By Paneetha Ameresekere
Hambantota Port costs may escalate by another US$ 148 million (Rs. 15.9 billion), state run Sri Lanka Ports Authority Chairman Dr. Priyath Bandu Wickrama told The Sunday Leader in an email interview.
Those additional costs are due to having to blast and remove the bedrock found in the harbour which would cost US$ 45 million (Rs. 4.8 billion), another US$ 82 million (Rs. 8.9 billion) for escalating costs of raw material, a further US$ 9.25 million (Rs. 999 million) to build a head-office building in the port premises, a further US$ 6.8 million for the change in breakwater design works and another US$ 16.90 million for the purchase of port equipment.
Given below is the interview in question (Q) and answer (A) format.
Q: Will the public/Government of Sri Lanka (GoSL) have to bear an addition cost of Rs. 20 billion on account of having to blast the bedrock found at the Hambantota harbour to bring the harbour draft to a depth of 17 metres so as to be able to accommodate mega carriers? If not how much will this additional cost be? Could you please explain in detail?
A: Hambantota Port Project under Phase I, harbour basin and channel depth is -16 m and under Phase II it is -17m. However harbour basin was excavated in dry conditions and considering the cost effectiveness it has already been excavated to depth of -17m but the quantities and the cost of additional 1m depth will be counted under Phase II contract. As per the BOQ of the Contract, total amount provided to excavate basin to -16 m was Rs. 8.4 billion. Channel dredging is up to -16m as per the BOQ of the contract was Rs. 7 billion. Present claim of the contractor to excavate the harbour basin and channel is Rs. 9.7 and 10.5 billion respectively. Hence the total additional claim of the contractor is Rs. 4.8 billion and not Rs. 20 billion as in the questionnaire. However this additional Rs. 4.8 billion is also only the contractor’s claim and the SLPA has not yet agreed.
The main reason for the additional quantity of hard material is, when preparing the original quantities (BOQ) soil investigation borehole intervals were of long distance and it does not show a very correct picture of the rock profile. However it does not mean the harbour basin has a very shallow bedrock. When excavating the harbour basin, the SLPA allowed the general public to witness the construction progress and around 2,000 persons per day have visited the Hambantota Port site and they themselves know the correct picture.
Q: If indeed the cost is Rs. 20 billion, or another amount (please provide the answer to question no. 1 if that be so), does it exclude the interest component of such additional costing? If not, what?
A: The additional claim of Rs. 4.8 billion is without any interest and the contractor will not make any claim as well as they are not entitled to any interest claim as this amount is not yet finalised.
Q: Is this additional cost due to having to blast and remove one million cubic metres of bedrock at a price of Rs. 20,000 per cubic metre as per contractors’ estimates? If not how much of bedrock will have to be blasted and removed?
A: Unit rate for removal of hard material at the harbour basin is Rs. 827 per cubic meter and additional claim quantity is two million cubic metres. In the case of the entrance channel, unit rate for removal of hard material is Rs. 5,493 per cubic meter and additional claim quantity is 663,975 cubic meters.
In the year 2001, the Port of Colombo depth enhancing project was launched. According to that contract, the unit rate for removal of hard material under water was Rs. 11,450 but in this Hambantota Project for the same work, unite rate is Rs. 5,493. In normal practice, after 10 years the price may double but in this case it has become half the price.
Q: Is it true that additionally SLPA also had to bear the cost of building the Hambantota cricket stadium and works connected with it? If so could you please say what those additional costs were? If not, what?
A: In the cricket stadium SLPA will not bear any single cent of the project cost. Sri Lanka Cricket will settle all the costs after measuring the quantities of work done.
Q: Is it true that the capital cost of phase one of the Hambantota Port project originally estimated at US$ 360 million? But now, because of this bedrock blasting and removal work and such like, plus the cost of paying for the construction of the Hambantota cricket stadium, it would mean that the original costs will now go up by 60% or US$ 216 million (Rs. 23.9 billion) to US$ 576 million? If not, by how much?
A: The original contract price of Hambantota Port Phase I is US$ 360 million (Rs. 38.9 Billion). As mentioned in Q5, no cost is added due to the cricket stadium. But additional claim of the contractor is US$ 148 million (15.9 Billion).
Out of that, US$ 82 million (Rs. 8.9 Billion) is accounted for compensating price increases of construction materials, such as cement, steel, labour, fuel etc. compared to the prices in year 2007 January as the base date of submission of the bid. This US$ 82 million had been worked out on an agreed formula according to international conditions of contract, based on the price indices published by ICTAD. To illustrate the increase that had taken place along the way the following examples are cited.
Prices of Diesel/ Litre had been changed from Rs. 75, Rs. 110 and Rs. 76 in years 2007, 2008 and 2011 respectively. Prices of cement per bag had being changed from Rs. 526, Rs. 660, Rs. 571 in years 2007, 2008 and 2011 respectively. Prices of reinforcement steel per tonne had being changed from Rs. 70,810, Rs. 93,398 and Rs. 97,027 in years 2007, 2009 and 2011 respectively.
Another US$ 45 million (Rs. 4.9 billion) is the claim of additional removal of hard material at the harbour basin and entrance channel. The reasons for additional quantity is given in the answer of Question no. 1.
It has been decided to construct a Head Office building for Hambantota Port to accommodate the whole staff at one unit and it will facilitate all port uses/stakeholders for their day to day operational works. At Colombo Port it is a well known fact the staff is scattered and congestion of Port roads and time wastage of port users is common. To overcome that situation it was decided that a Head Office for the Hambantota Port be constructed and another US$ 9.25 million (Rs. 999 Million) has to be allocated for that purpose.
