The
government aims at achieving 4.5 Million tourist arrivals, realizing a worth of
US $10 billion receipts from tourism in 2020. Sri Lanka has recorded an
all-time high tourist arrivals of 2.0 million in 2016 with an impressive growth
of 14 percent.
In
order to upstream this momentum and also to attract high spending tourists,
tourism related infrastructure and facilities together with conducive
environment for tourism need to be developed.
The
expansion of hotel facilities and rooms is one of the mainstay to promote this
industry. Sri Lanka had nearly 32,000 hotel rooms by the end of 2016 and
considering the emerging demand in the industry and also to accommodate the anticipated
tourist arrival to the country, it has been estimated to increase the number of
hotel rooms to 80,000 by 2020.
Hambantota
is an area with vast potentials for tourism development as it carries multiple
tourist attractions.
Particularly,
due to the unique ecosystems and striking sea frontage with diversity in marine
resources, the area is becoming more popular among domestic and foreign
tourists.
However,
the accommodation and recreational facilities available in the area is not
conducive and adequate enough to cater for the demand of high end tourists in
particular and therefore the Sri Lanka Tourism Development Authority in
collaboration with the Chinese Government have extended arms for the
development of tourism related activities and facilities.
China Merchant Port Holdings Company Ltd (CMPort) which has clinched
majority shares of the Hambantota Port joint venture company will sell a quarter
of them within the first 10 years to a Sri Lankan party at a “fair value”
determined by an independent valuer, the final draft of the concession
agreement between the company and Sri Lanka Ports Authority (SLPA) states.
At the start, CMPort will hold 80% of shares while SLPA will have 20%.
A divestiture would effectively bring down CMPort’s shareholding in the
joint venture company to 60%.
An independent valuer will be mutually agreed upon and appointed by the
Sri Lanka Government and CMPort while the valuation will be based on an internationally
acceptable valuation methodology.
However, in the event a Sri Lankan party expresses interest in buying the
divesting shareholding within the first 5 months of the agreement being signed,
the sale will be based on the transaction value stipulated in the agreement.
This means the interested party will have to pay a fee calculated on the
US$ 1.4 billion that the joint venture company will be capitalized with.
The agreement also states that, in the event there is no Sri Lankan party
interested in such acquisition within the 10 years, CMPort and its affiliate
would be entitled to divest its shareholding in the company “to any other party
with the first right of refusal given to the other shareholders”.
It specifies
that, in the event the public-private partnership (PPP) operator needs further
funds, then, such additional funds “shall be contributed by the respective
shareholders in proportions corresponding to their shareholding…at the time of
the required investment”. (The PPP operator will be majority owned, controlled
and managed by CMPort).
Crucially, the
agreement does not say what would happen if the SLPA does not have the money to
invest. But an earlier version of the document had read that, in the event the
PPP Operator needs any funds, the shareholding of 80-20% may be changed or
diluted based on the further capital contribution by the shareholders.
This meant
that the SLPA’s shareholding in the joint venture — already small at 20% could
reduce still more if it could not find the required funds.
And it also
meant that CMPort’s share would increase if it deposited the requisite money.
It is also
noteworthy that the parties will agree to the divestiture of shares being based
on an independent valuation when the proposed allocation of an 80% shareholding
to CMPort is not based on a similar valuation.
The company
will take over all assets and services of Hambantota Port with none of the
liabilities. The SLPA is even obligated to restore the US $40 million tank farm
— forcing it to incur an additional cost — before handing it over free of oil
to CMPort.
The final
draft of the concession agreement is just 96 pages long and pertains to the
public-private partnership being forged for the running and development of
Hambantota Port.
The PPP
operator would be entitled to collect the total revenue generated from all
services including, but not limited to, navigation charges, landing and
delivery charges, port dues, etc. There is no mention of royalties payable to
the SLPA.
The agreement
clearly states that, from the date of the agreement till the performance of port
services reaching 50% capacity utilization, or during the first 15 years,
“there shall be no container port/terminal development directly in competition
with the Port Services and activities carried out at the Port, within one
hundred (100) Km perimeter from the periphery of the Port Property”.
This is called
the “Exclusive Limit”.
The
development of Hambantota will fast-track the country’s development drive and
will open up more job opportunities for the villagers of Hambantota.
Tourism in the
Hambantota area possesses significant growth potential due to a number of
factors. It has always had an attraction due to its location providing easier
access to many tourist sites and in particular due to the sandy beaches which
exists in the region.
However, it
was hampered without required facilities being non-available or available only
in limited capacity which resulted in low retention of tourists. However, with
the proposed development projects by the SLTDA has the potential to transform
the region in providing ample facilities and provide great value to investors
who would be willing to invest in the region as this is a flagship project for
the SLTDA and therefore would undoubtedly be a region that is under government
focus. Relative low cost of land and expected high levels of tourist visits has
the potential to lift Hambantota as one of the top destination in the island
and provide a return of Investment at a higher rate.