Exclusive: Revival of Hambantota port in Sri Lanka may strengthen China’s position in Indian Ocean

The Belt and Road Initiative (BRI) has been extremely criticised for its implementation and charge of returns on quite a few events and one may by no means de-link the strategically situated Hambantota International Port from BRI. This port was handed over to China Merchants Port Holdings (CMPort) on a 99-year lease by the Sri Lankan authorities with a fee of US$1.12 billion because the island nation couldn’t pay again the funding capital debt to China.

Political activists and commentators usually seen this settlement between the China Merchant Port Holdings Company (CMPort) and Sri Lanka Ports Authority (SLPA) as an unfair deal. It is noteworthy that the Chinese state-owned firm CMPort presently has an total stake of 80 per cent, and the SLPA has 20 per cent.

This is one of the primary explanation why Sri Lanka is quoted as a sufferer of debt lure diplomacy of China’s BRI. But now, whereas the world continues to battle the pandemic, the fortunes of the Hambantota port appear to be altering.

Hambantota is near the Asian and European worldwide delivery routes the Suez Canal and the Strait of Malacca. These routes by means of Hambantota are utilized by about 36,000 ships, together with 4,500 oil tankers. The port saves about three days of crusing time and gas.

China will definitely put in all its would possibly to make up for the misplaced time in creating the Hambantota International Port as one of an important ports in the area, and preserve nations like India on its toes.

The historical past

In 2015 and 2016, the Central Bank of Sri Lanka commented that Hambantota was the one port with a damaging development charge, and that it had a declining quantity of vessel arrivals. The Asia Maritime Transparency Initiative noted that “the economic rationale for Hambantota is weak, given existing capacity and expansion plans at Colombo Port, fueling concerns that it could become a Chinese naval facility,” a realisation that on the time prevented different lenders comparable to India from getting concerned.

The guarantees of elevated commerce and financial wealth have been quashed nearly instantly because the port opened its doorways in a shambolic inauguration ceremony, however the challenge plunged Sri Lanka into spiraling debt to China.

As a outcome, in 2017, the Sri Lankan authorities had little selection however at hand over 80 per cent of the port’s possession to CMPort on a 99 year-long lease, together with 1,235 acres of land.

In 2018, critics identified to the whole abandonment of the port with wildlife roaming free on its primarily abandoned premises. When the port was underneath the Sri Lankan authorities, it was barely operational as a result of lack of operational investments and incapable information to begin up and run a port of that scale. Sooner or later, the port wanted an operational associate with a complete funding to fulfill its calls for.

The CMPort invested in approx. $1.12bn to revive the port underneath a public-private partnership. The CMPort needed to additional spend at the very least $700800m or extra to carry the port to the operational stage at its full capability.

One yr after Hambantota International Port (HIP) got here underneath its new administration, the port targeted on roll-on/roll-off (ro-ro) operations and doubled its enterprise, with a 136 per cent enhance in the quantity of ro-ro vessels dealt with by the operational employees. The HIP has since diversified its companies to incorporate different port-related actions comparable to container Handling, General Cargo, Passenger, Bunkering, Bulk Terminal, and Gas at preliminary levels.

What has modified

  • The geographic positioning

The geographic positioning of HIP gives benefits not only for the delivery trade but additionally for import/export enterprise in normal, coupled with skilled dealing with to ship or transship completed items to nearly any vacation spot in the area, because the port can supply comparatively shorter timelines with simply six to 10 nautical miles (19km) to the world’s busiest maritime route between the Malacca Straits and the Suez Canal linking Asia and Europe.

Rapid development in financial improvement in rising markets surrounding the Indian Ocean, such because the Bay of Bengal and East Africa, has created development alternatives for Sri Lanka’s port trade, in addition to extra established maritime enterprise with India.

The deep-water terminal facility of Hambantota has the capability to berth the most important of ships with ease and effectivity. Advantages in Hambantota embody aggressive labour prices, freeport amenities, ample house for storage, dry climate all year long. This offers HIP its aggressive edge to develop as a aggressive regional maritime and logistics hub.

Given the shift of the maritime trade in the approaching many years concerning 2020 low sulphur cap rules, Hambantota is a perfect location to take a position in storage tanks, refineries, and liquified pure fuel (LNG) bunkering amenities with increased capability to assist the worldwide ship fleet.

Bunkering is the supplying of gas to be used by ships, and contains the shipboard logistics of loading gas and distributing it amongst accessible bunker tanks.

Another key to their resurgence is their intent to faucet into the market of gas depots in each Singapore and Fujairah, two of the most important gas depots in the world that provide over 60 million tonnes of gas per yr.

  • Becoming a RO-RO transshipment hub

The port is rising as a RO-RO transshipment hub. RoRo describes how merchandise are loaded and discharged from a vessel. RoRo permits your merchandise to roll on and off the vessel, versus being lifted onboard utilizing cranes. Self-propelled merchandise comparable to automobiles and tractors roll on and off the vessel on their very own wheels. The port reached its 1 million metric tonne yearly benchmark in 2019 with volumes from three sectors i.e. RO-RO, Bulk and Liquid cargo.

