Report and Recommendation of the President

to the Board of Directors

Project Number: 39431

February 2007

Proposed Loan
Democratic Socialist Republic of Sri Lanka: Colombo
Port Expansion Project

CURRENCY EQUIVALENTS
(as of 01 February 2007)
Currency Unit

Sri Lanka rupee/s (SLRe/SLRs)

SLRe1.00
$1.00

=
=

$0.0092
SLRs108.58

ABBREVIATIONS
ADB
BOT
CCD
CMR
EIA
EMP
FIRR
GDP
ISC
JBIC
JCT
LIBOR
MPA
PIU
PPP
RTG
SAGT
SEIA
SLPA
SRE
TEU
UCT
WACC

Asian Development Bank

build-operate-transfer
Coast Conservation Department
Colombo Metropolitan Region
environmental impact assessment
environmental management plan
financial internal rate of return
gross domestic product
Indian subcontinent
Japan Bank for International Cooperation
Jaya Container Terminal
London interbank offered rate
Ministry of Ports and Aviation
project implementation unit
public-private partnership
rubber-tired gantry crane
South Asia Gateway Terminal
summary environmental impact assessment
Sri Lanka Ports Authority
superintending resident engineer
twenty-foot equivalent unit
Unity Container Terminal
weighted average cost of capital
NOTES

(i)

The fiscal year (FY) of the Government and its agencies ends on 31 December.

(ii)

In this report, "$" refers to US dollars

Vice President
Director General
Director

L. Jin, Operations 1
K. Senga, South Asia Department, SARD
K. Higuchi, Transport and Communications, SARD

Team leader
Team members

P. Dutt, Senior Transport Specialist, SARD

D. Utami, Senior Environmental Specialist, SARD
H. Iwasaki, Project Specialist, SARD
T. Nishimura, Transport Specialist, SARD
M. Gupta, Social Development Specialist, SARD
S. Miah, Counsel, Office of the General Counsel
J. Boestel, Economist, SARD
M. Raz, Structured Finance Officer, Private Sector Department
J. Peththawadu, Project Implementation Officer, SARD

CONTENTS
Page
LOAN AND PROJECT SUMMARY

MAPS

I.

THE PROPOSAL

II.

RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A.
Performance Indicators and Analysis
B.
Analysis of Key Problems and Opportunities

1
1
3

III.

THE PROPOSED PROJECT

A.
Impact and Outcome
B.
Outputs
C.
Special Features
D.
Project Investment Plan
E.
Financing Plan
F.
Implementation Arrangements

7
7
7
8
9
9
10

IV.

PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

A.
Benefits
B.
Economic and Financial Analysis
C.
Social Impact
D.
Environmental Impact
E.
Risks

13
13
13
14
16
17

V.

ASSURANCES
A.
Specific Assurances
B.
Conditions for Loan Effectiveness
C.
Conditions for Harbor Infrastructure Works Implementation

17
17
20
20

VI.

RECOMMENDATION

20

APPENDIXES
1.
Design and Monitoring Framework
2.
Organization Chart of Sri Lanka Ports Authority
3.
Sector Analysis of Colombo Port
4.
2005 Summary Financial Statement for Sri Lanka Ports Authority
5.
External Assistance to Sri Lanka Ports Authority
6
Proposed Terms of Reference of the Advisory Committee on Port Competition
7.
Detailed Description of Harbor Infrastructure Works Component and Cost Estimates
8.
Implementation Arrangements
9.
Implementation Schedule
10.
Indicative Contract Packages and Procurement Plan
11.
Outline Terms of Reference for Consulting Services
12.
Economic and Financial Analysis
13.
Summary Poverty Reduction and Social Strategy
SUPPLEMENTARY APPENDIX (available upon request)
Financial Management Assessment for Sri Lanka Ports Authority

21
22
23
27
28
29
30
32
33
34
36
41
54

LOAN AND PROJECT SUMMARY

Borrower

Democratic Socialist Republic of Sri Lanka

Classification

Targeting classification: General intervention

Sector: Transport and communications
Subsector: Ports, waterways, and shipping
Themes: Sustainable economic growth, private sector
development
Subthemes: Fostering physical infrastructure development, publicprivate partnerships

Environment
Assessment

Category A. The summary environmental impact assessment

report was circulated to the Asian Development Bank (ADB)
Board of Directors on 12 July 2006.

Project Description

The Colombo Port Expansion Project provides for dredging and

breakwater construction sufficient to accommodate three
terminals, which will be constructed sequentially. The Project
includes the establishment of a new marine operations center,
relocation of a submarine oil pipeline, provision of navigational
aids, and construction of shore utilities. The Project will be
developed on a public-private partnership basis. The harbor
infrastructure works, i.e., dredging, breakwater construction, and
other works, will be implemented by the Sri Lanka Ports Authority
(SLPA). The first two terminals will be operational in 2010 and
2015 respectively and constructed by operators chosen through
open competitive bidding under a build-operate-transfer
concession agreement. The first concession bid will be for one
terminal.

Rationale

Colombo Port is the natural transshipment hub port for the South
Asian region. However, in recent years Colombo Port lost market
share of the regional transshipment market because the
fundamentals of the market changed and Colombo Port did not
adapt. Colombo Port cannot offer the additional operating capacity
required to compete for the Indian subcontinent transshipment
market or the depth required to berth the latest generation
container ships. Colombo Port will have to develop additional
container berths with the required depth to address these capacity
and depth infrastructure constraints if it is to remain a
transshipment hub port.

ii
Impact and Outcome

The Project will promote economic growth by improving Sri

Lankas competitiveness in the ports sector by expanding
Colombo Port using public-private partnerships; and facilitate
economic growth by enhancing national competitiveness in
international trade via lower transport costs and faster delivery
times. Container-handling capacity will be increased from 3.3
million twenty-foot equivalent units (TEU) in 2006, to 5.7 million
TEU by 2010, 8.1 million TEU by 2015 and 10.5 million TEU by
2024. The additional capacity will enable Colombo Port to
increase its Indian subcontinent transshipment market share from
23% in 2002 to 30% by 2011. Sri Lanka will thus be able to
generate additional income from transshipment. Foreign direct
investment in the ports sector will increase by approximately $800
million by 2024.

Project Investment Plan

The investment cost of the Project is estimated at $781 million.

The public sector component is estimated at $480 million,
including taxes and duties of $49.7 million.

Financing Plan
Source
Public Sector Component
Asian Development Bank
Government
Subtotal
Private Sector Component
Total

Total
($ million)

Percent

300.0
180.0

38.5
23.0

480.0
301.0
781.0

61.5
38.5
100.0

Sources: Feasibility study and Asian Development Bank estimates.

A loan of $300,000,000 from the ordinary capital resources of the

Asian Development Bank (ADB) will be provided under ADBs
London interbank offered rate (LIBOR)-based lending facility. The
loan will have a 25-year term including a grace period of 5 years,
an interest rate determined in accordance with ADBs LIBORbased lending facility, a commitment charge of 0.35% per annum,
and such other terms and conditions set forth in the draft loan and
project agreements.
Allocation and Relending
Terms

The Government will make all proceeds from this loan available to
Sri Lanka Ports Authority (SLPA) under the same terms and
conditions as the ADB loan.

Period of Utilization

30 April 2011

Estimated Project
Completion Date

31 October 2010 for both the public and private sector

components.

Executing Agency

Ministry of Ports and Aviation

iii
Implementation
Arrangements

SLPA will be the Implementing Agency. A project implementation

unit will be established with a full-time project director, and staffed
with qualified staff with expertise in contract management,
environmental monitoring, planning, and accounting. The project
director will report to the Chairman, SLPA. The project director will
have overall responsibility for project management and be
responsible for the preparation of quarterly and annual project
monitoring and progress reports. An interministerial project
steering committee chaired by the Secretary, Ministry of Ports and
Aviation and comprising representatives from concerned
government agencies, will be established to oversee the Project
and coordinate issues related to project implementation. The
Chairman, SLPA will report to the project steering committee on a
regular basis.

Procurement

Goods, works, and related services to be financed by the loan will

be procured according to ADBs Procurement Guidelines (2006,
as amended from time to time). All contracts will be procured
through international competitive bidding.

Consulting Services

International and national consultants will be required for

construction supervision. The consultants financed under the loan
will be engaged using ADBs single-source selection procedures
in accordance with ADB's Guidelines on the Use of Consultants
(2006, as amended from time to time).

Project Benefits and

Beneficiaries

The Project will benefit Sri Lankan exporters by enhancing their

competitiveness in international markets through lower freight
costs and faster delivery times for time-sensitive exports e.g.,
textiles, which account for 52% of Sri Lankas exports. Lower
freight costs are expected to result in annual savings of $82
million by 2015, and faster delivery times will create annual
savings of $49 million by 2015. In addition transshipment traffic
will generate direct net annual income to terminal operators
amounting to $77 million by 2015.

iv
Risks and Assumptions

As the implementation of this Project will be on a public-private

partnership basis with the public sector implementing the harbor
infrastructure works component and the private sector
implementing the terminal component, the full benefits of the
Project are dependent on both components being implemented on
a coordinated basis. Therefore, the major risk is if no private
sector party is willing to take up the terminal component
concession. This risk has been mitigated by linking
implementation of the harbor infrastructure works component to
the progress of selecting a successful bidder for the terminal
concession. A delay in the consolidation of the ceasefire in the
country may also have some impact on private sector interest.
However, the private sector has been interested in Colombo Port
as indicated by the implementation of the South Asia Gateway
Terminal project even before the ceasefire. The Government has
declared Colombo Port a high-security zone and appointed the Sri
Lankan Navy as the designated authority for port security. The
navy has drawn up comprehensive security plans in accordance
with the requirements of the International Ship and Port Security
Convention of the International Maritime Organization for port
security and the special security considerations necessary for Sri
Lanka. Colombo Port is the first port in the South Asian region to
have implemented both the container security initiative and the
mega port initiative.

vi

2060a RM

I.

THE PROPOSAL

1.
I submit for your approval the following report and recommendation on a proposed loan
to the Democratic Socialist Republic of Sri Lanka for the Colombo Port Expansion Project. The
design and monitoring framework is in Appendix 1.
II.
A.

RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

Performance Indicators and Analysis

2.
Sri Lankas real gross domestic product (GDP) growth in the 1980s and 1990s averaged
about 5%, and increased to 6.1% in 2005. However poverty continues to be a major concern of
the Government as 22% of the population is living below the poverty line. The Governments
objective is to increase the rate of economic growth to around 8% per annum to generate the
resources needed for sustained poverty reduction, achieve its social and economic goals, and
reduce regional disparities. Medium-term prospects hinge on Government plans to foster
economic growth by significantly raising foreign direct investment as well as domestic public and
private investment. No large infrastructure improvements have been made in the last 20 years,
resulting in bottlenecks that are a heavy drag on the economy.1 An efficient port system is a key
factor in improving the countrys competitiveness and attracting investment. It can also be a
factor in encouraging the establishment of other value-added industries since Colombo Port is
ideally situated to be the transshipment center for South Asia. The ports sector in Sri Lanka is
dominated by Colombo Port. It is the only port equipped to handle container traffic and handles
95% of Sri Lankas total international trade. It also serves as a transshipment hub port for South
Asia; 70% of Colombos container volume consists of transshipment traffic to and from the
Indian subcontinent (ISC). The volume of containers handled increased from 200,000 twentyfoot equivalent units (TEU) in 1985 to 1 million TEU in 1995, but the growth rate then tapered off
and stagnated between 1997 and 2000 with an annual average of 1.7 million TEU. Growth then
increased, and in 2006 Colombo Port handled 3.08 million TEU. One of the main reasons for
the stagnation and slow increase in growth is Colombo Ports lack of competitiveness with other
major transshipment ports established to cater for ISC traffic.
3.
Colombo Port is owned by the Sri Lanka Ports Authority (SLPA), a statutory body under
the Ministry of Ports and Aviation (MPA). The current SLPA organization structure is in
Appendix 2. SLPA operates the three container facilities at the port. Jaya Container Terminal
(JCT), the main container terminal, has a capacity of 2 million TEU. The two other container
facilities are Unity Container Terminal with a capacity of 300,000 TEU and Bandaranaike Quay
with a potential capacity of 200,000 TEU. In addition, a private sector company, South Asia
Gateway Terminal (SAGT) Private Limited upgraded and now operates Queen Elizabeth Quay,
which has a capacity of 1 million TEU. A sector analysis of Colombo Port is in Appendix 3.
1.

Container Traffic Volume

4.
In 2005, container traffic volume at JCT accounted for 64% of the total Colombo Port
container volume, and SAGT for 36%. JCT accounted for more than 90% of the SLPA revenues
and profits, making container traffic the major revenue earner for SLPA. About 70% of
containers handled in Colombo Port are transshipment containers of which 75% are for the ISC
market and 25% for the West African market. Between 1998 and 2002, the transshipment share
of Colombo Port for total ISC cargoes declined from 52% to 45% even as the ISC transshipment
1

ADB. 2006. Asian Development Outlook 2006. Manila.

market grew at 8% annually. The loss in market share accounted for the stagnation of overall
container traffic volume at Colombo Port during this period. This loss resulted from a
combination of factors, some beyond the control of Colombo Port, while others are internal
factors including lack of sufficient capacity. Enhancement of operational efficiency at all its
container terminals and investment in port infrastructure is urgently needed to increase
Colombo Ports container-handling capacity and alleviate its depth infrastructure constraints to
reverse this trend. Remaining a transshipment hub port will not only bring more foreign
exchange to the country, but will also develop supporting industries such as ship chandlery, ship
repair, and bunkering activities.
5.
Direct calls at Indian ports started around 1997, when traffic volume reached the
threshold at which it became economic at Nhava Sheva port in India (until then India had been
served by feeders). The trend of increased direct calls has since accelerated as a result of
improvements in port efficiency, which followed the construction of a private terminal at Nhava
Sheva in 1999. New ports started to compete for Colombos transshipment traffic. Before 2000
the competition came from two major ports: Dubai and Singapore; subsequently three additional
competitors emerged i.e. Salalah in Oman, and Port Klang and Tanjung Pelepas both in
Malaysia. Internal factors affecting container traffic volume include the delay of construction of
new capacity until 2001, resulting in congestion during 19962000. JCT operation had no
intraport competition until 2001 and productivity remained below that of the main competitors.
Colombo Port provided no flexibility in pricing and had limited ability to negotiate prices with
shipping lines. This was a major disadvantage, as the competing ports such as Singapore and
Port Klang were cutting prices to unusually low levels. In 2002, the period of stagnation ended,
after the introduction of new capacity in 2001 by the private operatorSAGT. The introduction
of competition between the terminals promoted an overall increase in efficiency.at Colombo
Port.
2.

Operational Performance

6.
The overall container growth in Colombo Port increased by 13.3% in 2004 and 10.5% in
2005. In the first 6 months of 2006, it increased by 18% compared with the same period in 2005.
Crane productivity for mainline container vessels at JCT increased from 15.1 moves per crane
per hour in 2001 to 23.4 in 2005. JCT and SAGT now have similar levels of crane productivity.
Average service time for container ships at JCT decreased from 17.8 hours in 2001 to 13.8
hours in 2005; and average turnaround time for container ships decreased from 23.1 hours in
2001 to 16.0 hours in 2005. JCT has about 1,500 employees handling a total of 1.7 million TEU.
SAGT has about 500 employees handling 930,000 TEU. As a comparison to world best
practice, Singapore Port handles 17 million TEU with only 5,700 employees.
3.

Financial Performance

7.
SLPA consistently made operating profits during 20012005: SLRs5.26 billion in 2001
and SLRs7.4 billion in 2005. Earnings after tax in 2005 were SLRs10.1 billion. Colombo Port
accounts for approximately 97% of SLPAs income. SLPA accounting is done using accrualbased accounting in accordance with Sri Lankan accounting standards, which are identical to
international accounting standards. SLPA accounts are audited by the Auditor General of Sri
Lanka and then presented in Parliament. The 2005 summary financial statement for SLPA is
shown in Appendix 4.

B.

Analysis of Key Problems and Opportunities

1.

Challenges

8.
Colombo Port lost market share of the ISC transshipment market because the
fundamentals of the market changed and Colombo Port did not adapt to the change. Colombo
Port faces increased competition from other transshipment ports. The dynamics of the size of
container ships means that the trend is toward larger container ships. Use of larger ships in turn
means that established transshipment ports now have a wider hinterland that they can
effectively serve. Hence the use of larger containerships means that Colombo Port now has to
compete with established ports such as Singapore and new ports such as, Dubai, Port Klang,
Salalah and Tanjung Pelepas, (para. 5) for the ISC transshipment market. These ports are
owned in whole or in part by established port operators and shipping lines, and are able to
provide higher productivity and faster ship turnaround times. Thus they have a built-in
advantage when competing for the ISC market.2 Colombo Ports efficiency and locational edge
in the ISC transshipment market has therefore eroded as new players in South-East Asia and
the Gulf region have used more modern institutional structures and equipment to reduce ship
waiting and turnaround times.
9.
Colombo Port is not able to offer the additional operating capacity required to compete
for the ISC transshipment market. The total current transshipment market is 6 million TEU and
is forecast to grow at 8% annually. The combined potential container capacity of all the facilities
at Colombo Port is 4 million TEU. As 3.08 million TEU were handled in 2006, and as Sri Lankas
own exports and imports grow, Colombo Port is expected to reach its full current capacity by
2010. It will thus reach its limit in the volume of transshipment traffic it can handle. This will
make the port unattractive to shipping lines that require guaranteed capacity before they decide
to make a port a transshipment hub.
10.
Colombo Port has a depth of 15 meters (m). This means that it cannot berth the latest
generation containerships, i.e., 9,000 TEU vessels; its competitors in Dubai, Singapore, Salalah,
and Tanjung Pelepas can all berth 9,000 TEU vessels. Shipping economics mean that the trend
is toward larger container vessels. Major shipping lines have already launched 11,000 TEU
vessels for the AsiaEurope route, and in the next 10 years major container lines could possibly
deploy vessels with 13,000 TEU carrying capacity. All hub ports therefore need to upgrade their
infrastructure to handle these larger vessels or see their competitive position eroded.
11.
The future performance of Colombo Port depends on how it addresses the institutional
and infrastructure constraints that it faces to complement its excellent geographic location and
to ensure that it remains a major transshipment hub port for the ISC region. This means that it
has to put into place measures to enhance its operational efficiency at all its container terminals,
set up an operating environment that ensures fair competition for all terminal operators, and
address its capacity and depth infrastructure constraints. International experience in the ports
sector shows that the most appropriate institutional structure for port efficiency is the landlord
port model, whereby the port authority is responsible for the common facilities while terminal
operations are carried out by a terminal operating company. By increasing its capacity and
efficiency, Colombo Port will remain a hub port, bring more foreign exchange to the country, and
develop supporting industries such as ship chandlery, ship repair, and bunkering. It will also
2

PSA Corp, the Singapore container terminal operator operates Singapore Port.. Dubai is operated by Dubai Ports
World, one of the largest port operators in the world. Hutchinson Port Holdings of Hong Kong, China, has an equity
share in Port Klang. Maersk, a large container shipping line has equity shares in Salalah and Tanjung Pelepas.

have the potential to make Sri Lanka a distribution center for the South Asian region, a role
normally centered on transshipment hubs. Being a transshipment hub will reduce shipping costs
for Sri Lankas own exports and imports, and thus make the country a more competitive location
for foreign and domestic investment.
2.

