Hambantota Port to make Lanka S Asian transshipment hub

By Shirajiv Sirimane

Investor confidence for the Ruhunu Magampura Mahinda Rajapaksa Port is increasing with several global players and local investors wanting to stamp their footprint there.

Operations at the port

Port view from the sea bank

Berth at Magampura Port

The Sri Lanka Ports Authority (SLPA) has an ambitious task to attract billions of dollars worth of investments to the port and though the Opposition is trying to make a mockery of the situation, the target is very much within reach. Minister of Ports and Highways (Project) Rohitha Abeygunawardana said the US$ 650 million investments by foreign investors at the first stage of the port had further strengthened the confidence of global industrial and commercial giants regarding the success of this innovative project in southern Sri Lanka.

“The port in Hambantota is a major economic centre that has ensured the ushering of socio-economic prosperity from the South to the whole of Sri Lanka in the future,” he said.The SLPA has received many investment proposals from prospective local and foreign investors to establish businesses within the port premises. Out of the 27 proposals received, the Cabinet has approved seven investment proposals, subsequent to the recommendations by the Cabinet Appointed Negotiating Committee with the assistance of a Technical Evaluation Committee.

These proposals include those for setting up a sugar refinery plant; cement grinding/ bagging plant, fertiliser plant, petro-chemical plant and warehouses. The proposal to establish a sugar refinery was made by Shree Renuka Sugars Ltd, India which has formed a local subsidiary company, Lanka Sugar Refinery Company (Private) Limited. The SLPA and Lanka Sugar Refinery Company signed the Business Venture Agreement last year and now companies from Pakistan and even Singapore have inked agreements to set up ventures at Hambantota.

Thatta Cement Company (Pvt) Ltd, Pakistan will construct a cement grinding and bagging plant and CEO and Vice Chairman of Thatta Cement Karachi Muhammad Fazlullah Shariff told the Sunday Observer that this is the first time that the company launches operations outside Pakistan.

He said while the global demand for cement is around three percent annually, the Sri Lankan demand is around four percent.

Demand for cement

"However, we have noted that the demand for cement in the Hambantota area is around eight percent and this was the main reason for us to set up operations in Hambantota,” he said. He said when an international airport and harbour are set up, a similar demand is witnessed.

The proposed plant will employ a closed circuit cement grinding mill and cement and packing plant for cement manufacture and dispatch. The total investment is estimated at US$ 15.15 million, to be incurred during the first five years of operation.

At the commencement the minimum guaranteed production volume of the plant will be 100,000 Mt/year which will increase gradually to 1,000,000 Mt/year at the end of the first decade. Thatta Cement Company (Pvt) Ltd is the local subsidiary company of Thatta Cement, Pakistan.

He said the project would commence mid-2013 and operations are expected to commence next year. “The project would generate 50 direct employment opportunities.” The Business Venture Agreement with the SLPA would be for 25 years. Land allocation for this business venture will be four hectares. It will generate a minimum revenue of US$ 9.9 million over the 25 years, via a land lease agreement. In addition, by royalty payment, the SLPA will earn US$ 65.5 million over 25 years. The SLPA will achieve more benefits via this project as it generates vessel movements at the port. Since Thatta Cement is willing to employ more than 150 Sri Lankans, the project would benefit our country from that angle too.

In addition to this venture, McLarens Holdings Ltd (Warehousing), Agalawatta Plantation PLC (Warehousing) and ACE Distripaks (Pvt) Ltd (Warehousing) have expressed interest to commence business at the Hambantota port zone. Micro Cars Limited too inked an agreement to set up a vehicle assembly plan at the prot investment zone.

Second stage

Chairman, SLPA, Dr. Priyath Wickrama said the effective intervention of President Mahinda Rajapaksa to lure the international community to commence business in sustainably peaceful environs in the country has brought about the dawn of an era of prosperity for all Sri Lankans.

“At the second stage of the investment process at the Hambantota port, 11 more investors will arrive at the port with investments of nearly US$ 1.1 billion, which would increase the total investment by investors at the port to US$ 1.8 billion. The port in future will play a key role in the Indian subcontinent to enrich the industries in the region,” he said.