In the pandemic yr of 2020, the RO-RO transshipment hub has seen speedy development in car volumes whereas bulk cargo volumes have additionally grown by 44 per cent. Total RO-RO models dealt with throughout 2020 fell to 388,031 from 411,027 as coronavirus hit international delivery and Sri Lanka banned car imports however transshipment have began to develop quickly in current months.

By December 2020, volumes had pickup as much as 58,996 models which is an increase of 25.9 per cent in comparison with the corresponding interval in 2019, pushed nearly totally by worldwide volumes as imports dwindled to 215 models in 2020 from 4,214 a yr earlier. In January 2021 the port had dealt with 55,068 models, up 29 per cent from a yr earlier. Vehicles coming from India, Korea, Japan, and China are discharged at Hambantota for transshipment to the Middle East, South Africa, and South America.

HIP stated it had engaged in aggressive advertising and marketing marketing campaign and adjusted the RO-RO enterprise mannequin, which had introduced outcomes.

  • New offers which have elevated the importance of HIP

The Sri Lankan Cabinet of Ministers has accepted the proposal offered by Minister of Industries to arrange a ‘Smart One Stop Shop’ comprising the representatives of all related establishments to allow native and international traders in investing in industrial zones related to Hambantota Port and Industries in the Southern Province. Measures have been taken to ascertain a number of industrial zones in the Southern Province in reference to the current infrastructure improvement.

The Board of Investment (BOI) of Sri Lanka has signed the settlement with Pearl Energy (Pvt) Ltd to launch ‘Hambantota LNG Hub’ a floating storage LNG buying and selling facility on the port of Hambantota, bringing LNG to the doorstep of Sri Lanka, with a main intention of buying and selling LNG in the area utilising the strategic location of Hambantota.

The settlement was signed by Susantha Ratnayake, chairman of BOI, and Tania Siegertsz, director, Pearl Energy. The complete funding of the challenge is US$97.2 million. The LNG hub will develop into a landmark infrastructure improvement for the area, paving the way in which to broader entry to pure fuel as a main gas in South Asia.

Next in the road is China, which is able to construct a US $300 million {dollars}’ value tyre plant in Sri Lanka’s Hambantota port that can export 9 million tyres in its first section. Shandong Haohua Tire Co. Ltd might be given tax advantages underneath a Strategic Development Act, the Board of Investment of Sri Lanka stated. The manufacturing facility will begin operations in three years and in the primary section 9 million tyres, sufficient to fill 45,000 containers might be exported.

The HIP has fashioned a strategic partnership with Sinopec Fuels of Lanka (SOFL) which intends to develop Sri Lanka’s share of the regional bunker market and has invested over $5m in a tanker which flies the Sri Lankan flag. Operations have now began with native bunker provider Lanka Marine Services (LMS) as SOFL’s first purchaser supplying very low sulphur gas oil (VLSFO) to the tanker Suez Hans enroute from Chennai to Suez. The tanker refueled on the Hambantota Port anchorage by way of oil barge Kumana, chartered to LMS by HIP.

The approach ahead

Not to neglect, the problems surrounding the East Container Terminal (ECT) involving India, Japan and Sri Lanka have disturbed the stability of the Indian Ocean additional. The challenge, value an estimated $500-$700 million, was a key marker for infrastructure funding in the island nation the place Chinese initiatives are most distinguished. More than two-thirds of transshipment at this port is tied to India, making it an vital commerce and connectivity hyperlink.

As a three way partnership for India and Japan to take a position in, the East Container Terminal (ECT) challenge was additionally anticipated to showcase how the 2 Indo-Pacific companions, and in addition Quad members, may present South Asia with viable, clear and sustainable options for financing and improvement.

The sharp statements from New Delhi and Tokyo now mirror their deep disappointment and their suspicions in regards to the motivations. The ostensible purpose for the Rajapaksa authorities’s resolution is rising stress from port union teams which have opposed any international participation.

New Delhi has stated it continues to have interaction Sri Lanka on the ECT subject, though it stays chilly to Colombo’s various supply of creating the West Container Terminal. Now, the current authorities has determined to develop the ECT as an funding challenge by refraining from acquiring loans.

Secondly, the doable resurgence of the HIP may additionally give the much-needed impetus and perception to China and its companions when it comes the Belt and Road Initiative. Ports in Gwadar (Pakistan) and Kyaukpyu (Myanmar) may derive encouragement from this resurgence in attaining better heights.

Finally, additionally it is a well timed reminder for the Quad (a grouping of India, US, Australia and Japan) and different nations that China should not be written off but. The HIP has been reinvigorated inside two years. In addition to this, Sri Lanka has additionally cleared an power challenge involving China throughout three islands off the coast of Jaffna peninsula mere 50km from the Tamil Nadu coast. The challenge is to put in “hybrid renewable energy systems” in the three islands of Nainativu, Neduntheevu, and Analaitivu.

With Hambantota International Port dealing with higher prospects, one can solely think about the rising potential of the identical. India and Quad will now must reset its outlook on the HIP, an asset that was thought-about lifeless weight solely a pair of years in the past.

(The author is a Singapore-based Open-Source Intelligence analyst)

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