External Assistance to the Sector

12.
Modern development of Colombo Port started in 1980 with the construction of the first
phase of JCT using funding from the Overseas Economic Cooperation Fund, now the Japan
Bank for International Cooperation (JBIC). A series of JBIC loans through the 1980s and 1990s
funded enlargement of JCT to its present four berths. In 2000, JBIC provided a loan to upgrade
JCTs computer systems. JBIC is currently providing a $124 million loan to finance the
expansion of Galle Port. The World Bank provided assistance to the ports sector under its Port
Efficiency Project, which commenced in 1997. This funded studies into the legal, regulatory, and
management aspects of both the ports sector as a whole and Colombo Port in particular. This
project failed in 1999 due to lack of agreement between the World Bank and the Government on
sector restructuring. ADBs assistance to the Sri Lanka ports sector includes loan and equity
investment in SAGT for private sector development and operation of the Queen Elizabeth Quay
in Colombo Port.3 ADB also provided technical assistance in 1999 to assist the Government in
examining the feasibility of expanding Colombo Port.4
13.
Subsequently, ADB provided a loan in 2001 to (i) address sector policy, and institutional
and regulatory issues; and implement measures to improve the efficiency of the existing port, in
particular JCT; and (ii) carry out the preparatory work for the Colombo Port Expansion Project.5
The main services consultant engaged for this project produced an action plan to increase JCT
efficiency, a business plan analyzing the demand forecasts and economic and financial viability
of expanding Colombo Port, and a detailed engineering report on the technical options
available. These were reviewed and accepted by a panel of experts recruited separately as
individual consultants under this same loan to assess the commercial, operational, and
technical viability of the main services consultants proposals. The terms of reference for the
main services consultants require them to prepare detailed construction tender documents and
bid concession documents, and provide technical and bid advisory services to the Government
for the Project. A summary of past and ongoing external assistance to the ports sector in Sri
Lanka is given in Appendix 5.
3.

Lessons Learned

14.
The 2001 ADB loan included two significant policy covenants. The first covenant was for
JCT to be transformed into a corporate entity wholly owned by the Government. The objective of
this covenant was to increase overall port efficiency through increasing JCT efficiency by
making the landlord port model the dominant model in Colombo Port. However the Government
has not been able to corporatize JCT and thus has been unable to implement the landlord port
model in Colombo Port. The Government instead decided to increase JCT efficiency through
3

ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the
Democratic Socialist Republic of Sri Lanka for the Colombo Port Project. Manila (Loan 1689/7153-SRI, for $35.0
million [loan] and $7.4 million [equity investment], approved on 11 May).
ADB. 1999. Technical Assistance to the Democratic Socialist Republic of Sri Lanka for the Port of Colombo South
Harbor Development. Manila (TA 3276-SRI, approved on 13 October for $1.46 million).
ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the
Democratic Socialist Republic of Sri Lanka for the Colombo Port Efficiency and Expansion Project. Manila (Loan
1841-SRI, for $10 million).

competition, i.e., using the existence of SAGT to spur greater JCT efficiency. This approach has
succeeded and the relevant efficiency indicators for JCT have improved since 2001. Average
turnaround time for container ships improved by 30% from 23.1 hours in 2001 to 16 hours in
2005; average waiting time per ship improved by 77% from 3.6 hours in 2001 to 0.8 hours in
2005. The introduction of a private sector competitorSAGThas therefore helped to increase
operational efficiency of the SLPA-run JCT until both JCT and SAGT now have similar levels of
operational crane productivity at 23 moves per crane per hour. Although efficiency increase is a
necessary condition it is not a sufficient condition to result in an increase in ISC transshipment
market share. Instead increases in efficiency need to be supplemented by an increase in the
available capacity to cater for changing market needs. This is shown by the fact that although
JCT efficiency increased and the absolute volumes handled by Colombo Port increased since
2003, it did not help to increase the overall market share of Colombo Port in the transshipment
market. Colombo Port faces depth and capacity constraints that place it at a disadvantage in the
market. Hence both efficiency levels and infrastructure capacity at the required depths at
Colombo Port need to be further increased. As the capacity of JCT and SAGT cannot be
increased, a greenfield site needs to be developed as part of the Project so that Colombo Port
can continue to offer major shipping lines guaranteed capacity and be able to take the large
container ships that will be introduced by major shipping lines in the near future. Constructing
additional terminals will also help to increase overall port efficiency through additional
competition only if the landlord port model becomes the dominant model in Colombo Port.
15.
As the original approach to make the landlord port model the dominant model through
corporatization of JCT did not succeed, ADB carried out intensive policy dialogue with the
Government to use the public-private partnership (PPP) approach as an alternative method
allowing the landlord port model to become the dominant model in Colombo Port. The
Government agreed to use the PPP approach for future container terminals in Colombo Port.
Common facilities such as capital dredging and breakwater construction will remain a public
sector responsibility, while terminal operations will be carried out by terminal concessionaires.
The Project will allow for three new container terminals to be developed, i.e., south, west, and
east terminals. In the first phase only the south terminal will be developed. The prospective
terminal operator will be a corporate entity selected through open competitive bidding to ensure
that intraport competition between the different terminals is enhanced and thus improve the
overall efficiency of Colombo Port. Open competitive bidding will also be used for the second
terminal to be built as part of the Project, tentatively in 2015. The third terminal to be developed
in 2024 will also follow the PPP modality. This Project will therefore make the landlord port
model the dominant model in Colombo Port through using a PPP approach.
16.
The second significant policy covenant of the 2001 ADB loan (footnote 5) was to reform
the regulatory structure for the ports sector through legislation, especially to curb any
anticompetitive behavior on the part of established operators. The Governments long-term
objective in this regard is to enact a Port Competition Act. Prior experience with both the World
Bank and the ADB assistance indicate that changing the regulatory structure by legislation
needs to be done in incremental steps with the agreement of all parties. Hence, in the interim,
using a regulation by contract approach, the Government through a Cabinet decision on 11
October 2006 approved the establishment of an advisory committee to consider any grievances
or complaints that current and future container terminal operators may have regarding fair
competition issues. The committee will be chaired by the Secretary, MPA and membership will
include the person holding the post of Director General of the Public Utilities Commission. The
Government has agreed that the committee will be operational within 3 months of loan
effectiveness. The proposed terms of reference, composition, and draft procedures for the
committee are given in Appendix 6. Rules and procedures of the committee will be finalized

within 3 months of loan effectiveness. Once the committee is operational, all existing terminal
operators will be informed of its role and reference to the advisory committee will be included in
concession agreements to be signed with future terminal operators.
4.

Opportunities

17.
Even though the market share of Colombo Port for the ISC transshipment market has
declined, in absolute terms the volume has increased and Colombo Port has the potential to
further increase both its volume and its market share of transshipment traffic. Colombo Port has
several natural advantages: It has a well-protected deepwater harbor and is located near the
eastwest trunk routes between the Asia-Pacific, Europe, and the United States East Coast
regions. It is thus the closest transshipment port to the huge, rapidly expanding markets of the
ISC. For Europe-bound cargo for the east and south segments of the ISC, using Colombo Port
as a hub port is more advantageous than using Southeast Asian ports because of the shorter
distance to Colombo Port. Extensive market studies were conducted as part of the business
plan for the Project taking into account port development plans in competing ports. These
studies, which were validated by the independent panel of experts advising the Government on
the Project, show that if terminal operators at Colombo Port are able to offer high productivity,
sufficiently large additional capacity, ability to take larger vessels, and ability to negotiate tariffs
without external control, a revival of Colombo Ports share of regional transshipment traffic is
expectedfrom a 23% share of the ISC transshipment market in 2002 to 30% by 2011.
18.
The growth of the Sri Lankan domestic economy presents another business opportunity
for Colombo Port. Domestic container volume handled by Colombo Port has been a few
percentage points higher than the GDP growth rate. Domestic container traffic is projected to
rise by 9.5% annually to 2010 and account for approximately 30% of the total container traffic
with transshipment providing the balance.
5.

ADB Strategy

19.
ADBs strategy for the ports sector is based on the fact that an efficient port system is a
key factor in improving a countrys competitiveness and attracting investment. As Sri Lanka will
not be able to generate sufficient domestic cargo to attract mainline vessels, becoming a
transshipment hub port would allow Colombo Port to attract such vessels. As they are more
economical they allow Sri Lankas own imports and exports to obtain lower freight charges than
would otherwise be possible by avoiding the need to use feeder vessels. Enabling Colombo
Port to maintain its transshipment port status will also bring additional foreign exchange to the
country. The larger volume of ships calling at Colombo Port because of its transshipment hub
status will encourage the growth of ancillary industries, e.g., ship chandlery and bunkering,
which will increase economic activities and generate employment opportunities that otherwise
would not exist. Maintaining Colombo Ports transshipment hub port status will allow Sri Lanka
to act as a distribution and logistics hub for the South Asian region, which if realized will again
generate economic activities and employment opportunities. ADBs strategy is also to
encourage PPP in the ports sector as part of efforts to implement the landlord port model to
increase efficiency.

6.

Government Port Sector Policy

20.
The Government policy for the ports sector in line with the Governments Mahinda
Chintana national policy6, sets out the countrys vision for the ports sector as follows: (i) develop
the main ports of the country to facilitate increasing export and import trade associated with
rapid economic development of the country as well as the region by taking advantage of the
liberalization and globalization process, (ii) decongest Colombo Port by constructing South Port
in Colombo, Galle and Hambantota Ports, (iii) develop medium-scale ports in identified
provinces such as South, East, and North to divert increasing volumes of domestic bulk freight
transport from road to sea transport; (iv) encourage alternative source of funding for new
investment in port related infrastructure development, (vi) operate ports as commercial entity
without Exchequer support, and (vii) encourage public-private partnership investment for new
investment in the port sector. While continuing the state ownership of existing ports, the
Governments strategy is to increase efficiency of existing ports, operate ports as commercial
entity and establish container terminals as public private partnership projects. This Project will
be the first transport PPP in Sri Lanka. ADBs proposed loan is in line with Government policy.
III.
A.

THE PROPOSED PROJECT

Impact and Outcome

21.
The Project will promote economic growth by improving Sri Lankas competitiveness in
the ports sector by expanding Colombo Ports capacity using PPP to maintain its status as a
regional transshipment hub port. Container-handling capacity will be increased from 3.3 million
TEU in 2006 to 5.7 million TEU by 2010, 8.1 million TEU by 2015 and 10.5 million TEU by 2024.
The Project will facilitate economic growth by enhancing national competitiveness in
international trade via lower costs and faster delivery times. Export container traffic handled by
Colombo Port is expected to increase by 9.5% per annum starting in 2011. The additional
capacity will enable Colombo Port to increase its ISC transshipment market share from 23% in
2002 to 30% by 2011. Transshipment volumes handled by Colombo Port are expected to
increase by 8% per annum starting in 2011. Sri Lanka will thus be able to generate additional
income from transshipment. The direct payments generated by transshipment traffic alone are
expected to increase the contribution of the ports sector to GDP by an additional 0.1% by 2015,
and attract foreign direct investment of approximately $800 million to the ports sector by 2024.
B.

Outputs

22.
The Project will expand the container-handling capacity of Colombo Port by 7.2 million
TEU in three increments of 2.4 million TEU each. The major project elements are dredging an
approach channel and inner harbor basin west of the existing harbor, and constructing a
breakwater to the west of the existing harbor sufficient to accommodate three new terminals,
which will be constructed sequentially. In addition the Project includes the establishment of a
new marine operations center, relocation of an existing submarine oil pipeline near the entrance
to the new terminal, provision of navigational aids, and construction of shore utilities including
an electrical power plant, water mains and storage tanks and a sewage treatment plant. The
Project will be developed on a PPP basis. The terminals will be constructed by operators
chosen through open competitive bidding under a build-operate-transfer (BOT) concession
agreement; SLPA will carry out the harbor infrastructure works, i.e., dredging, breakwater

Ministry of Finance and Planning. 2006. Mahinda Chintana: Vision for a New Sri Lanka. Colombo.

construction, and other ancillary works. The concession bid for the first terminal will be carried
out in the first half of 2007.
1.

Harbor Infrastructure Works Component

23.
The harbor infrastructure works component is designed to accommodate vessels with an
overall length of 400 m, beam of 55 m, and draft of 16 m. It will be created by constructing a
major new breakwater to the west of the existing harbor and a smaller secondary breakwater.
The harbor will be served by a new two-way channel with a depth of 20 m and width of 570 m.
The new breakwaters in the initial phase will enclose a basin area of 285 hectares (ha), which
will support three new terminals each with a quay length of 1,200 m and land area of 62 ha. The
basin will be dredged to 18 m with provision to deepen it to 23 m should a new generation of
deep-drafted vessels come online. The depth of 18m is sufficient to cater for 11,000 TEU
vessels. The existing submarine pipeline to the main crude oil single-point mooring will be
lowered where it crosses the new dredged areas.
24.
Preliminary studies in accordance with the recommendations of the International
Navigation Association (PIANC) were carried out to size the channels. The outer approach
channel has been sized for two-way traffic as it is common to both the existing harbor and the
Project. The short approach to the existing harbor is and will remain for one-way traffic only.
Modern aids to navigation will be installed along the new channels. To ensure that all vessel
operations in the Project and the existing port are safely and efficiently carried out, a new
marine operations center is proposed near the entrance to the new terminals. This will include
facilities for berthing tugs and other harbor craft, a lookout station, and a control room for a new
vessel traffic management system serving the whole port. In addition this component will include
construction of utilities such as an electrical power plant, water main and storage tanks, and
sewage treatment plant. ADBs loan will finance the construction of this component. A detailed
description of the harbor infrastructure works component and cost estimates is given in
Appendix 7.
2.

Container Terminal Component

25.
The first container terminal will have a planned capacity of 2.4 million TEU per annum.
The shipshore transfers are assumed to be handled by 12 rail-mounted gantry cranes and the
yard operated by 40 rubber-tired gantry cranes. The area behind the berths will have a width of
476 m comprising a quay apron of 71 m, a yard-stacking area of 325 m, a rear yard of 45 m,
and common access road and utility corridor of 35 m. Although planned around the rubber-tired
gantry cranes, the land area is sufficient to accommodate any yard handling method preferred
by the concessionaire. The container terminal will be developed by the private sector under
BOT concession agreement. The winning concessionaire will be selected using open
competitive bidding. Open competitive bidding will also be used to select the operator for the
next terminal. SLPA itself will not be allowed to bid but a corporate entity registered by the SLPA
and/or the Government under the Companies Act No. 72 of 1982 of Sri Lanka, as amended,
may bid. SLPA equity in non-Sri Lankan Government or SLPA-owned winning concession
companies will not exceed 15%.
C.

Special Features

26.
The Project is developed as a PPP with the public sector implementing the harbor
infrastructure works component, while the private sector implements the container terminal
component in line with the provisions of the SLPA Act. The harbor infrastructure works

component is a prerequisite for development of the Project. It has high economic returns. The
container terminal component however will generate high financial returns and thus is being left
to the private sector to develop and operate under a BOT concession. Operational and
managerial control will rest with the operator. The Project will generate opportunities for ADBs
Private Sector Operations Department as an equity partner and/or as a lender for the terminal
concession company.
D.

Project Investment Plan

27.
Phase I of the Project involves the construction of the harbor infrastructure works and
one container terminal. The project investment cost for Phase I is $781 million, with the public
investment component estimated at $480 million, including taxes and duties of $49.7 million and
a base cost of $331.2 million. The private investment component is estimated at $301 million.
Table 1 provides a summary of the cost estimates and Appendix 7 detailed cost estimates.
Table 1: Project Investment Plan
($ million)
Item

Amounta

A. Public Sector Component

1. Base Costb
a. Harbor Infrastructure Works
b. Consulting Services
2. Contingenciesc
3. Financing Charges during Implementationd
Subtotal (A)
B. Private Sector Component
1. Terminal Construction Works
2. Equipment
Subtotal (B)
Total (A+B)

366.2
14.7
43.9
55.2
480.0
154.0
147.0
301.0
781.0

Includes taxes and duties of $49.7 million.

In mid 2006 prices.
c
Physical contingencies computed at 5% for harbor infrastructure works and consulting services, and
price contingencies at 1.2%2.8% per annum for foreign exchange cost, and 7%8% per annum for
local currency cost.
d
Includes interest and commitment charges. Interest during construction was computed at the 5-year
forward London interbank offered rate plus a spread of 0.6%.
Sources: Feasibility study and Asian Development Bank estimates.

E.