Breakwater design was changed according to latest investigations. When the construction was in progress, a laboratory model test was done parallelly and accordingly, breakwater alignments, size of wave breaking units had to be changed to get the most suitable design. The additional cost for these changes was US$ 6.8 million (Rs. 734 million).
Additional operational equipment such as a ship to show Gantry Cranes was proposed as additional work and the cost is around US$ 16.9 million (Rs. 1.8 billion). This additional equipment proposal has to be done according to the response received from investors. Recently RFP (Request for Proposals) was called for industries to invest in the Hambantota Port and accordingly 27 proposals were received from international and local companies with a total investment of around US$ 1 billion. To cater to their requirements cargo/container handling equipment needed to be provided in the very near future and accordingly it was decided to provide that operational equipment to Hambantota Port Phase I .
The above items have been added and some original amounts omitted and finally additional cost balance was around US$ 148 million (Rs. 15.9 billion).
Q: Is it also so that the original US$ 360 million costing for phase one of the Hambantota port project was worked out on the basis that US$ 300 million of those expenses was being met by China’s Exim Bank at an interest payment of LIBOR plus 6-7% and payable over 20 years with the balance chipped in by the Government of Sri Lanka (GoSL)? If not, what?
A: The loan amount from China Exim Bank is US$ 306 million with the interest of 6.3%. A one year grace period is followed on completion of the construction. The loan repayment period is 11 years with two installments per annum. The original interest rate was attached to LIBOR and it was LIBOR +90 b.p per annum. Considering the upward trend of LIBOR this was subsequently negotiated to a fixed rate of 6.3% by Treasury officials.
Q: Is it also true that the second phase of the project, also funded by China’s Exim Bank under the same conditions will cost the taxpayer another US$ 800 million, with the balance US$ 100 million costs having had to be met by GoSL?
A: Phase II of the Project is estimated at around US$ 800 million through China Exim Bank. The whole project cost will be financed by the China Exim Bank and there is no balance US$ 100 million involvement. However Phase I as well as Phase II loan payback will be done by Sri Lanka Ports Authority funds and not by GoSL.
Q: Is it so, that due to the aforesaid escalating costs, the original capital costs of both phase one and two of the project estimated at US$ 1,260 million cumulatively, will now go up by 17.1% (US$ 216 million) to US$ 1,476 million?
A: As explained above the Phase I original price is US$ 360. Additional escalated amount is US$ 148 million but it is not yet finalised. In the worst case Phase I total cost may be US$ 508 million, Phase II US$ 800 million and then estimated total cost for Phase I and Phase II is US$ 1,308 million.
Q: Is it so, that this bedrock found at a depth of seven metres at Karaganlevaya on which the Port is being built, is not a new discovery? That it was first discovered by a consultancy called SNC Lavalin of Canada which did a feasibility study on a Canadian grant during President Chandrika Bandaranaike Kumaratunga’s regime of 1994-2001? Afterwards another feasibility study at a cost of US$ 2 million was executed by Ramboll of Denmark, another consultancy, when President Mahinda Rajapaksa was Ports and Fisheries Minister during the tail end of that aforesaid Kumaratunga regime with that cost being borne by SLPA? However that feasibility report is missing from the SLPA library? Are those rhetorical questions true? If not what is the correct picture?
A: There were two feasibility studies undertaken in the recent past on the Hambantota sea port. First, SLC Lavalin, a Canadian consultancy firm had done a feasibility study on a grant. Then a Danish consultant undertook another as the first feasibility study was identified to be a non-marketable document considering its very preliminary nature. Feasibility studies are anyway preliminary as regards the design or constructions as the purpose of these studies is to evaluate the feasibility under limited budget as the first step to proceed. Reports of these feasibility studies are with SLPA and SLPA has used these studies appropriately.
As regards the depth of the bedrock underlying the entire basin and the channel, only three boreholes are done in the first instance. Still these boreholes may have not been exactly in the present location of the port basin or the channel as the location kept changing owing to various reasons. However, considering the huge area of the basin and the channel (harbor basin 55.5 ha. and channel 32.1 ha.), few boreholes are not sufficient to determine the depth of the bedrock. In actual sense, the depth of the bedrock keeps changing and in some areas this variation is very sudden.
Under these circumstances, it is the usual practice to start off design and construction with existing limited data having agreed upon tentative quantities and fixed rates. As the risk of increase in quantities cannot be taken by the contractor, the employer has to take that risk. SLPA has acted in the same way.
Q: Is it true that the width of the Hambantota harbour is 400 metres and its length, one kilometre and going out in to the sea, and the old Matara-Kataragama road is being submerged to accommodate this new harbour?
A: Dimensions of Hambantota Port Phase I are 700m length and 800m wide. Entrance channel is around 1,000m long. The entrance channel is connected to Harbour Basin via the old Matara-Kataragama road and now it is submerged.
Q: Is it also so that the draft at the new Colombo South Port with ADB aid will be 18 metres in depth, one metre more than the proposed Hambantota Port draft and that the draft at the existing Colombo Port is 15 metres, which accommodates both the privately run SAGT terminal as well as the state owned Jaya container terminal?
A: The present Port of Colombo’s maximum depth is 15m and it is not possible to increase the depth due to two main reasons: rock patches appearing on the bedrock and it is a little bit difficult to blast within the operational port and the other main reason is with the existing structures it cannot be further deepened.
The new Colombo South Port harbour basin mainly at the South & East Terminal — the proposed depth is –18 metres but its natural depth runs up to 25 metres, close to breakwater head. It means Colombo has an almost natural depth of 18 metres and onwards as the New Port is being constructed toward the sea with almost 6.5 km breakwater. In the case of Hambantota it is a greenfield port built not on the sea. It’s an artificial port with much shorter breakwaters of around 1.3 km. The depth of the Hambantota Port is only 17m.