Sri Lanka blames Adani for failed eastern container terminal deal
Sri Lanka blamed the Adani group for the failure of the tripartite cooperation protocol signed in May 2019 with Japan and India to jointly develop the Eastern Container Terminal (ECT) at the port of Colombo, citing the lack of flexibility with which proves the Indian firm. by “adhering to the main financial clauses” set by the island nation, according to Cabinet documents.
During negotiations held by the Cabinet Appointed Negotiating Committee (CANC) of Sri Lanka on January 27-28, Adani Ports and Special Economic Zone Ltd (APSEZ), which was appointed by the Indian government to develop the TCE, “Insisted” that the same terms, conditions, rates, fees and land lease payments to the Sri Lanka Port Authority (SLPA) set for Colombo International Container Terminals Ltd (CICT) also be applicable to ECT.
Chinese state-owned China Merchants Port Holdings Company Ltd owns 85% of the capital of CICT, a joint venture terminal it manages with the Sri Lanka Ports Authority (SLPA).
But, Adani’s request was rejected by CANC and approved by the Sri Lankan Cabinet on February 1.
“The Sri Lanka team explained (to Adani) that the Request for Proposal (RFP) for CICT was processed during the recession period in 2009 and the breakwater was under construction and the investor was to begin construction (of the CICT) in parallel with the construction of the breakwater, ”according to a January 31 Cabinet memorandum prepared by Sri Lanka’s Ministry of Ports and Navigation.
“However, the current situation has improved a lot with a developed infrastructure ready to welcome any new investor (at ECT). In addition, at present, port activity is established with a proven track record. Therefore, the same payment received by SLPA from CICT cannot be applied to ECT. The expected financial return from ECT to SLPA will be much higher than that of CICT, ”the Cabinet memorandum said.
CANC’s first round of negotiations with Adani was inconclusive and resulted in no agreement on basic project conditions, such as royalties, upfront payment, land lease payment to SLPA and exclusivity clauses.
“No flexibility was shown (by Adani) but (he) stressed that it was necessary to stick to the financial values given in the construction, operation and transfer (BOT) agreement for CICT”, the Cabinet note said, referring to the talks held by the CANC.
The tripartite cooperation memorandum provided for the formation of a terminal operating company owned 51 percent by SLPA and 49 percent by Indian and Japanese entities.
Although “the MoC indicates that the ECT is to be developed on a loan from the Japanese government to SLPA, the current government has decided to develop the ECT as an investment project. ‘refraining from obtaining loans’.
The ECT comprises 1,320 meters of quay wall, a terminal area of 76 hectares, berths 18 meters deep and a container storage yard with an annual capacity of 2.4 million equivalents. twenty feet (TEU). SLPA developed 440 meters of quay wall, 20 hectares of land and related facilities with an $ 80 million loan from the Bank of Ceylan.
During the negotiations held by the CANC on January 27 and 28, the Sri Lankan side stressed that the expenses incurred by SLPA on the ECT would be recovered in advance from Indian and Japanese investors.
However, APSEZ wanted the cost incurred by SLPA for the partial development of ECT to be “considered as the State’s share in the project”.
CANC further stated that the concession agreement for ECT “will offer nothing more than what is already available to CICT”.
The CANC has also applied for “status of reference shareholder” from the government of Sri Lanka in “the strategic national interest”.
Adani regretted that the project’s IRR and equity IRR were “negative”, according to his calculations based on the values proposed by SLPA.
Thus, the minutes of the CANC negotiations noted: “It is not fruitful to continue negotiations on the proposal submitted by APSEZ because they were not flexible to adhere to key financial clauses.
The Cabinet Note therefore recommended to develop and operate ECT as a 100% SLPA-owned container terminal and complete the terminal development work within three years.
The Ministry of Ports and Navigation also proposed to the Cabinet “to develop the West Container Terminal (WCT) in parallel with the ECT as a public-private partnership (PPP) project on the basis of the BOT for a period of 35 years by a joint venture comprising SLPA and government candidates of India and Japan based on the framework used in the development of the CICT ”.
The CICT framework provided for a 35-year term of the BOT, a one-time upfront payment, annual land lease payment and fees based on containers handled at the terminal. Based on the CICT framework, it was decided by the then Sri Lankan government that this “model could be used successfully for the development of container terminals, by re-examining the payments to be received by SLPA based on the comparative size of the terminal area and the improvement of business opportunities in the port of Colombo ”.
The WCT will have a quay wall of 1,400 meters, a water depth of 20 meters, a terminal area of approximately 64 hectares with an annual capacity of 2.6 million TEUs.
The WCT was proposed as an alternative to India and Japan as “responsible government that honors international agreements between countries, the government of Sri Lanka should be responsible for upholding these international agreements”.
While approving the proposal submitted by the Ministry of Ports and Navigation, the Cabinet also decided to set up a CANC and a Project Committee to assess the India-Japan team’s proposal for the WCT.