Financing Plan

28.
The Government has requested a loan of $300,000,000 from ADBs ordinary capital
resources to help finance the public sector component of the Project. The loan will have a 25year term, including a grace period of 5 years, an interest rate determined in accordance with
ADBs London interbank offered rate (LIBOR)-based lending facility, a commitment charge of
0.35% per annum, and such other terms and conditions set forth in the draft loan agreement.
The Government has provided ADB with (i) the reasons for its decision to borrow under ADBs
LIBOR-based lending facility on the basis of these terms and conditions, and (ii) an undertaking
that these choices were its own independent decision and not made in reliance on any

10

communication or advice from ADB. The private sector component will be financed by the
successful terminal concession bidder. Table 2 shows the financing plan.
29.
The Government will onlend the proceeds of the ADB loan to SLPA on the same terms
and conditions as the ADB loan. For this purpose the Government will enter into a subsidiary
loan agreement with SLPA. The Government has also given assurance that the necessary
counterpart financing for the Project will be available.
Table 2: Financing Plan
($ million)
Source
Total
A. Public Sector Component
Asian Development Bank
300.0
180.0
Government
Subtotal (A)
B. Private Sector Component
Total (A+B)

480.0
301.0
781.0

Percent
38.5
23.0
61.5
38.5
100.0

Sources: Feasibility study and Asian Development Bank estimates.

F.

Implementation Arrangements
1.

Project Management

30.
MPA will be the Executing Agency for the Project, and SLPA the Implementing Agency.
A project implementation unit (PIU) will be established headed by a full-time project director with
qualified staff having expertise in contract management, environmental monitoring, planning,
and accounting. The PIUs responsibilities will include (i) planning and scheduling of project
activities; (ii) supervision and monitoring of the project work program and project performance;
(iii) administration of procurement activities; (iv) bookkeeping and maintenance of project
accounts, and preparation of liquidation/claim reports; (v) preparation and submission of various
reports to ADB including quarterly and annual project monitoring and progress report; and (vi)
coordination of field activities. The project director and key PIU officers will be appointed in
accordance with the relevant Government procedures within 1 month of loan effectiveness. The
project director will report to the Chairman, SLPA. An interministerial project steering committee,
chaired by the MPA secretary and consisting of representatives from concerned government
agencies, including Ministry of Finance and Planning, External Resources Department and
National Planning Department will be established to oversee, monitor, coordinate, and provide
the necessary policy guidance related to project implementation. This committee will meet
whenever necessary but not less than once every six months. The Chairman, SLPA will report
to the interministerial steering committee on a regular basis. The implementation arrangements
are shown in Appendix 8. SLPA as an institution has the necessary systems, personnel,
accounting policies and procedures, reporting and monitoring mechanisms, and auditing
procedures to efficiently carry out financial management for the Project. A financial
management assessment of SLPA is provided in the Supplementary Appendix. SLPA has
implemented major foreign-aided capital projects and is observed to have the capacity to
efficiently administer loans and implement projects. It has also implemented one ADB loan and
therefore is familiar with ADB procedures.

11

2.

Implementation Period

31.
The Project will be implemented over 48 months, including preconstruction activities.
The scheduled completion date for the Project is October 2010. The harbor infrastructure works
component will be completed by 31 October 2010. This takes into account advance
procurement action for harbor infrastructure works construction. The proposed implementation
schedule is in Appendix 9.
3.

Procurement

32.
The project director will be responsible for all procurement activities. All contracts will be
procured in accordance with ADB's Procurement Guidelines (2006, as amended from time to
time). One works contract will cover all harbor infrastructure works, i.e., dredging and
reclamation works, breakwater construction, construction of all other ancillary civil works, and
supply and installation of navigational aids, which will be procured through international
competitive bidding procedures with postqualification. Bidders will be given 90 days to prepare
and submit bids. Indicative contract packages for the Project including consulting services are
shown in the procurement plan (Appendix 10). On 30 October 2006, ADB approved advance
contracting for the harbor infrastructure works. The Government was informed that ADBs
approval of advance contracting does not commit ADB to subsequently approve the Project or
to finance the procurement costs.
4.

Consulting Services

33.
International and national consulting services will assist SLPA in implementing the
Project. The detailed design of the works is being prepared by the consultants with the Colombo
Port Efficiency and Expansion Project (footnote 5). Under the proposed Project, consultants will
be required for construction supervision including monitoring of the environmental impacts of the
works. The consultants financed under the loan will be recruited in accordance with ADBs
Guidelines on the Use of Consultants (2006, as amended from time to time). The single contract
package will include about 150 person-months of international and 1,250 person-months of
national consulting inputs. Outline terms of reference for the consulting services are in Appendix
11. The consultants will be recruited using single-source selection procedures in accordance
with ADBs Guidelines on the Use of Consultants (2006, as amended from time to time).
34.
Consultant selection is especially critical for the Projects engineering and
implementation requirements as breakwater design is a highly specialized technical aspect. The
appointment of the detailed design consultants to undertake construction supervision was
reviewed by the Maritime Structures and Port Engineering member of the panel of experts, and
found to be the most preferred option to minimize liability risks and disclaimers of responsibility,
and to ensure that the construction is executed in accordance with the design factors
established during the detailed design phase. The detailed design is the result of extensive
engineering work, underwater geotechnical investigations and studies, numerical wave
modeling, physical wave modeling, current modeling, three-dimensional physical modeling, and
two-dimensional flume testing with model testing of the breakwater design. Given the PPP
nature of the Project, the issue of liability is particularly critical. Sufficient progress in the partial
construction of the breakwater is necessary before the selected private sector concessionaire
can start constructing the terminal. Hence if delays or defects in the breakwater construction
cause delays in the private sectors terminal construction schedule, the private sector party will
hold SLPA liable and claim damages for the delay. Moreover, since the construction season for
the breakwater construction is limited to the months of OctoberMay, timely progress of the

12

breakwater construction is critical to enable the private concessionaire to carry out terminal
construction on schedule.
5.

Anticorruption Policy

35.
ADBs policy on Anticorruption (1998, as amended to date), was explained to and
discussed with the Government, MPA, and SLPA. Consistent with its commitment to good
governance, accountability, and transparency, ADB reserves the right to investigate, directly or
through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the
Project. To support these efforts, relevant provisions of ADBs policy on Anticorruption are
included in the loan agreements and the bidding documents for the Project. In particular, all
contracts financed by ADB in connection with the Project will include provisions specifying the
right of ADB to audit and examine the records and accounts of MPA; SLPA; and all contractors,
suppliers, consultants, and other service providers as they relate to the Project. As a projectspecific anticorruption measure, all bid awards will be disclosed on SLPAs website.
Anticorruption assurances will be incorporated in the loan agreements.
6.

Disbursement Arrangements

36.
Loan disbursements will be in accordance with ADBs Loan Disbursement Handbook
(2001, as amended from time to time), and detailed arrangements agreed to by the Government
and ADB. For works and consulting services, loan funds will be disbursed using ADBs direct
payment procedures from ADB to the consultants and contractors against withdrawal
applications submitted by SLPA to ADB.
7.

Accounting, Auditing, and Reporting

37.
SLPA will submit detailed progress reports on a quarterly basis. SLPA will maintain
separate records and accounts adequate to identify the goods and services financed from loan
proceeds, financing resources received, expenditures incurred for the Project, and local funds.
The accounts will be set up in accordance with sound accounting principles. Consolidated
project accounts and related financial statements will be audited annually by recognized
auditors acceptable to ADB. The audited reports and related financial statements will be
submitted to ADB not later than 6 months after the end of the fiscal year to which they relate.
The project director will coordinate all accounts and ensure compliance with ADBs audit and
accounting requirements, which will be followed up in regular reviews by ADB.
8.

Project Performance Monitoring and Evaluation

38.
Within 6 months of loan effectiveness, the Government, through SLPA, will develop a
project performance management system, including baseline performance monitoring and
systematic project performance monitoring. SLPA will carry out surveys (i) at the start of project
implementation to establish baseline data, (ii) at midterm review, (iii) at the time of project
completion, and (iv) not later than 6 months after project completion to evaluate the project
benefits. Data to be compiled for project performance monitoring and evaluation will be in a
format developed in consultation with ADB. Key indicators will be proposed by SLPA and
developed in consultation with ADB. A project completion report will be submitted within 3
months of physical completion of the Project, providing detailed evaluation of the progress of
implementation, costs, consultant performance, social and economic impact, and other details
as requested by ADB.

13

9.

Project Review

39.
A project inception mission will be fielded soon after loan effectiveness. Thereafter, ADB
and the Government will conduct regular reviews annually or more frequently as required for
effective project implementation. In 2009, a midterm review by the Government and ADB will
consider the Projects progress and agree on any changes in scope or implementation required
to achieve the Projects objectives. SLPA will monitor project implementation and keep ADB
informed of any significant deviations that may result in the schedule not being met. The project
completion report should be prepared within 3 months after the physical completion of the
Project civil works component.
IV.
A.

PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS

Benefits

40.
The Project will help consolidate the position of Colombo Port as a transshipment hub
port for the South Asian region by providing sufficient container-handling capacity and sufficient
depth for the latest generation of mainline vessels to call at Colombo Port. The containerhandling capacity of each terminal to be developed is 2.4 million TEU/year. When three
terminals are fully developed they will provide an additional capacity of 7.2 million TEU/year.
Maintaining its status as a transshipment hub port will help enhance national competitiveness in
international trade via lower costs and faster delivery, in addition to generating additional
income from transshipment. Taking into account SLPAs strategy to provide infrastructure
(breakwaters, channels, etc.) that can accommodate three terminals, the economic and financial
analyses are based on the scenario that three terminals will be sequentially developed as
necessary to meet forecasted demand.
B.

Economic and Financial Analyses

1.

Economic Internal Rate of Return

41.
The economic evaluation compares the economic benefits and costs of the Project from
the viewpoint of the national economy. The main consequence for the economy if the Project is
not implemented would be the loss of the frequent, fast, direct shipping services used by
exporters and importers. Without investment in the Project, Colombo Port would lose its
transshipment traffic; and if the port no longer operates as a transshipment hub port, it would
soon lose its direct calls on trunk-line routes. Local traffic is not high enough to attract direct
calls by trunk-line ships. Colombo Port would eventually become a feeder port, served by a
combination of feeder ships and mainline services with relatively long transit times for the ports
with lower traffic volumes. The consequences for Sri Lankas current and future exports would
be serious. The Project will benefit Sri Lankan exporters by enhancing their competitiveness in
international markets through lower freight costs and faster delivery times for time-sensitive
exports e.g., textiles, which account for 52% of Sri Lankas exports.
42.
The main costs to the Sri Lankan economy of the reversion to a feeder port would be (i)
additional costs of feeder services to regional hub ports such as Singapore, to connect with
trunk route services (at least 20% are estimated to switch to feeders); (ii) longer transit times
and delays, which are injurious to export markets, especially for textiles, but also for new
exports that will emerge; (iii) loss of revenues to Sri Lankan terminals from transshipment; and
(iv) loss of dues paid to SLPA by container vessels. Lower freight costs are expected to result in
annual savings of $82 million by 2015, and faster delivery times will create annual savings of

14

$49 million by 2015. In addition transshipment traffic will generate direct net annual income to
terminal operators amounting to $77 million by 2015. The benefits of the Project are the
avoidance of these costs to the economy. The values assigned to the benefits are compared
with the total investment cost of $1.3 billion for the Project to 2034. The economic internal rate
of return is estimated at 17.8%. These assumptions do not include the value to be placed on
fast, direct shipping services by investors considering alternative countries as locations for
setting up new manufacturing or distribution centers. It also does not include loss of
international investors, who will include frequent, direct shipping services on their checklist of
preconditions for locating in a country. Thus the economic analysis is conservative. Sensitivity
and risk analyses indicate that the economic internal rate of return is robust under most
conditions. The full economic and financial analyses are given in Appendix 12.
2.

Financial Internal Rate of Return

43.
The financial analysis assesses the financial sustainability of the harbor infrastructure
works component. SLPA incurs the capital investment, and maintenance and repair costs of this
component. SLPAs income stream arising from royalties, lease cost, port entry dues, harbor
tonnage dues, etc. was calculated using the forecasted demand for the Project at rates currently
being paid by SAGT, the existing privately operated terminal in Colombo Port. The financial
internal rate of return is approximately 11.5%, which exceeds the weighted average cost of
capital of 4.4%. The details are given in Appendix 12.
44.
Financial analysis for the first terminal operator was also conducted to assess the
viability of private sector development under a BOT concession (Appendix 12). A terminal
operator incurs the capital investment cost of terminal construction and equipment and terminal
operation cost, and pays concession fees to SLPA, while earning revenue from container
handling. The financial internal rate of return is approximately 16.3%, which is in line with
comparable new terminal developments internationally.
C.

Social Impact
1.

Poverty and Social Dimensions

45.
The primary area of influence of the Project includes Colombo City and the Colombo
Metropolitan Region (CMR), comprising Colombo, Gampaha and Kalutara districts. CMR has an
estimated population of 5.4 million; unemployment rates are lower than the rest of the country,
even though it has a relatively large unskilled youth labor force. In Sri Lanka, poverty is
observed to be greatest in the rural sector (20.8%), followed by the urban sector (6.2%), and the
estate sector at 4.3%. Across the industry subsectors, the highest poverty is reported in mining
and quarrying industries; employment in quarrying is characterized by low pay as well as its
temporary and irregular nature, making this one of the most impoverished industry groups in Sri
Lanka. As per 1996 data, the incidence of poverty among those engaged in mining and
quarrying was 41.5%. The next highest incidence of poverty was in agriculture at 28.4%. As per
Department of Census and Statistics (2004), the percentage of poor households living below the
official poverty line7 was 5% for Colombo District, 9.2% for Gampaha, and 17.7% for Kalutara,
compared with 19.2% for Sri Lanka as a whole. Although the Western Province in which CMR is
located records the lowest incidence of poverty in absolute numbers, it accounts for the largest
proportion of the total poor. A closer look at the poverty profile of the city of Colombo reveals
7

People living in households with real per capita monthly total consumption expenditure below SLRs1,423 are
considered poor (the official poverty line).

15

about 1,614 poor urban settlements with about 77,612 families. The urban poor of Colombo
include those engaged in informal sector activities and blue collar workers of the ports,
industries, railways, etc. They are mostly concentrated in the slums, shanties, and low-cost
housing in the northern and central parts of the city. Lack of land ownership, poor access to
drinking water, poor sanitation facilities, and lack of a regular source of income are a few of the
main factors causing poverty.
46.
Major positive social impacts of the Project are anticipated through the creation of direct
and indirect employment opportunities during project construction and operation. Jobs during
construction are projected to total 1,950, including 300 for construction of the breakwater and
550 for staged construction of each of the three terminals. During the operation phase, a total of
3,870 permanent jobs are estimated to be created after the breakwater is complete and the
three terminals are commissioned. Thus the additional jobs created are expected to be
significant. Those who have the advantage of living in proximity to the Project will benefit most,
as they will access the majority of the temporary employment related to construction of the
breakwater and three terminals. People who live close to the quarry sites, land-based transport
routes, and barge load-out points will also experience some of the direct impacts of the Project.
The income impact of quarrying will be largely attributed to contractors, providers of related
services (such as transport), and workers. Workers engaged in quarrying-related activities have
traditionally come from unskilled and poor sectors of the community. According to the projected
estimates for quarrying activities, the predicted opportunities of employment will vary from 4,000
to 12,000 per year depending on the contractors method of production, i.e., mechanized or
traditional. Benefits will also result from increased vessel traffic and other related initiatives
outside the immediate scope of the Project, such as the development of a free trade zone.
Benefits to import and export industries are likely to accrue in areas outside the project-affected
area, due to overall improvements in the national economy from the growth in shipping
operations facilitated by the Project. Therefore the Project will provide a source of income and
new employment opportunities in a wide range of job categories including unskilled labor,
particularly in terminal operations, construction work at the project and quarrying sites for the
unemployed, low-income earners, and the impoverished. This will lead to poverty reduction. A
summary poverty reduction and social strategy is presented in Appendix 13.
2.

Resettlement

47.
The Project comprises construction of a new outer basin enclosed by a breakwater and
served by a new navigation channel. Material dredged from the channel will be used in
reclamation to provide new container berths with associated infrastructure, buildings, and
operation facilities. No land acquisition or negative resettlement impacts are associated with the
Project. Construction and operation activities will extend seaward from the south end of the
existing Colombo Port. Therefore, no additional land will be required by either the Government
or the private sector. To link the existing port access road to the new harbor, three buildings will
be demolished: two government warehouses and one SLPA office. The warehouses are
presently not used and will not be rebuilt. The SLPA office building will be partially affected and
thus will be partially demolished. The work space of employees will be accommodated in other
office buildings within the port area, and thus not involve construction of a new building. The
existing port access road will be used for transportation of containers and other imported goods.
None of the port access roads will be widened or improved and thus no resettlement will be
required. Furthermore, even after the development and operation of the Project, the transport of
containers and other imported goods within the port-related activity zone will not displace any
business establishments close to the port. With regard to specific effects associated with
quarries, the quarry location will be identified by the contractor only during project

16

implementation prior to the construction of the breakwater. Thus the Government will have to
ensure that any land acquisition and resettlement impact associated with quarrying of rocks will
require the formulation and implementation of appropriate mitigation measures in compliance
with ADBs policy on Involuntary Resettlement (1995) and Policy on Indigenous Peoples (1998).
D.

