be deemed for all purposes to be a document executed by the Commission, in terms of the provisions of this Act and be valid and effectual as if executed hereunder”

The Port Commission Act has just been passed by the Parliament. In relation to this clause, besides the land that was leased to the Chinese company by the UDA in 2016, is it to be understood that there are projects approved by the UDA or any other body on land within the Area of the Authority? Is this clause to be understood as extending to projects already approved by the UDA, with some projects located outside the Port City precincts (as per Section 64) the benefits referred to in Section 65?  

It would be useful if the government tables a list of such projects so approved and their operational locations as the country has a right to know which project, located where, is to benefit from terms in Section 65.

These clauses, their meaning and effects need clarification as confusion does arise about the extent of authority the Port Commission has over land outside the Port city itself, even if it’s for 5 years. The potential does exist for the Port Commission to approve investment projects with say the headquarters office located in the Port City, but actual projects located anywhere else in the country, and enjoying all privileges and benefits accorded to the project irrespective of where its operations are located. Theoretically, farfetched it may be, the possibility exists for hundreds of foreign companies to have their projects approved by the Port Commission, with their operations located in any part of the country. The consequences of this possibility needs to be considered especially from the point of view of the impact on local farmers (if the projects are agriculture based) or industrialists who will not enjoy the benefits enjoyed by projects registered with the Port Commission. 

Considering all of above, the extraordinary powers granted to the President of the country to make far reaching and binding decisions on what may turn out to be a sizeable component of the country’s economy could have the potential to be detrimental rather than beneficial to the long term interests of the country should the Presidency be in the hands of a person not entirely suitable to hold that office. Avenues for greater accountability of decisions made by the Port Commission and the President of the country have to be considered from this point of view.