Sri Lanka Ports Authority to Sign South Colombo Harbour Container Terminal in April with China Merchant Holdings & Aitken Spence

15th March 2010, www.island.lk, By Devan Daniel

A top official says the deal between the Sri Lanka Ports Authority (SLPA) and China Merchant Holdings, and its local partner Aitken Spence Holdings, to design, build and operate a container terminal in the South Colombo Harbour would be finalised before May this year.

Hong Kong port operator China Merchant Holdings and Aitken Spence were the sole bidders to build, design and operate a container terminal on the Southern side of the port of Colombo after the initial bidding process was nullified by the state, and negotiations with the SLPA have dragged-on for almost a year.

At one stage, the top officials of the SLPA said the authority was considering other options to develop the container terminal without China Merchant Holdings. One option that was considered was as a private-public partnership through a share issue.

Last Friday, SLPA Managing Director Capt. Nihal Keppetipola told the Island Financial Review that negotiations were ongoing between Merchant China Holdings (and Aitken Spence Holdings) and the SLPA.

"We expect a breakthrough in negotiations within a week’s time after which the SLPA would refer the agreement to the Attorney General’s Department. If all goes well and we receive a favourable report from the Attorney General, the contract should be awarded to China Merchant Holdings and their local agents Aitken Spence sometime in April," Capt. Keppetipola said.

The delay in reaching consensus was caused by the financial bid presented by China Merchant Holdings and Aitken Spence.

Sources close to the bid on the SLPA side said Aitken Spence-China Merchant Holdings had offered about 50 percent less in its bid compared to what they had offered at the first round of bids. At the first round of bids several local and international companies had bid for the project and it was awarded. But one of the bidders disputed the deal and the government was compelled to nullify the entire process.

"Considering the global financial crisis and the slump in the global shipping industry, they have offered much less in their bid the second time around; almost 50 percent less than what they proposed earlier," a source said.

Meanwhile, sources said the SLPA had made changes of its own from the original round of bids, increasing, for example, the minimum guaranteed volume.

"In the previous round, SLPA had set this volume at two million TEUs per annum after 30 years with 1.5 million at the initial stages. This time, the minimum guaranteed volume has been set at 2.4 million TEUs per annum after 20 years, with two million TEUs after 10 years," a source said. The minimum guaranteed volume is a royalty payment that would be paid to the SLPA irrespective of whether or not the volume is met.