Environmental Impact

48.
The Project involves the dredging, reclamation, and construction of breakwaters,
terminals, and channels. All of these facilities are located within the SLPA area. The Project is
categorized as category A according to ADBs Environmental Assessment Guidelines (2003),
and the Project is listed as a prescribed project according to the National Environmental Act
No. 47 (1980) as amended. Therefore an environmental impact assessment (EIA) was
prepared. Since the Project is located within the jurisdiction of the Coast Conservation
Department (CCD) and according to the Sri Lankas Coast Conservation Act 57 (1981),
environmental approval and the permit for development activity were obtained from CCD. The
EIA was approved by CCD on 12 December 2005. The EIA and environmental management
plan (EMP), in principle, cover all the requirements set out in ADBs Environmental Assessment
Guidelines. The EIA was carried out from January 2003 to April 2005. After receiving CCD
approval of the EIA, the EMP and environmental monitoring plan were prepared in March 2006.
The summary EIA (SEIA) was circulated to ADBs Board of Directors and disclosed to the public
through ADBs website on 12 July 2006.
49.
The EIA examined potential environmental impacts associated with the construction and
operation of the Project. The EIA shows that environmental impacts will mostly relate to
dredging and reclamation works. The impacts include (i) increased turbidity; (ii) geotechnical
stability; (iii) siltation; (iv) change in current pattern; (v) sediment transport; (vi) change in
adjacent beach; (vii) wave disturbance; (viii) impacts to water, noise, and air quality; and (x)
impacts to marine ecology and fisheries. The mitigation measures have been set by following
mitigation through design and therefore the degree of impact could be minimized. Although the
impacts are predicted to be insignificant, continuous monitoring especially during construction
will be carried out to avoid unexpected impacts and provide remedial measures if necessary.
Public consultation was carried out with fisher communities living near the Modera fishing
harbor, adjoining SLPA port limits. The EIA does not predict any impacts to the livelihood of
fisherfolk; the modeling studies for physical impacts indicate that the construction works will not
affect the livelihood of the fisherfolk living near the Modera fish harbor. However, monitoring is
needed to ensure that any unexpected impacts are redressed in a timely manner. The EMP and
environmental monitoring plan will provide guidance to minimize potential adverse
environmental impacts related to the Project and to enhance the positive impacts of the Project.
The EMP and monitoring plan must be submitted to and approved by CCD prior to
commencement of the construction work. Adequate funding has been allocated to implement
these plans. The EMP and monitoring plan emphasize the need to establish a sustainable
institutional mechanism to ensure that these plans are properly implemented. The PIUs
environmental engineering and coastal engineering sections, as well as the environmental
monitoring committee will be responsible for implementing these plans.
50.
On the basis of the analysis, no major insurmountable environmental impacts are
associated with the construction and operation of the Project with the assumption that the
recommendations for the mitigation measures are implemented. Therefore, environmental
monitoring should be carried out to ensure that the EMP is implemented and any unforeseen
impacts are managed and mitigated appropriately.

17

E.

Risks

51.
As implementation of this Project will be on a PPP basis with the public sector
implementing the harbor infrastructure works component and the private sector implementing
the terminal component, the full benefits of the Project are dependent on both components
being implemented on a coordinated basis. The major risk is the lack of a private sector party
willing to take up the terminal component concession. This risk has been mitigated by linking
implementation of the harbor infrastructure works component to the progress of selecting a
successful bidder for the terminal concession. The loan will only be effective upon completion of
the evaluation of the terminal concession bid and the Government issuing an invitation for
negotiations to the successful bidder(s).
52.
Another risk arises from possible delays to the harbor infrastructure works construction
program. Since completion of part of the breakwater will be necessary before the terminal
concession company can start terminal construction, any delay in the construction of the
breakwater may give rise to a situation where the terminal concession holder could claim
compensation from SLPA. This risk is mitigated by the fact that the construction schedule for the
breakwater will be agreed with the prospective contractor before the terminal concession
agreement is signed. Hence a realistic time frame for the breakwater construction can be
included in the concession agreement. Delays during construction will be mitigated given that
the Government has agreed that the International Federation of Consulting Engineers (FIDIC)
conditions will be used and that the construction supervision consultant will be designated as
the Engineer in the contract to ensure that the consultant has sufficient authority to direct the
contractors. Selection of the detailed design consultant as the construction supervision
consultant through single-source selection is an additional measure to mitigate these risks
because the consultant will be familiar with the design and also avoid the issue of split liability
between the detailed design and construction supervision consultants.
53.
Aside from project risks, delay in the consolidation of the ceasefire in the country may
also have a significant impact. This situation is beyond the scope of the Project to take
mitigation measures. However the private sector has been interested in Colombo Port as shown
by implementation of the SAGT project even before the ceasefire. The Government has
declared Colombo Port a high-security zone and appointed the Sri Lankan Navy as the
designated authority for port security. The navy has drawn up comprehensive security plans in
accordance with the requirements of the International Ship and Port Security Convention of the
International Maritime Organization for port security and the special security considerations
necessary for Sri Lanka. An assessment of the Colombo Port security system found that port
access control is well-planned, coordinated and implemented. Colombo Port is the first port in
the South Asian region to implement both the container security initiative and mega port
initiative. There is also excellent military protection against air, land and sea intrusions into
Colombo Port. The security cover will be extended to cover the new facilities as well.
V.
A.

ASSURANCES

Specific Assurances

54.
The Government will ensure that the advisory committee chaired by the Secretary, MPA,
and including the person holding the post of Director General of the Public Utilities Commission
as a member, is established and operational within 3 months of loan effectiveness.

18

55.
The Government will ensure that adequate counterpart funds are made available to the
Project when and in the amounts required to enable project agencies to discharge their
responsibilities under the Project; and that counterpart funds will be increased if needed to
cover any shortfall of funds for the completion of the Project.
56.
The Government will ensure that concessionaires for at least the first two new terminals
under the Project will be chosen by open competitive bidding processes.
57.
The Government will ensure that SLPAs equity share in the terminal concession
companies will not exceed 15% of the entire issued capital of such concession company. This
limit will not apply in the case of a corporate entity registered by the SLPA and/or the
Government under the Companies Act No. 17 of 1982 of Sri Lanka, as amended, for the
purposes of carrying out container terminal operations.
58.
The Government will ensure that the concession agreements with all terminal
concession companies operating under the Project include the provision that each concession
company will follow the National Environmental Act No. 47 of 1980 as amended, ADBs
Environment Policy (2002), ADBs policy on Involuntary Resettlement (1995), and ADBs Policy
on Indigenous People (1998) in constructing the terminal.
59.
Within 1 month of loan effectiveness, the Government will ensure that the (i) project
director is appointed in accordance with the Governments relevant procedures; (ii) PIU is fully
staffed and operational; and (iii) staff necessary for the environmental monitoring in the PIU as
specified in the SEIA, are recruited.
60.
Land and Resettlement. To the extent possible, the Government will ensure that the
Project does not require any land acquisition or involuntary resettlement. The Government will
cause SLPA to ensure that in case of change in project scope or any unanticipated resettlement
impacts (due to quarrying of rocks, widening of access roads, or any other activity) during
project implementation, land acquisition and resettlement activities will be implemented in
accordance with all applicable laws and regulations of the Government to the extent not
inconsistent with ADBs policies and procedures and in accordance with ADBs policy on
Involuntary Resettlement (1995) and Policy on Indigenous Peoples (1998). In case of
unanticipated resettlement impacts during project implementation, the Government will cause
SLPA to submit a satisfactory Resettlement Plan to ADB for review prior to the award of harbor
infrastructure works contracts. Before any affected person is dispossessed or displaced from its
assets, the Government will cause SLPA to ensure that they are consulted and compensated at
replacement values such that their living standards are not adversely affected, in accordance
with the Resettlement Plan.
61.
Environment. The Government will cause SLPA to ensure that the Project and all
project facilities are developed, conducted, implemented, and maintained in accordance with the
Governments National Environmental Act No. 47 of 1980, as amended, and ADBs
Environment Policy (2002). In case of any discrepancies between the Governments laws,
regulations, and/or procedures, and ADBs requirements, ADBs Environment Policy (2002) will
prevail.
62.
The Government will cause SLPA to apply the environmental mitigation measures
included in the EIA and SEIA report for the implementation of the Project, as necessary. The
Government will cause SLPA to monitor, review, and if necessary update the EMP prior to any
works to ensure that all negative environmental impacts related to the works are mitigated

19

properly. In case of unanticipated negative environmental impacts, the Government will cause
SLPA (i) to report such impacts to CCD and ADB, and (ii) to provide remedial mitigation
measures to affected people in consultation with CCD and EMC.
63.
The Government will cause SLPA to conduct regular environmental monitoring. The
monitoring report should be submitted to ADB, environmental monitoring committee, and other
relevant agencies such as CCD and Central Environmental Authority every 6 months.
64.
The Government will cause SLPA to provide the contractors and concessionaires with
the EIA report and the SEIA including the EMP, and ensure that contractors and
concessionaires implement the required mitigation measures as described in the EMP in a
satisfactory manner. In addition, the Government will cause SLPA to ensure that the contractors
and concessionaires report implementation of the EMP on a regular basis, along with any
deviation from the EIA report.
65.
Social Development and Gender Issues. The Government will cause SLPA to ensure
that all works comply with all applicable labor laws; do not employ child labor for construction
and maintenance activities; encourage employment of the poor, particularly women; provide
appropriate facilities for women in construction sites; and do not differentiate wages between
men and women particularly for work of equal value. The Government will cause SLPA to
ensure that works contracts include a requirement on the part of the contractors to conduct an
information and education campaign on communicable diseases, including but not limited to
sexually transmitted diseases and HIV/AIDS, for construction workers as a part of the health
and safety program at campsites during the construction period. The works contracts will
include specific clauses on these undertakings, and compliance will be strictly monitored by
SLPA during project implementation.
66.
Within 6 months of loan effectiveness, the Government, through SLPA, will develop a
project performance management system, including baseline performance monitoring and
systematic project performance monitoring. The Government will cause SLPA to carry out
surveys (i) at the start of project implementation to establish baseline data, (ii) at project
midterm review, (iii) at the time of project completion, and (iv) not later than 6 months after
project completion, to evaluate the project benefits. Data to be compiled for the purpose of
project performance and evaluation will be in a format developed in consultation with ADB. Key
indicators will be proposed by SLPA and developed in consultation with ADB.
67.
Consistent with the Governments and ADBs commitment to good governance,
accountability, and transparency, the Government will ensure and will cause SLPA to ensure
that the project funds are utilized effectively and efficiently to implement the Project and to
achieve the Projects objectives. The Government will cause SLPA to (i) disclose the bid awards
on SLPAs website; (ii) undertake necessary measures to create and sustain a corruption-free
environment; (iii) ensure that the Governments Anticorruption Law and ADBs policy on
Anticorruption (1998, as amended to date), are strictly enforced and are complied with during
project implementation, and that relevant provisions of ADBs policy on Anticorruption are
included in all bidding documents for the Project; (iv) facilitate ADBs exercise of its right to
investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive
practices relating to the Project; (v) conduct periodic inspections on the project contractors
activities related to fund withdrawals and settlements; and (vi) ensure that contracts financed by
ADB in connection with the Project include provisions specifying the right of ADB to audit and
examine the records and accounts of SLPA and all contractors, suppliers, consultants, and
other service providers as they relate to the Project. The Government will cooperate with any

20

audit and investigation, and extend necessary assistance, including access to all relevant books
and records, as well as engagement of independent auditors and experts that may be needed
for satisfactory completion of such audits and investigations.
B.

Conditions for Loan Effectiveness

68.

The Government will ensure that

C.

(i)

following an open competitive bidding process, SLPA has issued an invitation to

the selected terminal operator(s) prior to commencing the negotiations for the
terminal BOT concession agreement; and

(ii)

a subsidiary loan agreement is signed between the Government and SLPA, and
submission of legal opinion on the subsidiary loan agreement, the Loan
Agreement, and the Project Agreement in a form and substance satisfactory to
ADB is submitted by the Government and SLPA, respectively, to ADB.

Conditions for Harbor Infrastructure Works Implementation

69.
Prior to the commencement of harbor infrastructure works, the Government will cause
SLPA to ensure that an updated environmental approval from CCD is obtained.
VI.

RECOMMENDATION

70.
I am satisfied that the proposed loan would comply with the Articles of Agreement of the
Asian Development Bank (ADB) and recommend that the Board approve the loan of
$300,000,000 to the Democratic Socialist Republic of Sri Lanka for the Colombo Port Expansion
Project from ADBs ordinary capital resources, with interest to be determined in accordance with
ADBs London interbank offered rate (LIBOR)-based lending facility; a commitment charge of
0.35% per annum; a term of 25 years, including a grace period of 5 years; and such other terms
and conditions as are substantially in accordance with those set forth in the draft Loan and
Project Agreements presented to the Board.
Haruhiko Kuroda
President

02 February 2007

Appendix 1

21

DESIGN AND MONITORING FRAMEWORK

Design
Summary
Impact
Improve Sri Lankas
competitiveness in the
ports sector using
public-private
partnership

Outcome
(i) Reduce transport
costs for exports

(ii) Increase
transshipment
container volume
handled by Colombo
Port
(iii) Increase containerhandling capacity of
Colombo Port

Outputs
(i) Dredging,
reclamation, and
breakwater construction
completed
(ii) South terminal
construction completed

Performance
Targets/Indicators

Data Sources/Reporting
Mechanisms

Direct contribution by
ports sector to GDP
increases by 0.1% by
2015
Foreign direct
investment in ports
sector increases by
approximately $800
million by 2024

National economic data

and statistics

Export container traffic

handled by Colombo
Port increases by 9.5%
per annum starting in
2011
Transshipment volumes
handled by Colombo
Port increases by 8%
per annum starting
2011
Container-handling
capacity increased from
3.3 million TEU in 2006
to 5.7 million by 2010
and 8.1 million TEU by
2015

SLPA reports and

international shipping
statistics reports

Breakwater
construction completed
by June 2010
Navigational aids
installed by June 2010
South terminal
construction completed
by October 2010

SLPA reports and

consultant reports

Assumptions
and Risks
Assumptions
Economic growth in India
remains strong to generate
the cargo base for
transshipment.
Risks
Investors and shipping lines
are deterred by security
factors.
Assumptions
Other factors affecting
investment and economic
development are in place.
Terminal development is
implemented on schedule.
Present terminals increase
their capacity by improving
efficiency.
Risk
Security situation causes risk
insurance premiums to
increase and thus reduces
transshipment volumes
Colombo Port.

Activities with Milestones

1. Contract award for civil works component is awarded by July 2007.
2. Letter of invitation for negotiations to successful bidder for terminal
concession is awarded by July 2007.
3. First terminal is operational by October 2010.

Assumptions
Contract award for dredging
and breakwater development
is done on schedule.
Terminal development is
implemented on schedule.
Risk
Delays in construction due to
weather conditions affects
construction schedule.
Inputs
ADB: $300 million
Government: $180 million
Private sector: $301 million

ADB = Asian Development Bank, GDP = gross domestic product, SLPA = Sri Lanka Ports Authority, TEU = twenty-foot
equivalent units.

Appendix 2

Advisors
and
Consultants

Ch. Manager
Information System
Ch. Finance
Manager

Ch. Manager Marketing and Research

Ch. Manager Container Oper.

Ch. Manager Conven.
Cargo Oper.
Ch. Manager
Logistics

Additional
Harbour Master

Harbour Master

Ch. Law Officer

Ch. Manager Comm.

and Pub. Rel.
Ch. Security
Manager
Ch. Admin.
Manager

Ch. Medical
Officer
Ch. Human Res.
Manager
Ch. Manager
Welfare and Indl.
Rel
Ch. Training
Manager

Ch/Eng. Supplies
Ch/Eng. Cont. and
Disn.
Ch/Eng. Planning
and Development
Ch/Eng. Electrical

Ch/Eng. Marine
Ch/Eng. Mech.
Plan
Ch/Eng. Mech.
Work
Ch/Eng. Civil

Chief Internal
Auditor
Project
Manager
Res. Manager
Galle
Res. Manager
Trinco

Director
Finance and IT
Director
Business
Department
Director Port
Operations
Director Southern Reg.
Port Dept.
Director Establishment
Director
Technical
Director
HR
Director Technical

Exec. Dir. Port Operations and

Business Development
Managing Director
Addl. Managing Director
Exec. Dir. Establishment, Technical and
Human Resources

22

ORGANIZATION CHART OF SRI LANKA PORTS AUTHORITY

Chairman and Board of Directors

Vice Chairman

Appendix 3

23

SECTOR ANALYSIS OF COLOMBO PORT

A.

The Current Port and its Terminals

1.
Colombo Port is located in an artificial harbor formed by three breakwaters constructed
more than a century ago. The port basin covers 200 hectares and is dredged to depths of up to
15 meters (m). Access to the harbor is provided on the western and northern sides. The entire
perimeter of the harbor is occupied with berths, terminals, and vessel-related activities. The port
is connected to the national rail network; however, virtually all cargo movements in and out of
the port are by road transport. Because of the physical constraints, any growth in the capacity of
the existing port is severely limited.
2.

The majority of container traffic is handled at three container terminals:

(i)

Jaya Container Terminal (JCT) on the eastern side comprises four berths totaling
1,292 m, the latest completed in 1996. Depths alongside range from 12 m to 15
m. The terminal area covers 45.5 hectares, has 6 super-post panamax and 8
panamax gantry cranes, with capacities of 35.5 tons (t) to 41 t service weight limit
to serve the berths. The backup area varies in width from 330 m to 380 m
forming the container yard with capacity of 9,800 ground slots, served by 39
rubber-tired gantry cranes (RTGs) and 4 rail-mounted gantry cranes (RMGs). In
addition, two feeder berths total 352 m with depths of 8 and 9 m. The terminal,
which is owned and operated by the Sri Lanka Ports Authority (SLPA), is fully
self-contained with its own reefer stacks, offices, workshops, amenities, and
substations.

(ii)

Unity Container Terminal (UCT) is located at the northern end of the harbor.
Opened in 2004, it comprises two berths for feeder vessels of 340 m with depths
alongside of 9 and 11 m, and is served by three panamax gantry cranes of 41 t
service weight limit. Eight RTGs serve two stacking areas with 1,020 ground
slots. SLPA owns and operates the terminal as a satellite terminal for JCT.

(iii)

South Asia Gateway Terminal (SAGT) located inside the western breakwater
became fully operational in 2003. The terminal comprises three berths totaling
940 m, all dredged to a depth of 15 m and served by 9 gantry cranes of 40 t
service weight limit. The backup area is 200 m wide and the terminal area covers
22.2 hectares. The container yard is served by 28 RTGs and comprises 5,430
ground slots. The terminal, which is owned by a private consortium of local and
foreign parties, is fully self-contained. SLPA has 15% equity in SAGT.

