Hambantota Port, a regional energy hub Cooperation breeds innovation in Sri Lanka

Guest Commentary

By Maya Majueran*

The Hambantota International Port (HIP) is a deep-water port being developed in phases in Hambantota, south Sri Lanka. This port is located 10 nautical miles from the major international east-west shipping route that runs between the Suez Canal and the Strait of Malacca, and is well positioned at a strategic location on the maritime gateway to India. Approximately 300 ships travel this route per day and create good business opportunities for enterprises providing terminal, port and marine services.

The berths in the port are specialized to handle containers, bulk cargo, general cargo, ro-ro (roll-on/roll-off, meaning transport of wheeled vehicles) cargo and liquid bulk.

Water depth alongside the quay and navigation channel is 17 meters, allowing the port to handle super-mega vessels. It also has great potential for future expansion as a maritime hub in South Asia.

The Sri Lanka Ports Authority (SLPA) operated the port from its opening in 2012 to the end of 2016, but failed to achieve profitability due to inadequate governance, lack of commercial and industrial activities, and its inability to attract passing vessels to dock. Likewise, the bunkering (refueling) business failed to take off due to the SLPA not having a strategic international partner. The port was unable to generate sufficient revenue to meet its loan obligations for its construction.

Fresh investment

In July 2017, Sri Lanka decided to sign a concession agreement with China Merchants Port Holdings Co. Ltd. (CMPort) to operate the HIP along with 5 square km of land as a public-private partnership (PPP) project on a 99-year lease. On December 9, 2017, two Sri Lankan companies were established under the agreement, namely the Hambantota International Port Group (HIPG) and the Hambantota International Port Services Co. Ltd. (HIPS).

The two companies officially took over the port, with the CMPort making a payment of $1.12 billion for the acquisition of 85 percent stake of the HIPG and 58 percent stake of the HIPS. The remaining stakes in HIPG and HIPS are owned by the SLPA. At the time of entering into the lease agreement, the HIP’s value was assessed at $1.4 billion.

The PPP is not a debt-equity swap but a fresh investment by the CMPort. After undertaking the HIP, the company further invested in restructuring and transformed the port into a commercially viable national asset in collaboration with the SLPA.

The CMPort is an important subsidiary of China Merchants Group (CMG), a Hong Kong-based conglomerate established in 1872, and it is a world-leading port developer, investor and operator. The company has established an extensive port network that includes major hub ports along the coast of China. It controls or has invested in a number of terminals in China and has successfully expanded its network into South Asia, Africa, the Americas, Oceania and Europe.

A leading global port operator, the CMPort has continuously expanded its port business overseas since 2008 and has accelerated its related efforts in recent years. As of December 31, 2022, the company had invested or taken a minority stake in 42 ports in 25 countries or regions. In 2022, its container throughput reached 136.53 million 20-foot equivalent units and its bulk cargo throughput reached 547 million tons.

The CMG has three core businesses: transportation, finance and property. The group has rich experience and resources in implementing the Port + Park + City Model, which can be seen in Shekou in Guangdong Province in south China and Zhangzhou in Fujian Province in southeast China. The large area of the project in the HIP, approximately an 11.5-square-km port area, gives leeway for the CMG to implement and capitalize on its current model to add substantial value to the port operations and development.

Remarkable growth

Since the CMPort began operating the HIP in 2017, the port has witnessed remarkable growth. The HIP became the fastest-growing ro-ro transshipment port in the region in 2023, with 700,000 transshipment vehicles handled, up 26 percent from 2022 figures. The port made an $8-million investment last year to build another 68,000 square meters of parking space to add a further 5,000 to its current approximately 28,000 slots for transshipment vehicles.

As part of the long-term development strategy of the HIP, the port also began successively introducing an oil and gas business in April 2019. It awarded a tender to Sinopec Fuel Oil Sales Co. Ltd., a subsidiary of China’s petrochemical giant Sinopec, for oil trading and the operation and maintenance of its oil tanker terminal along with associated facilities.

Bunkering is also an important part of the energy services portfolio offered by the HIP. In March 2020, the HIP began bunkering for ships that call at the port with the first shipment of very low sulphur fuel oil 380 CST discharged in a newly refurbished Lloyds-certified oil storage facility. In February 2021, the HIP achieved another milestone in its multi-services portfolio when it began the wholesale supply of marine bunker fuels, together with its strategic partner Sinopec Fuel Oil Lanka Ltd. This initiative provides a competitive price for Sri Lankan licensed bunker suppliers, who are involved in supplying bunkering services for vessels calling at any port in Sri Lanka or plying the busy east-west shipping route.

The partnership with Sinopec, which is one of the largest providers of bunkering worldwide, underlines the HIP’s goal of becoming a bunkering hub for the entire region. The Beijing-based Sinopec has a registered capital of 326.5 billion yuan ($45.3 billion), with its global business scope mainly including oil and gas exploration and production, oil refining, oil sales, and petrochemical industry.

In May 2021, the HIP partnered with Intertek Lanka Ltd. to establish a state-of-the-art petroleum laboratory for testing marine products as well as bunkering and bunker-related inspections. Petroleum testing is an important activity in port-related services. In 2023, over 300 oil and gas cargo vessels visited the HIP, a 132-percent increase from 2022.

All these achievements show the HIP is moving toward the target of becoming an energy hub in the region. The partnership with CMPort and Sinopec is definitely a boost for the Sri Lankan oil and gas industry. The HIP is a flagship project of cooperation between Sri Lanka and China under the Belt and Road Initiative, an initiative proposed by China to boost connectivity along and beyond the ancient Silk Road routes, and all the projects are bringing win-win results to both countries.

* The author is director of BRISL, an independent and pioneering Sri Lanka-led organization with strong expertise in Belt and Road Initiative advice and support.

This article was originally published by Beijing Review!

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