Hayleys PLC and Dragon Asia Fertiliser Limited of Hong Kong have become the first private sector entities to invest in the Ruhunu Magampura Mahinda Rajapaksa Port by committing US$ 7 million for an international fertiliser storage, processing, bagging and distribution hub.This landmark investment will result in the development of a local and international fertiliser transshipment and distribution hub of over 200,000 square feet in extent, in an area of 2.5 hectares.

Construction work on the facility, which received Cabinet approval in August, began with the laying of the foundation stone on December 5, 2011, amidst a gathering of senior government officials and senior representatives from Hayleys and Dragon Asia Fertiliser.

“This facility, which has the potential to generate significant employment opportunities for Sri Lankans and to attract vessels to the Hambantota Port, represents an important development in the infrastructure expansion in the country,” Hayleys Group Chairman Mohan Pandithage said.

“As a Group that has consistently supported development initiatives in Sri Lanka, Hayleys is proud to take the initiative in investing in the Ruhunu Magampura Port industrial zone, setting a precedent for other private sector entities to follow,” he said.

Once operational, the state-of-the-art Hambantota International Fertiliser Distribution Hub hopes to attract major fertiliser shipments from the Baltic Sea region to the Port of Hambantota, by employing its strategic location to deliver freight advantages to buyers in terms of cost and time savings.

Such cost advantages will in turn benefit the local agriculture industry, enabling the local farmers to thrive.

It is envisaged that these bulk fertiliser shipments which arrive at the Hambantota port on larger mother vessels will also be distributed to the Indian subcontinent and South East Asia on feeder vessels, the company said.

Shree Renuka Sugars Limited India, through its subsidiary Lanka Sugar(Pvt)Limited will invest US$ 220 million on a sugar refinery at the Port. The project will provide direct employment to 300 and indirect employment to 1,500 individuals.

Investment Promotion Minister Lakshman Yapa Abeywardena said that many investors were willing to commence new factories at the Magampura port and the construction of a port in Hambantota was an important catalyst for major economic development in Sri Lanka.

In addition to attracting fertiliser shipments, the facility developed by Hayleys and Dragon Asia Fertiliser is also expected to open new markets such as Africa, which has the potential to be catered to, via the Hambantota port.

Construction work

Meanwhile, the construction work of the second phase of the Hambantota Magampura Port has begun and it is expected to cost around US$ 800 million to complete the second phase of the project.

Magampura Port Chief Engineer Agil Hewageegana said, “Under this project, a new terminal will be built in the Port area.

Accordingly, five more vessels can be accommodated in this terminal apart from the current four vessels which can be accommodated in the first phase of the port project.”Upon the completion of the construction work in the second phase, the Port will cover around 150 hectares of land and accommodate nine vessels at any given time.

“We will be looking at possibilities to start construction work of the third phase of the project once the main requirements are completed,” Hewageegana said.

The total construction cost of phase one was US$ 360 million of which US$ 306 million was funded by the People’s Republic of China. According to the port master plan, 33 vessels can be accommodated at the port at any given time once construction work of all phases are completed. “The second phase of the port will provide a strong supplementary port to the Colombo Port and support Sri Lanka to consolidate its status as a transshipment hub in the South Asian region,” he said.

Sri Lanka will start operations at the 82,000 ton capacity fuel bunkering terminal of the port in October, 16 months later than the original schedule, the Ports Authority said.The State-run SLPA had originally planned to open the facility for full operational bunkering in May 2011.The US$ 130 million project contains eight tanks of bunkering oil and six tanks of aviation fuel and LPG in the initial stage.

The aviation fuel stored in the Hambantota Port could be used for the Mattala Airport, the second international airport of Sri Lanka. The Hambantota bunkering capacity could be expanded to four million metric tonnes if demand picks up.

Bunkering operation

The bunkering operation is the only part of the port not open to external investment.China Exim Bank has loaned US$ 77 million toward the cost of the terminal, which the Ports Authority will operate. China has loaned Sri Lanka the bulk of the money to build the US$ 1.5 billion port.

China will finance the expansion of the Hambantota Port and the first phase too was financed by China. It has been positioned as an industrial port with facilities to transship vehicles and also provide bunkering services.

The Hambantota Port, which opened in November 2010, is set to be Sri Lanka’s biggest port once the second phase is completed and to give the Indian Ocean country access to traffic on one of the world’s biggest East-West shipping lanes, located a few kilometres off its southern coast.