3.
Currently the majority of container operations are organized through the three terminals.
Present container throughput for the port as a whole exceeds 2.5 million twenty-foot equivalent
units (TEU) per annum and the maximum capacity that could be developed within the confines
of the existing harbor after taking account of improvement in all forms of productivity is
assessed at 3.7 million TEU per annum. Other cargo-handling facilities operated by SLPA within
the harbor include a tanker berth, cement and bulk grain-handling facilities, quays used for
vehicle imports, general cargo and military goods, and a passenger/cruise berth at the southern
end of SAGT.

24

Appendix 3

B.

Institutional Environment and Regulatory Framework

4.
The Ministry of Ports and Aviation is responsible for the ports sector. SLPA is a statutory
corporation established under the Sri Lanka Ports Authority Act (1979) as the owner, operator,
and sole supplier of marine and cargo-handling services at the countrys ports. The SLPA Act
endows the Minister of Ports and Aviation and SLPA with wide powers over the sector. The Act
allows SLPA to concession out terminal operations. SLPA is managed by a board comprising
eight appointees; the minister appoints the chairperson and five of the members.
C.

Container Traffic Trends

5.
Colombo Port established its position as the dominant transshipment port for the Indian
subcontinent by the mid 1990s; its success was attributable to several natural advantages: (i)
located near the eastwest trunk routes between Asia-Pacific, Europe, and the United States
East Coast; (ii) the closest transshipment port to the huge, rapidly expanding markets of the
Indian subcontinent; and (iii) a well-protected deepwater harbor. With these advantages,
Colombos container traffic rose from 0.6 million TEU in 1990 to 1.7 million TEU in 1997. After
1997, traffic stagnated, remaining at 1.7 million TEU per annum until 2002.
6.
The reasons for this, were: (i) Direct calls at Indian ports started around 1997, when
traffic volume reached the threshold at which they became economic at Nhava Sheva (previous
to this India was served by feeders.) The trend to direct calls has since accelerated as a result
of improvements in port efficiency that followed the construction of a private terminal at Nhava
Sheva in 1999. (ii) New ports started to compete for Colombos transshipment traffic. Before
2000, Dubai and Singapore were the primary competitors; now Port Klang Salalah, Tanjung
Pelepas compete for this business. (iii) Delay of the construction of new capacity until 2001
resulted in congestion during 19962000. (iv) The operation at JCT had no intraport competition
until 2001 and productivity remained below that of its main competitors. (v) No flexibility in
pricing was provided. The ports limited ability to negotiate prices with shipping lines was a
major disadvantage as competing ports such as Singapore and Port Klang cut prices to
unusually low levels. (vi) The 2001 terrorist attack on the airport affected insurance rates.
7.
The period of stagnation came to an end in 2002. In 2001 new capacity was introduced
at the privately operated SAGT. The introduction of competition between the terminals promoted
an increase in port efficiency; and the peace process was revived and the surcharge on
insurance rates lifted.
Table A3.1: Traffic Figures for Colombo Port

Year
Total (TEU
million )
Average
Growth (%)

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

1.36

1.69

1.71

1.70

1.73

1.72

1.76

1.96

2.24

2.46

3.08

29.2

24.5

1.5

(0.5)

1.6

(0.6)

2.3

11.1

14.3

9.8

25.2

TEU = twenty-foot equivalent units.

Source: Sri Lanka Ports Authority (Note restows account for the balance of the traffic).

Appendix 3

25

8.
The overall container growth in Colombo Port increased by 13.3% in 2004 and 10.5% in
2005. In the first 6 months of 2006, it increased by 18% compared with the same period in 2005.
D.

Capacity Analysis

9.
Additional capacity could be obtained by converting the Bandaranaike Quay (BQ) from
general cargo to a container feeder berth. Examination of operations at the existing terminals
indicates that capacity could be enhanced by measures such as the introduction of new
equipment, expansion of yard areas, denser stacking, and reduced dwell time. The existing and
maximum enhanced capacity of these terminals is shown in Table A3.2.
Table A3.2 Existing and Potential Enhanced Capacity of Existing Terminals
(in twenty-foot equivalent units [TEU])
Terminal
Jaya Container Terminal
South Asia Gateway Terminal
Unity Container Terminal
Bandaranaike Quay
Total

Present Capacity
2,000,000
1,000,000
300,000
0
3,300,000

Potential Enhanced Capacity

2,400,000
1,200,000
300,000
200,000
4,100,000

Source: Sri Lanka Ports Authority.

10.
While operational enhancements can be made to the existing terminals, they offer
diminishing returns. The area of water in the existing harbor is limited and maneuvering more
than one ship at a time in the basin is difficult and dangerous. The capacity of the existing
harbor is governed by marine operations that limit movements by cargo vessels to 1 per hour,
rather than the quay cranes or yard capacity. As a result, the practical capacity of the existing
harbor is estimated to be 3.3 million TEU/year. This capacity is expected to be reached by 2010
and additional facilities in a new outer harbor will be required before this figure is reached if
congestion and delays are to be avoided.
E.

Operational Efficiency

11.
Crane productivity for mainline container vessels at JCT increased from 15.1 moves per
crane per hour in 2001 to 23.4 in 2005. JCT and SAGT now have similar crane productivity.
Average service time for containerships at JCT decreased from 17.8 hours in 2001 to 13.8
hours in 2005, and average turnaround time for containerships decreased from 23.1 hours in
2001 to 16.0 hours in 2005. JCT has about 1,500 employees handling a total of 1.7 million TEU.
SAGT has about 500 employees handling 930,000 TEU. JCT has taken several measures to
improve its efficiency and labor productivity. In 2002, an incentive scheme was introduced to
motivate workers. This was followed by the introduction of a target bonus to ensure higher
efficiency. The measures were successful in improving efficiency (Table A3.3).

26

Appendix 3

Table A3.3: Efficiency Indicators for Jaya Container Terminal

Indicators
1. Average turnaround time of containerships (hours/ship)
2. Average service time of containerships (hours/ship)
3. Average waiting time of containerships (hours/ship)
4. Container productivity per crane (moves/hour)
5. Container productivity per ship (moves/hour)
6. Container productivity per berth (moves/hour)

2001
23.1
17.8
3.6
15.1
34.8
31.4

2002
17.7
12.9
2.5
19.8
45.2
39.1

2003
15.4
11.9
2.0
23.1
49.9
43.5

2004
16.5
13.1
1.5
21.8
46.6
41.1

2005
16.0
13.8
0.8
23.4
49.3
41.2

Source: Sri Lanka Ports Authority.

F.

Challenges

12.
Effective market research and business development is fundamental to the success of
Colombo Port. Initiatives to improve and develop capability within the port for focused
aggressive marketing are important and require action as soon as possible. All levels of
management and operations have a role in developing traffic and enabling the port to compete
internationally. SLPA should increasingly accept the role as landlord and focus on promoting the
port as a whole. Detailed analysis of transshipment potential is required. A significant amount of
data has been obtained and databases developed during the preparation of long-term traffic
forecasts. This data provides information for analysis, which is essential for preparing marketing
plans. Development in competing ports must be closely monitored and market niches identified.
13.
The development of strategy is critical to business planning. It requires a continuous and
iterative analysis of relevant issues. These include clear identification of services that can be
competitively offered, tariff and pricing strategies to win trade, promotion of selected strategies
through strong marketing activity, direct engagement of target clients, and finally the
measurement and response to marketing initiatives. Significant volumes of Bay of Bengal
container cargo are transshipped through Singapore or Port Klang for Europe and the East
Coast of North America. .This is probably more expensive than transshipment at Colombo, and
will take longer. Colombo should investigate ways of supporting and encouraging more frequent
and more regular feeder services, notably to Chittagong. To do this it should consider offering
other special deals for this specific cargo. Such actions could initiate a swing back to Colombo.
Trade lanes and Indian subcontinent coasts offer opportunities, however they are not sales
targets. Target customers are shipping lines, who need not restrict themselves to particular
locations. Colombo must therefore offer price and service packages designed to meet the needs
of particular shipping lines in the context of the full range of container shipping services they
wish to offer their customers. Colombo offers a real alternative for European and Far Eastern
cargoes. The port is a national asset, which should promote contacts with local exporters,
importers, and development agencies by demonstrating to them how the port is able to assist
them. The growth of a national cargo base is an important objective and direct foreign
investment in local industrial export-oriented business is to be encouraged.

Appendix 4

27

2005 SUMMARY FINANCIAL STATEMENT FOR

SRI LANKA PORTS AUTHORITY
SRI LANKA PORTS AUTHORITY
COMBINED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2005

Description

Note

Operations Revenue from Port Activities

Other Revenue from Port Activities
Total Revenue
Operations Expenses
Repair and Maintenance Expenses
Administration Expenses

1.1.2
1.3

Operating Profit
Interest on Government Loans
Voluntary Retirement Scheme Expenses
Profit before Foreign Exchange Gain/(Loss)
Foreign Exchange Gain/(Loss)
Profit before Tax and after Foreign Exchange Gain/(Loss)
Special Levy
Less: Income Tax, Deemed Dividend Tax, and Social Responsibility Levy
Net Profit (Loss) before Extraordinary Items and after Tax
Less: Extraordinary Items: Tsunami Provision
Net Profit (Loss) after Extraordinary Items and after Tax
Cumulative Profit (Loss) B/F
Retained Profit and Loss
Amount Transferred to Loan Redemption Reserve
Balance Profit/Loss C/F
( ) = negative.
SLPA = Sri Lanka Ports Authority.
Source: Sri Lanka Ports Authority

2.1
2.2
2.3

2.4
2.5

2.6
2.7
2.8

SLPA
2005
2004
SLRs
SLRs
18,246,333,789
15,805,541,899
2,303,093,940
2,055,349,142
20,549,427,729
17,860,891,041
(6,670,347,616)
(5,054,347,809)
(2,109,995,895)
(1,384,200,444)
(4,403,022,377)
(4,672,414,643)
(13,183,365,888)
(11,110,962,896)
7,366,061,841
6,749,928,145
(1,186,010,675)
(1,356,211,293)
(848,873)
6,180,051,166
5,392,867,979
7,059,437,549
(5,665,517,002)
13,239,488,715
(272,649,022)
(115,000,000)
(95,000,000)
(3,050,742,665)
(2,700,517,736)
10,073,746,050
(3,068,166,758)
(1,820,521)
(162,146,782)
10,071,925,530
(3,230,313,541)
(6,646,423,206)
(3,416,109,665)
3,425,502,323
(6,646,423,206)
(3,425,502,323)
(0)
(6,646,423,206)

28

Appendix 5

EXTERNAL ASSISTANCE TO SRI LANKA PORTS AUTHORITY

19742006

Source
ADB

Project
Colombo Port Efficiency and Expansion Project

Japan
(JBIC)

SL-P4: Port of Colombo Expansion

SL-P7: Port of Colombo Expansion (II)
SL-P8: Port of Colombo Expansion (III)
SL-P12: Port of Colombo Expansion (IV)
SL-P23: Port of Colombo Extension (I)
SL-P27: Port of Colombo Extension (II)
SL-P30: Port of Colombo Extension (III)
SL-P33: Port of Colombo Extension (IV)
SL-P41: Port of Colombo North Pier Development
SL-P46: Port of Colombo North Pier Development
(II)
SL-P67: Urgent Upgrading of Colombo Port
SL-P85: Galle Port Development

Denmark

Oluvil Port Development

Norway

Automation of Port of Galle

Netherlands Refloating of Dredger at Port of Galle

Amount
($ million
equivalent)
10.00

Year of
Approval
2001

35.90
28.30
10.24
14.11
40.15
78.41
158.25
74.18
56.72
58.92

1980
1984
1985
1987
1990
1991
1992
1993
1994
1995

18.59
130.00

1999
2006

35.00

2003

0.10

2004

1.00

2005

ADB = Asian Development Bank, JBIC = Japan Bank for International Cooperation, SL = Sri Lanka.
Note: Applied exchange rate: $1 = SLRs = 100, monthly rates published by Bank of Japan.
Source: Sri Lanka Ports Authority

Appendix 6

29

PROPOSED TERMS OF REFERENCE

FOR THE ADVISORY COMMITTEE ON PORT COMPETITION
1.
As a prelude to the enactment of a full-fledged Port Competition Act, the Government
has agreed to establish an advisory committee1 to enhance the operating environment for the
ports sector and to ensure a competitive environment for terminal operators. The committee will
have an advisory role to redress grievances of port operators related to unfair competition to
ensure a healthy competitive environment for terminal operators and promote intra-port
competition when two or more different terminal operators within the same port compete for the
same markets. The committee will advise the Minister of Ports and Aviation on actions to be
taken in case of anticompetitive behavior in port-related activities.
2.
Composition. The committee will be established under the Ministry of Ports and
Aviation (MPA), and be chaired by the Secretary, MPA. It will comprise (i) the Secretary,
Ministry of Trade and Commerce; (ii) a representative from the shipping and maritime transport
community that does not have any equity interest in any terminal operator; and (iii) the person
holding the post of Director General of the Public Utilities Commission of Sri Lanka. The
committee will be assisted by at least one administrative staff to provide logistical assistance.
3.
Functions. The committee will function with fairness, impartiality, and independence in a
timely and transparent manner. Its functions will include the following:
(i)
(ii)

(iii)

(iv)

Investigate complaints made by any port operator on alleged or suspected

offenses related to port business.
Prevent anticompetitive practices in all aspects of port business including abuse
of dominant position to prevent or lessen competition, cross-subsidization of
monopoly services to competitive services in a manner that threatens
competitors, price-fixing among competitors, and setting of prices in a
noncompetitive area of port business in a manner that threatens the relevant
ports ability to compete against other transshipment ports within the region.
Investigate any planned merger between (a) a marine service provider and a port
service provider; (b) a marine service provider with another marine service
provider; and (c) a port service provider with another port service provider.
Investigate any complaint by any port operator prior to or upon a merger to
decide whether the merger is compatible with the promotion of fair competition.

4.
Procedure for Investigating Complaints. Any affected port operator may lodge a
complaint in writing to the committee, which will acknowledge receipt of the complaint within 3
working days. Depending on the nature of the complaint, the committee will have from 2 to 8
weeks to receive details, investigate facts, and reach a decision. It may conduct a hearing or
consult with technical experts to determine the nature of the offence and appropriate redress
mechanism.
5.
Once investigated, the committee will advise the minister responsible for ports on the
course of action to be taken to address the issue. The MPA will advise the complainant of the
outcome of the complaint. The presence of this committee will not preclude the right of any
aggrieved party to seek legal remedy that may be available under the existing laws of Sri Lanka.
6.
Details of committee composition and procedures will be strengthened by the advisory
committee itself within 3 months of loan effectiveness. Once established, the committee will
provide port operators with its detailed rules and procedures by letter.
1

Approved by Cabinet decision PF/05/v/1/250 on 11 October 2006.

30

Appendix 7

DETAILED DESCRIPTION OF
HARBOR INFRASTRUCTURE WORKS COMPONENT AND COST ESTIMATES
1.
Harbor. The Colombo Port Expansion Project involves the development of a greenfield
site south of the existing port facilities. The Project is designed to accommodate vessels with an
overall length of 400 meters (m), beam of 55 m and draft of 16 m. The Project will be created by
constructing a major new breakwater to the west of the existing harbor and a smaller secondary
breakwater. The harbor will be laid out with three lengths of quay forming a U-shaped basin
open to the north, each providing a 1,200 m long container terminal giving a nominal three
berths of 400 m length and a depth alongside of 18 m. A main breakwater from Galbokka Point
at the southwestern corner of the existing harbor runs westward to a water depth of about 18 m
and then turns northward following the 18 m contour. A secondary breakwater combined with a
small boat harbor extends from near the entrance to the existing harbor. Together they protect
the basin and quays from waves.
2.
Channel and Navigation. The Project has been planned so that it can be safely
accessed by all sizes of container vessels. In addition, improvements in the navigation approach
channel to the existing harbor are proposed. The phase 1 harbor basin will be dredged to a
depth of 18 m, and will include sufficient space for vessels to come to a halt and to turn. Vessels
will approach via a new two-way channel with a depth of 20 m and a minimum width of 570 m.
The approach to the existing main harbor entrance will be realigned to suit the new layout and
to provide a better approach for an improved one-way transit of vessels. Preliminary studies in
accordance with the recommendations of the International Navigation Association (PIANC) were
conducted to size the channels. The outer approach channel has been sized for two-way traffic
to accommodate the existing harbor and proposed changes. The short approach to the existing
harbor is and will remain for one-way traffic only. The existing submarine pipeline to the main
crude oil single point mooring will be lowered where it crosses the new dredged areas.
3.

The principal dimensions of the channels, basins and turning areas are
(i)
(ii)
(iii)

Main channel: width: 570 m with additional width on the inside of bends; depth:
20 m below local datum;
Secondary channel: width: 340 m (reducing to 250 m near the harbor entrance);
depth: 16 m below local datum; and
South Harbor Basin; depth: 18 m below local datum with provision to deepen to
23 m; turning circle: 600 m (1.5 times the length of the design ship).

