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.