COLOMBO, SRI LANKA, August 6, 1999 —
The International Finance Corporation, Asian Development Bank, and Commonwealth Development Corporation are together investing $130 million in South Asia Gateway Terminals (Private) Limited (SAGT), a private consortium that was awarded a 30-year Build-Operate-Transfer (BOT) concession to rehabilitate, modernize, and operate berths on Queen Elizabeth Quay at the Port of Colombo's container terminal. The project, which marks the first private investment in the country's port sector, is a key component of the government's efforts to reform Sri Lanka's ports.
The project is also the government's first step in involving private investors in the port sector through a BOT concession. By supporting this project, IFC, ADB, and CDC expect to achieve a significant demonstration effect with the government and potential investors and to show that private infrastructure projects can provide efficient service as well as attractive investment opportunities.
The primary sponsors are P&O Australia Limited and John Keells Holdings Limited. The major shareholders of SAGT are P&O Netherlands B.V., P&O Nedlloyd B.V., and John Keells Holdings Limited, accounting for more than 50 percent of SAGT's paid-up capital.
Publicly run port facilities in Colombo have suffered from high operating costs and have lacked funds to expand capacity. With its ideal geographic location, Colombo can serve as a key transshipment point for the Europe-Far East shipping routes as well as an important central distribution point for secondary ports throughout South Asia. An estimated $240 million in project costs will go to extending the quay, repairing and upgrading existing facilities, and purchasing new equipment. Planned for completion by 2003, the project will increase the terminal's annual capacity from 285,000 to more than 1.1 million twenty foot equivalent units, or TEU's.
The investments of IFC, ADB, and CDC each include a loan of $35 million and an equity investment of $7.3 million, for a 7.5 percent stake of the share capital of SAGT for each institution. Private Sector Infrastructure Development Company Limited, which is supported by the World Bank Group, is also providing $39 million in long-term loans.
Mr. Declan Duff, IFC director for telecommunications, transportation, and utilities, noted that the project would improve the efficiency of port operations in Sri Lanka. He added that IFC expected the project to have a major impact on both regional trade and the Sri Lankan economy through increased foreign exchange earnings, more jobs, and substantial transfer of knowledge and technology with the presence of international port operators such as P&O and Evergreen. With a world-class terminal and adequate capacity, the port would give shipping lines operating in the region and the Europe-Far East routes a significant incentive to call on Colombo.
Ms. Christine Wallich, head of ADB's Private Sector Group, called the project a major step forward in increasing private sector involvement in the country's economy and infrastructure. Commending the efforts of the government and the Sri Lanka Ports Authority in finalizing the project, the ADB said it expected substantial benefits from the transparency and best practices used in the selection of sponsors, diligent assessment of environmental risks, and monitoring of the labor impact. Ms. Wallich added that the private sector must expand its role in Sri Lanka to bring sound, long-term investments that foster economic growth, reduce poverty, create jobs, and improve the quality of life.
Dr. Roy Reynolds, chief executive of CDC, described the project as a landmark development for Sri Lanka, in which CDC is pleased to be playing a role. According to him, the Port of Colombo has always been of major regional importance and throughput continued to increase even during the Asian crisis. CDC is confident that the upgrading will maximize the port's commercial potential, Dr. Reynolds added.
The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. It fosters economic growth by financing private sector investments, mobilizing capital in the international financial markets, and providing technical assistance and advice to governments and businesses.
The Asian Development Bank is a multilateral development institution whose goal is to foster economic and social progress among its developing member countries in the Asia-Pacific region.
CDC's mandate is to create and grow long-term viable businesses in developing economies, achieving attractive returns for shareholders and implementing best practice. It is a leading investor in emerging markets, investing $400-500 million in new activities a year covering a wide range of sectors, including food and beverages, power, transport, telecommunications, information technology, financial services, mining, property, and tourism.