4.
Modern navigation aids will be installed along the new channels. To ensure that all
vessel operations in the project area and the existing port are safely and efficiently carried out, a
new marine operations center is proposed near the entrance to the Project. This includes
facilities for berthing tugs and other harbor craft, a look-out station, and a control room for a new
vessel traffic management system serving the whole port.
5.
Ancillary Facilities. The harbor will include common user areas for each terminal,
located outside the container yard for increased safety and security. These may include lorry
gates and waiting areas; X-ray and scanning facilities; parking for equipment and cars; and
buildings for terminal offices, equipment maintenance and staff amenities, empty container
storage, container repairs, and bonded areas. In addition, a number of facilities are required to
provide basic infrastructure to all terminals. Operated by or on behalf of Sri Lanka Ports
Authority (SLPA), these may include (i) an electrical power plant, water main and storage tanks,

Appendix 7

31

and sewage treatment plant, all located at the southern end of the new development; (ii) a
container lorry access road to the Project, approached via an upgraded port perimeter road that
will serve all the terminals; and (iii) an access road for personnel and other noncontainer traffic
to the south of existing port gate No 1. SLPA is expected to benefit from a new office building
near the entrance to the project facilities and a new marine operations center at the northern
end of the eastern quay that will include sheltered berthing facilities for the flotilla serving South
Harbor. Port users and Customs will also be accommodated in new facilities near the SLPA
office.
6.
Cost Estimates. The total cost at 2006 prices (including value-added taxes and duties)
for the civil works component is estimated to be $480 million (Table A7).
Table A7: Cost Estimate and Financing Plan
($ million)
Item
Base Costs
1. Works
a. General Items
b. Dredging and Reclamation
c. Main Breakwater
d. Secondary Breakwater and Small
Boat Harbor
e. Submarine Pipeline
f. Navigation Aids
g. Roads and Paving
h. Utility Services
i. Buildings and Miscellaneous
Subtotal (1)
2. Construction Supervision Consultant
Base Cost Subtotala
Taxes and Duties
Contingenciesb
a. Physical Contingencies
b. Price
Interest and Commitment Chargesc,d
a Interest during Construction
b Commitment Charges
Total

Total

Foreign
Exchange

Local
Currency

42.0
76.6
137.0
19.7

33.6
76.6
95.9
13.8

8.4
0.0
41.1
5.9

34.5
63.0
112.7
16.2

18.7
2.0
10.5
9.5
2.5
318.5
12.7
331.2
49.7
43.9
16.6
27.3
55.2
53.0
2.2
480.0

18.7
2.0
6.3
6.6
1.5
255.0
6.4
261.4
0.0
25.5
13.1
12.4
55.2
53.0
2.2
342.1

0.0
0.0
4.2
2.9
1.0
63.5
6.3
69.8
49.7
18.4
3.5
14.9
0.0
0.0
0.0
137.9

15.4
2.0
8.6
7.8
2.1
262.3
12.7
275.0
0.0
25.0
13.1
12.4
0.0
0.0
0.0
300.0

ADB

Borrower

ADB
Share

7.5
13.6
24.3

82.2%
82.2%
82.2%

3.5
3.3
0.0
1.9
1.7
0.4
56.2
0.0
56.2
49.7
18.9
3.5
14.9
55.2
53.0
2.2
180.0

82.2%
82.2%
100.0%
82.2%
82.2%
82.2%
82.4%
100.0%
83.0%
0.0%
56.9%
78.9%
45.4%
0.0%
0.0%
0.0%
62.5%

ADB = Asian Development Bank.

a
In 2006 prices, exclusive of local tax and duties estimated at $49.7 million.
b
Five percent of the base cost for physical contingency and 1.2%-2.8% p.a. for foreign exchange cost and 7%-8% p.a.
for local currency cost for price contingency
c
Interest at 5.43 % for $LIBOR plus a 0.6% spread
d
Commitment charges at 0.35%
Source: Consultant and ADB estimates.

Appendix 8

Organization Chart for the Project Implementation Unit

(Colombo Port Expansion Project)

32

IMPLEMENTATION ARRANGEMENTS

IMPLEMENTATION SCHEDULE

Appendix 9

33

34

Appendix 10

INDICATIVE CONTRACT PACKAGES AND PROCUREMENT PLAN

Procurement Plan
1. Program Information
Country
Name of Borrower
Project Name
Loan Reference
Date of Effectiveness
ADB Financing Amount $
Executing Agency
Implementing Agency
Approval Date of Original Procurement
Plan
Approval of Most Recent Procurement
Plan
Publication for Local Advertisement
Period Covered by this Plan

Sri Lanka
Democratic Socialist Republic of Sri Lanka
Colombo Port Expansion Project
----Targeted for June 2007
300,000,000
Ministry of Ports and Aviation
Sri Lanka Ports Authority
17 January 2007

31 December 2006
January 2007 to June 2008

2. Procurement Thresholds for Goods and Related Services, Works and Supply, and
Installation
Procurement Method
International Competitive Bidding (ICT) Works
ICB Goods
National Competitive Bidding (NCB) Works
NCB Goods
Shopping Works
Shopping Goods
Exceptional Methods

Threshold
Equal or above $3 million

3. Procurement Thresholds for Consultant Services

Procurement Method
Single-Source Selection
Alternative Methods
Quality-Based Selection
Quality- and Cost-Based Selection

Thresholds
Above $200,000

Appendix 10

4. Contract Packages in Excess of $100,000 Goods, Work, and Consulting Services

Contract Description
Consulting services
for construction
supervision and
environmental
monitoring
Civil works covering
all publicly financed
infrastructure
development, i.e.,
dredging and
reclamation works,
breakwater
construction,
construction of all
other ancillary civil
works, and supply and
installation of
navigational aids

Estimated
Cost
$12,700,000

Procurement
Method
Single-source
selection

$318,500,000

International
competitive
bidding

Expected Date
of
Advertisement
Not applicable

31
2006

December

Prior Review
Yes

Yes

35

36

Appendix 11

OUTLINE TERMS OF REFERENCE FOR

CONSTRUCTION SUPERVISION CONSULTING SERVICES
1.
The Colombo Port Expansion Project will construct a new deepwater outer harbor
seaward of the existing Colombo Port, and up to three container terminals within the harbor on a
build-operate-transfer basis with public-private partnership. The principal elements of the public
sector infrastructure works are
(i)

(ii)
(iii)

(iv)

two breakwaters5 and 1 kilometer (km) in lengthin a water depth of up to 18

meters (m), enclosing a basin of 275 hectares; the core of the breakwaters is to
be formed using the sand dredged from the navigation channels and this is to be
protected by rock and concrete armour units;
a two-way navigation channel of approximately 7 km length with a width of 570 m
and depth of 20 m plus ancillary dredging works together with navigation aids;
a new 0.915 meter (i.e. 36-inch) subsea oil pipeline of approximately 5.9 km
length laid in a trench with underwater and onshore connections to the existing
pipeline as a diversion to the existing line; and
onshore roads, paving, services, buildings, and miscellaneous works.

2.
The tender for these works is to be called in January 2007 and the contract is to be
awarded by July 2007. The contract period is 39 months followed by a 12 month defects
notification period.
A.

Objectives

3.

The engineer will undertake the following:

(i)
(ii)
(iii)
(iv)

Review and become fully conversant with the completed studies, reports, detail
design, and tender documents prepared by the design consultants.
Prepare and conduct initial implementation of a project performance monitoring
and evaluation system.
Prepare any additional construction details necessary for successful execution
and completion of the Project.
Supervise and administer the construction contract including monitoring of the
cost, quality, and progress of the works; measurement of the works; certification
of payments to the contractor; assistance with variations and claims;
commissioning; certification on handover; and completion and reporting.

4.
The engineer will provide the specified site staff and such other staff as necessary to
undertake the services under the direction of a chief resident engineer to whom the engineer will
delegate all authority. Head office participation is expected to be limited to overall direction,
specialist technical advice, and overall monitoring through regular periodic visits by senior
personnel as needed. The majority of personnel to be provided will be sourced from within Sri
Lanka and foreign personnel will be limited to the Chief Resident Engineer, deputy Chief
Resident Engineer and such specialist posts for which local expertise is not available.

Appendix 11

B.

37

Scope of Services

5.
Review Design and Tender Documents. Take over responsibility for the design from
the design consultant, and review and become fully conversant with the studies, reports,
designs, and tender documents prepared by the design consultant.
6.
Prepare Project Monitoring and Evaluation System. Within 3 months of
commencement of services (i) develop a systematic project performance monitoring system,
indicators, and analysis for use throughout the life of the Project; and (ii) develop and conduct a
quick and easy rapid sample survey to establish a baseline for subsequent performance
monitoring. The monitoring should be gender-disaggregated, where appropriate. Thereafter,
evaluation surveys will be conducted annually. The scope of the survey, quantity and quality of
data, and frequency for collection will be guided primarily by the project managements need for
progressive rapid feedback on implementation status, as well as early warning of impending
situations that might jeopardize attainment of the development objectives. The Government and
SLPA will agree upon the key indicators and assumptions that determine the required data for
rapid assessment.
7.
Prepare Construction Details and Provide Technical Advice. Prepare additional
construction details as requested by the contractor and necessary for the execution and
completion of the works, excluding working and shop drawings and bar bending schedules
(which the contractor is required to prepare). Provide specialist experts to provide advice on
design, in particular issues relating to dredging, reclamation, and construction of breakwaters.
8.
Supervise and Administer Contracts The principal duties of the engineer from award
of the construction contract will include the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)

(xiv)
(xv)
(xvi)

Manage supervision of construction works on behalf of the Employer.

Review contractors method statements and materials orders.
Review contractors document submissions and provide specialist technical
advice.
Review contractors quality assurance procedures.
Monitor construction quality, progress, safety, and cost.
Monitor setting out, testing arrangements, and test results of all construction
materials.
Witness all surveys and agree to measurements based on surveys.
Advise the employer on the need for additional investigations or tests, and
arrange for these to be carried out on the employers behalf.
Issue variations and day work orders (subject to agreed cost limits and
employers agreement).
Review interim payment applications and issue interim certificates.
If applicable, manage the interfaces between different contractors, and monitor
subcontract interfaces.
Hold regular progress meetings with the contractor and employer.
Prepare regular progress reports for the employer; to include financial with
estimated outturn cost, and schedule reporting, with estimated completion and
handover dates.
Prepare any reports as required by the Asian Development Bank.
Liaise with Sri Lanka Ports Authority on operational matters.
Undertake periodic site visits by specialists as considered necessary by the
engineer, with prior approval of the employer.

38

Appendix 11

(xvii)

Prepare and regularly update the overall project schedule showing all relevant
activities and interfaces including contract design and construction, handover and
takeover dates, and built-in plant and operational requirements.
(xviii) Review and monitor the contractors Environmental Management Plan
(xix) Maintain a daily site diary with a detailed record of all significant events and
discussions including summaries of progress, disruptions, weather, sea state,
accidents, breakdowns, labor movements, etc.
(xx)
Verify as-built drawings and manuals.
(xxi) Offer advice in settling disputes or differences that may arise between the
employer and contractor, with the exception of time in preparing for dispute
resolution or litigation.
(xxii) Issue handover certificate.
(xxiii) Prepare a defects list and instruct remedial work.
(xxiv) Prepare final account.
(xxv) Prepare project report.
C.

Staff

9.
An estimate of the staff required, their qualifications, experience, and inputs is given in
Table A11. The consultant will assess staff requirements together with a detailed resources
chart showing the duties and responsibilities of each member of the team and the time required
for each member to match the expected sequence of works. Posts 1 to 6 and 11 to 14 are
expected to be filled by international staff and all other posts will be taken by national staff.
Table A11: Staffing Requirements
Designation

Qualifications

Experience
(years)

Time
(months)

A. Overall Direction
1.a Project Director (home country-based with
periodic visits)

Specialist ports
experience: senior
manager on
permanent staff

>20.0

10.0

10.0

Subtotal (A)
B. Technical Support
2.a Breakwater Design Expert

>15.0

1.0

3.a Dredging and Reclamation Expert

>15.0

1.0

4.a Submarine Pipeline Expert

>15.0

1.0

>15.0

1.0

6. Coastal Engineering Expert

>15.0

1.0

7. Environmental Expert

>15.0

1.0

8. Design Engineer (2)

>10.0

54.0

>7.0

30.0

5. Geotechnical Expert

9. Junior Engineer
10. Computer-Assisted Design Technician (2)

50.0
140.0

Subtotal (B)
C. Supervision
11.a Chief Resident Engineer

Experience in port

>15.0

40.0

Appendix 11

Designation

Qualifications
and coastal
engineering
construction

12.a Deputy Chief Resident Engineer: Breakwaters

Experience in
concrete armour
breakwater
construction

13.a Superintending Resident Engineer (SRE):

Dredging, Reclamation, Pipeline

Experience
(years)

39

Time
(months)

>10.0

30.0

Experience in
dredging /
reclamation

>7.0

30.0

14.a SRE: Secondary Breakwater (Small Boat

Harbor)

Experience in port
construction

>7.0

18.0

15. SRE: Onshore Works

Experience in civil
engineering
construction

>7.0

24.0

16. Senior Environmentalist: Environmental

Management

>10.0

39.0

17. Cost Engineer: Measurement and Cost Control

>10.0

40.0

>7.0

39.0

19. Assistant Resident Engineer: Roads and

Paving

>5.0

18.0

20. Assistant Resident Engineer : Buildings

>5.0

18.0

21. Assistant Resident Engineer : Utilities

>5.0

18.0

>5.0

32.0

23. Assistant Resident Engineer : Breakwaters (3)

>5.0

50.0

24. Assistant Environmentalist

>5.0

18.0

18. Material and Geotechnical Engineer

22. Hydrographic Surveyor

Experience in marine
geology

Experience in
dredging surveys

25. Quantity Surveyors (2)

57.0

26. Surveyors (3)

86.0

27. Inspectors (18)

420.0

28. Laboratory Technician

39.0

29. Diver

33.0

Subtotal

1,049.0

D. Administration
30. Office Manager

52.0

31. Secretary

52.0

32. Accountant

52.0

33. Filing Clerk

52.0

34. Office Aide

52.0

Subtotal
Total
a

International consultant.
Source: Sri Lanka Ports Authority estimates.

260.0
1,459.0

40

Appendix 11

D.

Project Reports

10.
The following reports will be submitted in an agreed format to the employer for their own
use and onward transmission to the Asian Development Bank: monthly progress reports, project
performance monitoring and evaluation report, and final completion report. The monthly
progress reports will provide a review and commentary on the work completed during the
previous month and any issues encountered; and a cumulative summary of the progress and
expenditure to date highlighting variances with the contract program, contract price, and
planned cash flow. Other issues to be covered in the monthly progress reports include design
matters and value engineering reviews, unforeseen circumstances, variations and claims,
quality control, health and safety, and environmental management.
11.
Additional reports will be produced, as necessary, covering aspects relevant to the
Project. These may include specific claims and problems encountered. The additional reports
will be annexed to the final completion report.
E.

Data, Local Services, Personnel, and Facilities to be provided by the Employer

12.
The employer will be represented by a project implementation unit (PIU) set up within Sri
Lanka Ports Authority. Through the PIU the employer will provide liaison and coordination with
other Government authorities and port users, and assistance with application for residence
visas, port permits, etc. In addition the harbour masters office will work closely with the
engineer to coordinate the works and port operations so that minimum interference is caused to
the ongoing operations. The employer will make available to the consultant the following
facilities free of charge throughout the period of the services:
(i)
(ii)
(iii)
(iv)

copies of all reports prepared by the design consultant and all other relevant
project data;
all other relevant data and information required, legislation, regulations,
notifications and orders for the completion of the assignment;
fully equipped, furnished, and serviced site offices provided through the
construction contract; and
four site vehicles, two saloon cars, and two minibuses for the exclusive use of the
site staff provided through the construction contract.

The employer will reimburse all reasonable costs associated with the provision of services on
the Project including
(i)

(ii)

personal taxes: all approved travel and accommodation costs including a per
diem for visiting foreign staff and a housing allowance for resident foreign staff;
and
all office running costs.

Appendix 12

41

ECONOMIC AND FINANCIAL ANALYSIS

A.

Traffic Forecasts

1.
The forecast presented is based on analysis of the domestic and transshipment market,
which is subdivided into Indian subcontinent (ISC) transshipment and others. The forecast
model calculates a transshipment share of the ISC market and assesses Colombos share.
Because Jawaharlal Nehru Port, Nhava Sheva, accounts for half of the ISC market and has
moved from 40% to 70% direct calls in 5 years, the transshipment share available has fallen
rapidly to 45% of the total container traffic. The forecast anticipates the share of the ISC
transshipment market to continue to decrease. To date, no carrier has been limited in its choice
of vessel size at an Indian port. However, quite soon as volumes increase and justify direct calls
with bigger ships, size will become a factor. Despite dredging programs and port building,
carriers will be constrained by size at Indian ports and Colombos advantage is that it will be
able to handle the largest vessels. The demand estimates for the Project take account of the
port expansion plans of neighboring countries such as India, as well as the opinion of the
international shipping industry regarding the potential of Colombo Port to be a transshipment
hub port in light of these plans. Shipping industry representatives state that while western Indian
cargo most likely would be lost to Colombo, nevertheless Colombo is in a good position to
capture eastern and southern Indian transshipment cargo provided that it expands its capacity.
The demand forecast in the project viability analysis therefore assumes that Colombo Port will
have a 30% market share of ISC cargo. Direct, not diverted, services are most important; in the
future larger vessels will have greater difficulty diverting because of the traffic volume involved.
The container traffic forecast for national imports and exports is shown in Table A12.1.
Table A12.1: Forecast of Domestic Container Traffic at Colombo Port
(000 twenty-foot equivalent units)
2002

2003

2004

2005

2010

2015

Actual
546a

2020

2030

2040

4,975

9,786

Forecast
601

661

727

1,118

1,643

2,414

Note: 20022040: unconstrained by port capacity limitations.

Used as base for projection.
Source: Consultant estimates
a

2.
Tables A12.2 through A12.4 provide a forecast of container traffic volume for the ISC.
Table A12.2 provides a forecast of the total container traffic to be generated in the ISC. Table
A12.3 provides an assessment of the transshipment share of the ISC container market. The
potential transshipment share of the ISC market is expected to decline in the short term as a
result of increased direct calls. The decline rate is expected to fall in the medium term as larger
ships are introduced and then it will increase again.

42

Appendix 12

Table A12.2: Forecast of Indian Subcontinent Container Traffic

(000 twenty-foot equivalent units)

2002

2003

2004

2005

2010

Actual

2015

2020

2030

2040

21,652

40,902

77,707

Forecast

4,739

5,274

5,871

6,536

10,643

15,790

Note: Total including direct and transshipped containers.

