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Sri Lanka’s Port Strategy

Aug 21, 2010 2:45:02 PM - thesundayleader.lk
Colombo Port

Colombo Port

By Indi Samarajiva

Sri Lanka is building or expanding not one but six ports. The Mahinda Chinthana envisions 10,000 ships passing through Hambantota alone, while current traffic islandwide is around 6,000. Indeed, Mahinda has pushed through with his vision despite much advice that building Hambantota was unnecessary because his government has faith in a regional model of development. The World Bank and many economists and advisers, however, see a future where Colombo and the Western province will continue to lead. The question today is whether Helping Hambantota will hurt the country.


Hambantota is a sleepy fishing town of about 20,000, largely Muslim in the center and actually not a hotbed of Mahinda support. It is near Mahinda’s home area around Tangalle to the West and Yala to the East. This area is a nice vacation spot, but not exactly an economic hub. This is the place where Mahinda envisions “an international airport, international conference and convention centres, international sports stadia, new railways, expressways and tourist regions.” Of course, cities like Las Vegas were created whole cloth out of the desert by men of will and action (gangsters, actually). With credit, all things are possible, but it does not necessarily make them prudent.
The Hambantota port was built with a $300 million dollar loan from China, but this delivers a port without container handling, with limited bunkering and, in phase one, the ability to handle only about three ships a day. “In about ten years, with the second phase coming on stream, we aim to handle about 8,000 ships a year,” said Sri Lanka Ports Authority Chairman Priyath Wickrama. Getting to that phase, however, will cost about $1.5 billion (total). The Chinese contractor gets paid, the Chinese Navy gets a strategic asset, but the Sri Lankan taxpayer takes the risk..


Aside from the investment in Hambantota going to waste, one risk is that the internal competition could hurt Colombo. Colombo is already the major port for South India region and 75% of the 3.5 million TEUs (twenty tonne equivalent units) it handled in 2008 were transshipments for India. The government is also investing $300 million in drastically expanding the Colombo South harbour and revamping the Jaya Container Terminal. They also project a further $700 million investment with private sector support.
Colombo is already a major port, but it faces competition from the Cochin port in Kerala which is also modernizing fast. The question is whether it will now also face competition from Hambantota. Hambantota is designed as a bunkering port, providing oil and similar services, not containers. The temptation to provide container services, however, is strong, especially the goal is 10,000 ships in the Hambantota port alone. This would give Sri Lanka two adjacent ports competing for hub status, something Lew Kwan Yew once advised Vietnam against.

More Ports

Hambantota, however, is not the only new port that Mahinda is developing. The SLPA is also developing Galle as a recreational port, expanding the natural port of Trincomalee, setting up a 49 million Euro harbour in Oluvil and repairing ports in KKS and Point Pedro in Jaffna. This all points to a broader strategy.


In opening the port, Mahinda said, “Not only the South, Hambantota, Moneragala and Embilipitiya, but the entire Eastern region too will become a single vibrant economic region from these infrastructure developments. This development is not confined to a single region. It will help make the entire country one large economic zone.”
In contrast, a recent World Bank report stated “The journey from low incomes to high incomes involves rising concentration of prosperity in a few places. Unbalanced growth is the norm and has characterised the development experience of countries such as the United States and Japan, among the most prosperous in the world.” They continued that this growth will likely be in Sri Lanka’s Western province and that efforts to move it outside would be counterproductive.
“Consider the generous incentives offered by the Board of Investment to move economic activities outside Colombo,” continued the report. “Analysis for this report shows that 80 percent of investments approved under Section 17 of the BOI Law and the 200 Garment Factory Programme took place in Western province, not in lagging areas. Firms benefit from being close to other businesses and the international gateway, so industrial relocation policies end up hurting productivity and profitability.”
What emerges here is a very broad difference in strategy between Mahinda and the World Bank (and most conventional economists). Mahinda’s plan envisions five ‘great centers of progress’ while the World Bank sees continued growth in Colombo. The government’s National Physical Plan envisions a one million population in Hambantota by 2030 and around four million around Trinco-Anuradhapura-Dambulla. The World Bank, however, says that this plan doesn’t say how exactly this will happen. The clear implication is that the natural course is for Colombo-centric growth to continue.

Going It Alone

Mahinda, however, has gone it alone before. He invested similar billions in a war the international community deemed hopeless and came out ahead. Now when they tell him to invest in Colombo he is instead dredging new ports out of the earth and expanding in five different directions at once.
“As in fighting a war, in building an independent economy too we must be ready to face many challenges,”  said Mahinda. He clearly sees his second presidential term as requiring similar resolve. Indeed, the SLPA chairman said Mahinda ordered advisors that didn’t believe in the Hambantota port to simply leave the room. Mahinda has fought naysayers before and come out ahead. With Sri Lanka’s port strategy, he’s taking a chance that he can do the same on the economy.