Source: Consultant estimates

Table A12.3: Share Adjustment Indian Subcontinent Transshipment

Period

% Share Adjustment Indian Subcontinent

Transshipment Share (%)

20032008
20092011
20122040

2 annual reduction
1 annual rise (by advent of Suez max ships)
1 annual reduction

33 by 2008
36 by 2011
17 by 2040

Source: Consultant estimates

Table A12.4: Forecast of Transshipment Indian Subcontinent Container Traffic

(000 twenty-foot equivalent units)
2002
Actual

Year
India, Bangladesh,
Pakistan container
traffic
Percentage
transhipped via
Colombo,
Singapore, Salalah,
etc (%)
Total

Year
India, Bangladesh,
Pakistan container
traffic

2004

2005

2006

2007

2008

2009

2010

4,739

5,274

5,871

6,536

7,203

7,940

8,754

9,652

10,643

45
2,133

43
2,268

41
2,407

39
2,549

37
2,665

35
2,779

33
2,889

34
3,282

35
3,725

2011

2012

11,513

12,457

Percentage
transhipped via
Colombo,
Singapore, Salalah,
etc (%)
Total

2003

2013

2014

2015

2020

2030

2040

13,479 14,588

15,790

21,652

40,902

77,707

22

17

36

35

34

33

4,145

4,360

4,583

4,814

Source: Consultant estimates

32
5,053

27
5,846

8,988

13,210

43

Appendix 12

3.
Colombos transshipment forecast is built on the following basis: (i) the forecast
transshipment volumes from the ISC set out in Table A12.4; and (ii) Colombos share of the ISC
transshipment market, taking into account the market dynamics that Colombo is able to
increase its share from 23% in 2002 to about 29% by 2010, providing it is able to achieve high
productivity. Table A12.5 indicates Colombos forecast transshipment traffic up to 2040. Table
A12.6 summarizes the assumed growth rate of the total container traffic and its constituents.
The main conclusions for 20022010 are (i) the annual average growth rate for Sri Lankan
imports and exports is 9.5%; (ii) the annual average growth rate for transshipment is 10.1%.;
and (iii) the annual average growth rate for total traffic is 9.7%.
Table A12.5: Forecast of Transshipment Container Traffic at Colombo Port
(000 twenty-foot equivalent units)
2002

2003

2004

2005

2010

Actual
1,147a

2015

2020

2030

2040

4,065

6,689

10,860

Forecast
1,287

1,398

1,535

2,469

3,385

20022040: unconstrained by port capacity limitations.

a
Used as base for projection.
Source: Consultant estimates

Table A12.6: Colombos Container Traffic Growth Rates

(% per annum)
Item
Sri Lankan Imports and Exports

20022010

20102020

20202030

20302040

9.5

8.0

7.5

7.0

10.1

6.6

5.9

3.2

Restows

5.0

5.0

5.0

5.0

Total Colombo Container Traffic

9.7

6.9

6.4

4.7

Transshipment at Colombo (TEU

moves)

TEU = twenty-foot equivalent units

Source: Consultant estimates

B.

Costs

4.
On the basis of the economic and financial assessments, the basic infrastructure works
and one terminal are assumed to be initially constructed, and two terminals will be subsequently
constructed to meet the forecasted demand of the Colombo Port Expansion Project.
5.
Capital Investment Costs. Infrastructure costs are based on detailed design currently
under preparation. Alternative designs were considered for each project component, and leastcost technical solutions were identified by comparing benefits and costs of mutually exclusive
design options. The breakwater costs are based on a rubble mound structure, which minimizes
the use of rock by using concrete amour units and maximizes the use of dredged sand in the
core of the structure. This structure is less costly than an alternative caisson structure by 27%
per meter for this Project. Sand for reclamation will be taken from the access channels and
harbor basin. The actual equipment to be used in the terminal will depend on the preference of
the terminal operator. However, for costing purposes, each terminal is assumed to have a quay

44

Appendix 12

length of 1,200 m and to be operated by 12 quayside cranes and 40 rubber-tired gantry cranes.
The quay walls are costed as low reflective structures consisting of a reinforced concrete deck
supported on tubular steel piles. The total cost of the Project is estimated to be $1.3 billion. The
details of the cost estimates are given in Table A12.7.
6.
Operating Costs. Operating costs are divided into variable costs, costs that would vary
with the utilization of the terminal, and fixed costs that are independent of terminal throughput.
Tables A12.8 and A12.9 set out the variable and fixed costs.
Table A12.7: Estimated Project Capital Costs
Cost
($ million)

Cost Category
A. Infrastructure
1. Breakwater, dredging and reclamation

214

Small boat harbor, submarine pipeline, navigation aids, roads and

paving, utility services, building and miscellaneous, and
construction supervision consultant

76

2. General items

42

3. Taxes and duties

50
381a

Subtotal (A)
B. Terminals
1. South Terminal:
Civil Works Construction

154

Equipment

147

Subtotal (1)

301

2. East Terminal:
Civil Works Construction

154

Equipment

147

Subtotal (2)l

301

3. West Terminal:
Civil Works Construction

177

Equipment

147

Subtotal (3)
Subtotal (B)

926
Total

324

Contingencies and interest are not included.

Source: Consultant estimates

1,307

Appendix 12

45

Table A12.8: Variable Costs and Projected Increases

2003

20042034

($/TEU)

(Projected increases in real

terms %)

Energy

2.5

Personnel (858 staff)

1.9

Repairs and Maintenance (40% of

total)

0.8

Others

3.0

Variable Costs

TEU = twenty-foot equivalent units

Source: Sri Lanka Ports Authority, consultant estimates.

Table A12.9: Fixed Costs and Projected Increases

Item

2003

20042006

20072034

Administration (182 staff)

1,782.0

(%)
3

(%)
2

Repairs and Maintenance (60% of

total)

2,816.4

Insurance

3,266.4

Source: Sri Lanka Ports Authority, consultant estimates.

C.

Economic Evaluation
1.

Justification for Public Sector Role

7.
Colombo Port is ideally situated to be the transshipment center for South Asia, and
maintaining its status as a hub port is vital for the Sri Lankan economy. This would require
building additional container terminals since the existing container terminals are quickly
reaching capacity. Container terminals are a revenue-generating infrastructure project and can
attract private sector investment. However the new container terminals can only be built outside
the area protected by the existing breakwater. A new breakwater is therefore a prerequisite for
building the new terminals. Breakwaters are a lumpy investment and the site conditions are
such that the minimum size of the breakwater that can be built would be sufficient to protect
three container terminals. However demand considerations mean that the container terminals
would be needed only in phases. Thus no single prospective bidder for a terminal would be
willing to shoulder the cost of building a breakwater sufficient to protect three terminals. The
project breakwater is therefore a public good that will not by itself attract private sector
investment and thus has to be provided by the public sector.
2.

Economic Benefits and Costs

8.
The economic evaluation compares the economic costs and economic benefits of the
Project from the viewpoint of the national economy. Economic analysis is based on the scenario
that three terminals will be sequentially developed to meet forecasted demands by taking into
account the strategy of the Sri Lanka Ports Authority (SLPA) to provide basic infrastructure to

46

Appendix 12

accommodate three terminals. The main consequence for the economy if the Project is not built
would be the loss of the frequent, fast, direct shipping services used by exporters and importers.
Without investment in the South Harbor, Colombo would lose its transshipment traffic; and if the
port no longer operates as a transshipment hub port, it would soon lose its direct calls on trunk
line routes. Local traffic is not high enough to attract direct calls by trunk line ships. Colombo
would eventually become a feeder port, served by a combination of feeder ships and multiport
services with relatively long transit times for the ports with lower traffic volumes.
9.
The Sri Lankan economy will experiences several costs if Colombo Port were to lose its
transshipment hub status. The benefits to the Sri Lankan economy are thus the avoidance of
these costs. The first economic benefit of the Project would be the avoidance of the cost of
having to use feeders. The average cost of feeding to/from Singapore and other regional
transshipment hubs would be around $250 in balanced international shipping markets. With
surplus capacity this price will decline; in period of shortages it will increase. Furthermore, the
feeder cost will be absorbed by the shipping lines where they have to compete with fast, direct
services. But when the fast, direct services are phased out, the feeder cost will normally be
passed on in full. The feeder cost would be incurred by most but not all containers on long
distance routes. Freight costs are an important factor in key Sri Lankan exports, e.g., textiles,
which make up more than 50% of Sri Lankan exports. SLPA records show that about one third
of Colombos imports and exports are on long distance routes, excluding some of the longer
intra-Asian routes. A study by the Organisation for Economic Co-operation and Development1
finds that freight costs from Asian countries already account for a higher percentage of
American market textile import costs at about 6% compared with about 3% for textile imports
from Latin America and the Caribbean. Some of these long distance routes are assumed to be
served by ships on multiport itineraries calling at Indian subcontinent ports; but that the majority,
20% of exports and imports conservatively estimated, would use feeders to a regional hub if the
Project is not implemented. If the Project is implemented and Colombo Port retains its direct
services, conservative estimates are that an average feeder cost of $250 per TEU on 20% of
exports and imports would be saved. This benefit is estimated at $82 million in 2015, which
would otherwise have to be absorbed by exporters to maintain their market competitiveness.
10.
The value to shippers of direct, fast, frequent services can be measured by willingness
to pay. A good example is the express service currently provided by one of the major shipping
lines, giving fast transit on the route from the Peoples Republic of China via Singapore to
Europe. This service is particularly effective in getting garments to retail outlets faster than
competing services in minimal time. The shipping lines are in practice able to obtain a large
premium of approximately $500/TEU for the fast transit time. Longer transit times and delays
are injurious to export markets, especially for textiles. Textiles accounted for 52% of Sri Lankan
exports in 2002, and exporters confirm that a substantial proportion of these products have to
get to retail outlets fast. The importance of the time factor in future textile trade has also been
confirmed. The study (footnote 1) found that lead time will play a crucial role in determining
international competitiveness because of trade-offs between low wage costs and time factors.
The study found that closeness to a large consumer market, e.g., United States or Western
Europe provides a competitive edge in the highly competitive, time-sensitive, and fashionoriented clothing market, and also for new exports that will emerge. The cost to the economy is
estimated conservatively on the basis that 10% of the total traffic would be willing to pay $300
per TEU for fast, direct, reliable service (in practice, premiums of $500 per TEU are being paid
at present). On this basis the benefit of retaining direct services is estimated at $49 million in
1

Organisation for Economic Co-operation and Development. 2004. A New World Map in Textile and Clothing:
Adjusting to Change. Paris.

Appendix 12

47

2015. Textile manufacturers confirm that this is a good illustration of willingness to pay for the
more time-sensitive national containers.
11.
Container terminals obtain additional revenue from transshipment. Without the Project,
transshipment traffic would almost certainly decline rapidly before 2010, rather than being
squeezed out gradually by imports and exports. However, for the purpose of economic analysis,
the most conservative scenario in which existing facilities still handle the considerable
transshipment traffic is applied. The tariff for transshipment is assumed as $29 per TEU by
taking into account the international hub port competition to attract transshipment. With the
Project, this transshipment revenue, $35 million in 2015, would be retained. In addition to the
terminal operator, SLPA itself earns revenue from handling transshipment cargo. The revenues
to SLPA come from harbor entering dues and harbor tonnage dues. They average $3 per TEU.
Additional revenue to SLPA would result from providing marine services, but this would be offset
by costs and are not included here. These two revenues items are gains to the country as they
come from providing transshipment services to cargo originating outside Sri Lanka and destined
for places outside Sri Lanka as well.
12.
The costs of other items, e.g., freight costs, feeder shipping costs, and terminal and port
charges, are determined in the international competitive market. Thus, they are assumed to be
free of distortions and so shadow pricing is not necessary for measuring their economic costs.
Accordingly, the avoidance of these costs reflects true economic benefits. (The development of
Galle Port mainly aims to accommodate bulk cargoes and does not decrease the project
benefits discussed here.) The values assigned to the benefits are compared with economic
costs of the project investment up to 2034. The economic internal rate of return is estimated at
17.5% (Table A12.10).

Table A12.10: Annual Benefit and Cost Streams for the Project
($ 000)
Cost

Year

Capital
Cost

2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

79,000
210,667
210,667
131,667
0
0
0
37,625
100,333
100,333
62,708
0
0
0

O&M
Cost
0
0
0
12,446
16,031
18,703
21,602
24,746
28,153
31,340
44,659
48,505
52,630
57,054

Total
Cost
79,000
210,667
210,667
144,112
16,031
18,703
21,602
62,371
128,486
131,673
107,368
48,505
52,630
57,054

Avoidance of
Feeder Cost
0
0
0
89,453
96,609
104,338
112,685
121,699
131,435
141,950
153,306
165,571
178,816
193,122

Benefit
Additional
Revenue from
Transship
0
0
0
9,425
17,988
22,843
27,920
33,220
38,747
42,920
47,188
51,544
55,983
60,497

Total
Benefit
0
0
0
98,878
114,596
127,181
140,604
154,920
170,182
184,870
200,494
217,115
234,800
253,619

BenefitCost
Stream
(79,000)
(210,667)
(210,667)
-45,235
98,565
108,478
119,002
92,548
41,696
53,197
93,126
168,610
182,169
196,565

48

Appendix 12

Cost

Year
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034

Capital
Cost
40,500

O&M
Cost
62,528

Total
Cost
103,028

108,000
108,000
67,500
0
0
0
0
0
0
0
0
0
0

68,465
74,904
92,963
100,717
108,690
117,281
124,584
126,673
128,800
130,965
133,170
135,414
137,699

176,465
182,904
160,463
100,717
108,690
117,281
124,584
126,673
128,800
130,965
133,170
135,414
137,699

Benefit
Additional
Revenue from
Transship
67,202

Avoidance of
Feeder Cost
208,571

Total
Benefit
275,774

225,257
74,240
299,497
243,278
81,626
324,904
262,740
89,376
352,116
283,759
97,506
381,265
303,622
106,034
409,656
324,876
114,975
439,851
347,617
119,298
466,915
371,950
109,161
481,111
397,987
98,322
496,309
425,846
86,733
512,579
455,655
74,342
529,997
487,551
61,093
548,644
521,679
46,926
568,605
Economic Internal Rate Of Return

BenefitCost
Stream
172,746
123,032
142,000
191,653
280,548
300,966
322,570
342,331
354,438
367,509
381,614
396,827
413,229
430,906
17.76%

O&M = operations and maintenance

Sources: Consultant estimates, ADB staff estimates.

13.
Sensitivity analysis is conducted for the changes in traffic forecasts, capital investment
costs, and ratio of switch to feeders. Table A12.11 summarizes the results of the sensitivity
analysis and indicates the economic viability of Project is robust.
Table A12.11: Results of Sensitivity Analysis
Change In

Case

Traffic Forecasts
Capital Costs
Ratio of Switch to Feeders
(Base Case: 20% of Domestic
containers are switched to feeders of
foreign ports without the Project

EIRR

10% increase

(%)
19.8

10% decrease

16.0

10% increase

16.3

10% decrease

19.4

10% of domestic containers are switched to

feeders of foreign ports without the Project

12.5

30% of domestic containers are switched to

feeders of foreign ports without the Project

22.2

EIRR = economic internal rate of return

Sources: Consultant estimates , ADB staff estimates.

D.

Income Structure of SLPA and Terminal Operator

14.
SLPAs income stream arises from royalties, lease cost, port entry dues, harbor tonnage
dues, light dues, and handling charges. This income is calculated using the forecasted demands
of the Project and the rates applicable to South Asia Gate Terminal (SAGT), a privately
operated terminal in Colombo Port. Although the income structure of the Project for SLPA
depends on concession conditions, they are not yet clear because SLPA is preparing a

Appendix 12

49

competitive bid for the first terminal concession. Therefore, the income structure of SLPA from
SAGT is applied for the purpose of the financial analysis of the Project for SLPA. The details of
the assumptions applied to SLPAs income stream are given in Table A12.12.
Table A12.12: Income Structure of Sri Lanka Ports Authority Based on 2005 Revenues
from South Asia Gate Terminal
Price Escalation

Unit
$ per TEU

per annum (%)

0

5.313a

$ million
per terminal

Port Entry Dues

1.32

$ per TEU

(3)

Harbor Tonnage Dues

2.19

$ per TEU

Light Dues

0.98

$ per TEU

(3)

Landing and Delivery Charges

4.81

$ per TEU

Shipping Charges

2.43

$ per TEU

Others

0.62

$ per TEU

Item
Royalties

Rate
3.00

Lease/Rental Cost

Calculated assuming lease cost will be proportional to the area of terminal.

TEU = twenty-foot equivalent units

Source: Consultant estimates

15.
A terminal operator earns revenues from container handlings. Up to 2009, the tariffs are
based on the existing tariffs of $140/TEU for imports and exports and $37/TEU for
transshipment with rebates of 15% and 25% respectively. From 2010 to 2014 the rebate for
transshipment is assumed to increase to 35%. Longer term tariff projections are based on the
market and economic analysis undertaken. The tariffs used for the analysis are presented in
Table A12.13. The tariff structure presented is in real terms.
Table A12.13: Projected Tariffs for Imports, Exports, and Transshipment Traffic
($/TEU)
Item

20042009

20102014

20152019

20202042

Imports and Exports

119.0

119.0

120.0

100.0

Transshipment

27.8

24.1

35.0

40.0

Source: Sri Lanka Ports Authority, consultant estimates.

E.

Financial Evaluation

16.
The financial analysis of the Project for SLPA was conducted in accordance with Asian
Development Bank (ADB) guidelines. 2 The financial evaluation compares the incomes and
expenditures of SLPA through project implementation. This analysis is based on the scenario
that three terminals will be sequentially developed by the private sector to meet forecasted
demand. Incremental benefits and costs were computed on the basis of with- and withoutproject scenarios for each of the components. All financial benefits and costs are expressed in
2

ADB. 2005. Financial Management and Analysis of Projects. Manila.

50

Appendix 12

real terms. Taxes and duties are included, and contingencies and interest during construction
are excluded. Royalties, lease cost, port entry dues, harbor tonnage dues, light dues, and
handling charges are used for the incomes of SLPA, and capital investment cost and
maintenance and repair cost of the basic infrastructures are used for the expenditures of SLPA.
Maintenance cost of the breakwater could be considered to be negligible; however, for this
analysis 0.5% of the investment cost incurring from 2011 and 1% per annum escalation are
assumed. The values assigned to the incomes are compared with the basic infrastructure
expenditures for the Project up to 2034. The financial internal rate of return (FIRR) is
approximately 11.5% (Table A12.14).
Table A12.14 Annual Income and Expenditure Streams for Sri Lanka Ports Authority
($ 000)

Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034

Capital Cost
47,625
127,000
127,000
79,375
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

Expenditure
O&M
Total Expenditure
Cost
0
47,625
0
127,000
0
127,000
0
79,375
1,905
1,905
1,924
1,924
1,943
1,943
1,963
1,963
1,982
1,982
2,002
2,002
2,022
2,022
2,042
2,042
2,063
2,063
2,083
2,083
2,104
2,104
2,125
2,125
2,147
2,147
2,168
2,168
2,190
2,190
2,212
2,212
2,234
2,234
2,256
2,256
2,279
2,279
2,301
2,301
2,324
2,324
2,348
2,348
2,371
2,371
2,395
2,395

Income
0
0
0
11,400
17,063
21,068
25,335
29,879
34,719
39,088
49,028
53,929
59,120
64,619
71,521
78,921
86,855
100,678
109,806
119,011
128,836
136,676
137,338
138,016
138,711
139,422
140,148
140,891
FIRR

O&M = operations and maintenance; FIRR = financial internal rate of return

Sources: Consultant estimates, ADB staff estimates.

Income-Expenditure
Stream
(47,625)
(127,000)
(127,000)
(67,975)
15,158
19,144
23,391
27,917
32,737
37,086
47,006
51,886
57,057
62,536
69,417
76,795
84,709
98,510
107,616
116,799
126,602
134,420
135,059
135,715
136,386
137,074
137,777
138,497
11.49%

Appendix 12

51

17.
The weighted average cost of capital (WACC) was calculated and compared with the
FIRR to ascertain the financial viability of the Project for SLPA. To estimate the WACC, ADB is
assumed to finance 68% of the Project and the Government of Sri Lanka 32%. Nominal costs of
financing are assumed at 6.0% for ADB and 11.4% for the Government. Incorporating the other
assumptions, i.e., a domestic inflation rate of 7.0%, and SLPAs effective tax rate of 24%, the
estimated WACC is 4.4%. The FIRR of 11.5% exceeds this WACC, demonstrating the financial
validity of the Project for SLPA.
18.
A sensitivity analysis was conducted for the changes in traffic forecasts, capital
investment costs, and rates of revenue (Table A12.15). The analysis indicates that the financial
sustainability of the Project for SLPA is robust.
Table A12.14: Results of the Sensitivity Analysis
Change In
Traffic Forecasts
Capital Costs
Rates of Revenue

Case

FIRR

10% increase

(%)
13.1

10% decrease

10.0

10% increase

10.7

10% decrease

12.4

10% increase

12.3

10% decrease

10.6

FIRR = financial internal rate of return

Source: ADB staff estimates.

19.
A financial analysis for the first terminal operator was also conducted to assess the
viability of private sector development under a build-operate-transfer concession. A terminal
operator incurs the capital investment cost of south terminal development, terminal operation
cost, and concession fees (royalties and lease/rental fees to SLPA presented in Table A12.12)
while earning revenues from tariffs presented in Table A12.13. The values assigned to the
incomes are compared with the values assigned to expenditures for the operator up to 2034.
The FIRR is approximately 16.3%, which is in line with comparable new terminal developments
internationally. The detailed spreadsheet calculations for FIRR are shown in Table A12.16.
Table A12.16: Annual Income and Expenditure Streams for South Terminal Operator
($ 000)
Expenditure
Year
2007
2008
2009
2010
2011
2012

Capital
Cost
37,625
100,333
100,333
62,708
0
0

O&M
Cost
0
0
0
12,446
16,031
18,703

Royalties/Lease
0
0
0
6,489
7,575
8,337

Total
37,625
100,333
100,333
81,643
23,607
27,040

Income
0
0
0
18,085
35,178
50,332

IncomeExpenditure
Stream
(37,625)
(100,333)
(100,333)
(63,558)
11,572
23,292

52

Appendix 12

Expenditure

2013
2014
2015
2016

Capital
Cost
0
0
0
0

O&M
Cost
21,602
24,746
28,153
31,340

2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0

22,330
24,253
26,315
28,527
31,264
34,233
37,452
30,988
33,572
36,230
39,094
41,528
42,224
42,933
43,655
44,390
45,138
45,900

Year

Income

IncomeExpenditure
Stream

Royalties/Lease

Total

9,143
9,996
10,899
11,704

30,745
34,743
39,052
43,044

66,571
83,973
116,433
136,769

35,826
49,230
77,381
93,725

8,932
9,377
9,846
10,338
10,954
11,611
12,309
10,472
10,999
11,525
12,082
12,513
12,513
12,513
12,513
12,513
12,513
12,513

31,262
33,630
36,161
38,864
42,218
45,843
49,761
41,460
44,572
47,755
51,175
54,041
54,737
55,446
56,168
56,903
57,651
58,413

105,647
121,088
137,571
142,960
154,517
155,368
156,204
112,521
124,666
136,495
149,077
160,354
166,269
172,601
179,380
186,638
194,407
202,724
FIRR

74,385
87,458
101,410
104,096
112,299
109,525
106,443
71,061
80,094
88,740
97,901
106,312
111,531
117,155
123,212
129,735
136,756
144,312
16.31%

O&M = operations and maintenance, FIRR = financial internal rate of return.

Source: ADB staff estimates.

20.
A sensitivity analysis conducted for changes in traffic forecasts, capital investment costs,
and tariffs (Table A12.17) indicates the financial sustainability of the south terminal operator is
robust.
Table A12.17: Results of Sensitivity Analysis
Change In
Traffic Forecasts
Capital Costs
Tariffs
FIRR = financial internal rate of return
Source: ADB Staff estimates

Case

FIRR

10% increase

(%)
17.8

10% decrease

13.8

10% increase

15.3

10% decrease

17.5

10% increase

18.0

10% decrease

14.5

Appendix 12

F.

53

Basis of Economic and Financial Analysis

21.
The economic and financial analyses are based on demand forecasts made in the
business plan prepared by the ADB consultants for the Colombo Port Efficiency and Expansion
Project. 3 The business plan was completed in April 2004 based on data up to 2002.
Comparative analysis of the demand forecasts in the business plan for 20032005 and the first
half of 2006 show that the actual traffic volumes achieved exceeded the forecasts for these
years in the business plan. Nevertheless the business plan forecasts are used to ensure that
the demand forecasts are conservative. Cost figures used in the analysis are based on
estimates prepared by the same consultants as part of the detailed design and tender
documentation preparation.

ADB. 2001. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the
Democratic Socialist Republic of Sri Lanka for the Colombo Port Efficiency and Expansion Project. Manila (Loan
1841-SRI, for $10 million).

54

A.

Appendix 13

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Linkages to the Country Poverty Analysis

Is the sector identified as a national

priority in country poverty analysis?

Yes
No

Is the sector identified as a national

priority in country poverty partnership
agreement?

Yes
No

Contribution of the sector or subsector to reduce poverty in Sri Lanka:

The Colombo Port Expansion Project is to promote economic growth by improving Sri Lankas competitiveness in the
ports sector through expanding Colombo Port using public-private partnership. The Project will facilitate economic
growth by enhancing national competitiveness in international trade via lower costs and faster delivery, generate
additional income from transshipment, and provide incomes from construction. In addition it will enhance export and
import intensity of the national economy and provide economywide efficiency benefits. The Project will contribute
significantly to poverty reduction, primarily by creating income and employment opportunities for low income earners
linked with the export-import trade sector of the economy and lead to poverty reduction in the quarrying industry.

B. Poverty Analysis

Targeting Classification: General intervention

What type of poverty analysis is needed?

The Project comprises construction of a new outer basin enclosed by a breakwater and served by a new navigation
channel. Material dredged from the channel will be used in reclamation to provide new container berths with
associated infrastructure, buildings, and operation facilities. The project-affected area includes (i) Colombo City,
considered to be the main activity zone of the Project; (ii) Colombo Metropolitan Region (CMR) comprising Colombo,
Gampaha and Kalutara districts; and (iii) quarry sites, including immediate neighborhoods, road corridors, and loading
points. CMR has an estimated population of 5.4 million and accounts for over 70% of the country's industrial activities,
53% of industrial employment, and 31% of total employment. The three CMR districts have relatively high population
densities.1 Between districts, the highest urban population density of 54.7% is concentrated in Colombo district due to
the increased opportunities of employment in the garment industry, banking, services, and informal sectors. The CMR
economy has undergone substantial change over the past three decades. In terms of job formation, it has grown much
faster than the nation as a whole. Unemployment rates in CMR are lower than the rest of the country, although the
area has a relatively large unskilled youth labor force. Of those employed, the average monthly income in Sri Lanka
was estimated at SLRs3,056 for 2002, while the corresponding figure for CMR was SLRs4,993. Each of the districts in
CMR also had average incomes above the national average: Colombo SLRs4,923, Gampaha SLRs4,013, and
Kalutara SLRs3,046.
Modera and Mattakkuliya, major fishing areas in Colombo District, are located next to the Project. The coastal stretch
south of the Project (Agulana, Dehiwala, Egoda Uyana,Lunawa, Mount Levinia, Moratuwa, Rathmalana, etc.) also
includes traditional fishing areas. Of these, Moratuwa, Dehiwala Modera, and Mattakkuliya were affected to varying
extents by the Asian tsunami, but generally these areas were less affected than communities further south and east.
Fishery communities largely live in dwelling units constructed on beaches. The number of households engaged in
fishing in these areas appears to be declining not only because of the preference for alternative employment, but also
declining fish resources. Just over 2,000 households are now engaged in fishing. The majority of fishing crafts have
outboard motors that are used mainly in inshore areas. The existing port and its approaches have a security zone
within which fishing is not allowed. While the nation as a whole will experience the economic impacts of the Project,
the existing concentration of economic activity in CMR is likely to function as an important factor in mediating the
social impacts of the Project in the surrounding areas. Thus, CMR residents will experience most of its social impacts
emanating from economic, employment, trade, and transportation growth.
In Sri Lanka, poverty is greatest in the rural sector (20.8%), followed by the urban sector (6.2%), and the estate sector
(4.3%). Across the industry subsectors, the highest poverty is reported in mining and quarrying industries as
employment in quarrying is characterized by its low pay as well as its temporary and irregular nature,. As per 1996
data, the incidence of poverty among those engaged in mining and quarrying was 41.5%. The next highest incidence

Data from 2001 shows a density of 299 people per square kilometer for the country as a whole and 3,303 for
Colombo, 1,539 for Gampaha, and 1,539 for Kaluthara districts.

Appendix 13

55

of poverty was in agriculture at 28.4%. As per Department of Census and Statistics 2004, the percentage of poor
2
households living below the official poverty line is 5% for Colombo District, 9.2% for Gampaha, and 17.7% for
Kalutara compared with 19.2% for Sri Lanka. Although the Western province in which the CMR is located, records the
lowest incidence of poverty, it accounts for the largest proportion of the total poor. The poverty profile of the city of
Colombo reveals about 1,614 poor urban settlements with about 77,612 families. The urban poor of Colombo include
those engaged in informal sector activities and blue collar workers of the ports, industries, railways, etc. They are
mostly concentrated in the slums, shanties, and low cost housing in the northern and central parts of the city. Lack of
land ownership, poor access to drinking water, poor sanitation facilities, and lack of a regular source of income are a
few of the main factors causing poverty.
Impacts of the Project will be distributed differently in different geographic areas and over time. Communities living
adjacent to the Project will experience the most impacts. The major positive social impacts are anticipated to arise
through the creation of direct and indirect employment opportunities during project construction and operation.
Employment opportunities are likely to occur due to (i) construction and operation related work; (ii) quarrying, and (iii)
potential additional employment from benefits arising from increased vessel traffic and other development initiatives.
Thus the additional jobs are expected to be significant. The majority of the temporary employment related to
construction of the breakwater and three terminals will be accrued by those living in CMR. About half of the population
in Colombo live in slums and the poor who are underemployed or unemployed will have access to temporary
employment opportunities created by the Project. Similarly, those residing in the surrounding areas will compete for
more regular employment opportunities arising out of the Project. During project operation only a fraction of the new
jobs are expected to be executive positions, the largest proportion of workers employed will be in administration
(clerks, supervisors, storekeeper, typist, etc), followed by technical (crane operator, vehicle drivers etc) and
nontechnical positions (dockers, cleaners, etc.). Areas where rock will be sourced for the construction of the
breakwater will be determined by the appointed contractor. However, people who live close to the quarry sites, landbased transport routes, and barge load-out points will experience some of the direct impacts of the Project. The
income impact of quarrying will be largely attributed to contractors, providers of related services (such as transport),
and workers. Those working in the quarrying industry are recognized as belonging to one of the most impoverished
employment sectors in the country, due to low wages and discontinuous work. As such, this group will benefit
substantially from any employment opportunities. As per the projected estimates for quarrying activities, the predicted
opportunities of employment would vary from 4,000 to 12,000 per year depending on the contractors method of
production either mechanized or traditional. Increased vessel traffic and other related initiatives outside the immediate
scope of the Project, such as the development of a free trade zone will also create benefits. Benefits to import and
export industries are likely to accrue in areas outside the project-affected area, due to overall improvements in the
national economy from the growth in shipping operations facilitated by the Project. The potential efficiency gains of the
Project will have an impact on export/import trade sectors and thereby will also offer significant benefits to low income
earners of the economy. The Project will also increase export-oriented growth activities, which will in turn result in
greater capital investment, greater employment, and increased employment of those living below the poverty line.

C. Participation Process
Is there a stakeholder analysis?

Yes

No

Yes
No
Is there a participation strategy?
As part of the project preparation, consultations were held with primary and secondary stakeholders including people
in the project-affected area (men and women), fisherfolk cooperatives, Ministry of Ports and Aviation, and other local
administration departments. Issues related to the proposed port development and various activities involved in the
construction and operation of the Project were discussed. The main objective was to ascertain community response to
the Project and any negative impacts that the Project needs to mitigate. All those consulted had positive reactions to
the Project and welcomed the benefits that development of the port would lead to, such as increased employment
opportunities for the people living in the project area.

D. Gender Development
Strategy to maximize impacts on women:

People living in households with real per capita monthly total consumption expenditure below SLRs1,423 are
considered poor (the official poverty line).

56

Appendix 13

In Sri Lanka, according to the demographic survey of 1994, by the Department of Census and Statistics, about 97% of
males and 87% of females are literate. The female labor force participation rate has been increasing, although
unemployment among women is still higher than for men. In 2002, the labor force participation rate was 50.3%; about
50% of the labor force belonged to the 2039 years age group. Among the employed, males in the 3039 years age
group and females in the 2024 years age group reported the highest participation in the labor force. The Project will
provide educated youth (men and women) equal opportunities to seek short- and long-term employment opportunities
created under the Project. Those men and women supplying labor for quarrying-related activities would typically be
those with low literacy rates and low incomes, with a higher proportion being women. Assuming the degree of
mechanization does not affect the proportion of employees by gender, the Project is expected to provide additional
employment opportunities for women. In general, the Project will provide employment opportunities for both men and
women during project construction and operation, and in the quarrying sites. The Project will ensure that employment
opportunities and rates of remuneration are determined without gender-based discrimination, according to the
principles of equal remuneration for work of equal value.
Has an output been prepared?

Yes

No

E. Social Safeguards and other Social Risks

Item

Resettlement

Significant/
Not Significant/
None
Significant
Not significant
None

Plan Required
Strategy to Address Issues
The Project will not involve any land acquisition or
resettlement. Project construction and operation activities
will extend seaward from the south end of the existing
Colombo Port and not require any additional landeither
government or private. To link the existing port access
road to the new harbor, three government/SLPA buildings
will have to be demolished: two warehouses and an SLPA
office. The warehouses are presently not used and will not
be rebuilt. The SLPA office building will be partially
affected and will be partially demolished. The work space
of employees will be accommodated in other office
buildings within the port area, and thus will not involve
construction of a new building. The existing port access
road will be used for transport of containers and other
imported goods. None of the port access roads will be
widened or improved, and thus will not lead to any
resettlement impacts. Even after project construction and
operation, the transport of containers and other imported
goods will take place within the port-related activity zone
and hence, will not displace any business establishments
close to the port. With regard to specific effects
associated with quarries, the quarry location will be
identified by the contractor only during project
implementation prior to the construction of the breakwater.
Thus the Government will have to ensure that if any land
acquisition and resettlement impacts are associated with
quarrying of rocks appropriate mitigation measures will be
formulated and implemented in compliance with ADBs
policy on Involuntary Resettlement (1995) and Policy on
Indigenous Peoples (1998).

Full
Short
None

No affordability issues are foreseen

Significant

Yes

Not significant

No

Affordability

None
Significant

No job losses will occur. The Project is expected to

generate employment opportunities for people in the

Yes

Appendix 13

Labor
Not significant

project-affected area during construction and operation.

Men and women will be paid equally for equal work.

No

None
Significant
Indigenous
Peoples

Not significant
None

Other
Risks
and/or
Vulnerabilities

Significant
Not significant
None

The population of Sri Lanka comprises different

population/ethnic groups. Based on Statistical Abstract
2003, Department of Census and Statistics, in the three
CMR districts 77%92% of the population are Singhalese,
110% Sri Lankan Tamils, 14% Indian Tamils, 28%
Muslims, and the rest are either Burghers or Malays. The
Project will not have any differential impact on the
different population/ethnic groups. The communities of
indigenous people known as Veddha are found mainly in
the districts of Badulla, Anuradhapura, and Polonnaruwa,
with smaller numbers in other provinces mainly in the east
and north. No indigenous people are present in the
project-affected area.
Based on the detailed engineering study and the
environmental impact assessment report, the Project will
be constructed entirely within the no fishing security
zone so fish catch or extent of the fishing area available to
fisherfolk will not be affected and thus livelihoods of the
fishing community in the surrounding area will not be
affected. If the existing security zone is increased to
accommodate the Project and dredging activities affect
the livelihood of the community during project
implementation, the Ministry of Ports and Aviation will
ensure that prior to construction the environmental
monitoring plan addresses these concerns and develops
appropriate measures to mitigate the risks.

Yes
No

Yes
No

57