China Development Bank provides $805 million loan for Colombo Port City Project Phase 1 (Linked to Record ID#55528)

Project narrative

The Colombo Port City (CPC) Project was initially conceived as a public sector project that would be undertaken by the Sri Lanka Port Authority (SLPA). Consequently, the SLPA commissioned at its own cost an ‘initial technical feasibility study’ in April 2010 for the reclamation of land south of the new breakwater. Around June 2010, an environmental impact assessment (EIA) study was commissioned by SLPA also at its own cost through the University of Moratuwa (UoM) for a reclamation area of 200 hectares. In October 2010, Sri Lanka’s Urban Development Authority (UDA) completed a master plan study based on the initial technical feasibility study and submitted a project proposal to the SLPA for consideration. Then, in April 2011, based on an unsolicited concept proposal submitted by China Communications Construction Company, Ltd. (CCCC), the Government of Sri Lanka (GOSL) decided to not to commit public funds to construct the CPC Project and proceeded to negotiate with CCCC to implement the project entirely as a foreign direct investment, with no financial guarantees by the GOSL on the investment. After a 2.5 year period of negotiation with a Standing Cabinet Appointed Review Committee (SCARC) and a Technical Evaluation Committee (TEC) represented by 16 GOSL organizations, a Colombo Port City Franchise Agreement was signed by CHEC Port City Colombo (PVT) Ltd. (中国港湾科伦坡港口城有限责任公司)— a special purpose vehicle and wholly-owned subsidiary of CCCC — and Sri Lanka Ports Authority (SLPA) on September 16, 2014 by the Secretary to the Ministry of Highways, Ports and Shipping (acting for and on behalf of the GOSL). On the same day, China Development Bank agreed in principle to provide an $805 million commercial loan for the project and the project’s construction works were ceremonially inaugurated in the presence of the President of the People’s Republic of China and the President of the Democratic Socialist Republic of Sri Lanka (during the Chinese President’s State visit to Sri Lanka). The Colombo Port City (CPC) Project is being implemented on a public-private partnership (PPP) and Build-Own-Operate-Transfer (BOOT) basis and financed according to a 70:30 debt-to-equity ratio. The $1.396 billion project is divided into two phases: the first phase investment was expected to cost $1.150 billion and the second phase investment was expected cost $246 million. On May 12, 2017, China Development Bank provided a $805 million loan to CHEC Port City Colombo (Pvt.) Ltd. for the first phase of the project, or roughly 70% of the total cost of the first phase project of the project. The loan carries a 10-year maturity and a 3-year grace period. No sovereign guarantee was provided by the central government in support of the loan. However, the loan is collateralized against CHEC's equity stake in CHEC Port City Colombo (Pvt.) Ltd. and sales revenues generated by the project. The loan is also supported by a Sinosure credit insurance policy. As of September 2018, CDB had disbursed RMB 1.964 billion in support of Phase 1 of the Colombo Port City (CPC) Project. The purpose of the phase 1 is to construct a 269-hectare artificial island and related structures. The project also involves the creation of a 5,325 meters-long breakwater that has a geometrically closed core partially consisting of sand material, rock and interlocking concrete “pods” weighing from 17 tons to 22 tons and placed in predefined lozenge-shaped grids. Upon completion, the artificial island consists of 71 million square meters of sand, with an average reclamation thickness of 20 meters. Twelve types of rock material are being used, obtained from 20 quarries located about 50 km away. CCCC-FHDI Engineering Co., Ltd. is responsible for project design. China Harbour Engineering Company (CHEC) is the EPC contractor responsible for project implementation. The project’s first phase officially commenced on September 16, 2014. Its originally scheduled completion date was April 2020. However, it encountered a number of implementation problems and delays. After Maithripala Yapa Sirisena assumed the Presidency in early 2015, the Colombo Port City Project was suspended and CHEC Port City Colombo (PVT) Ltd. was asked to submit all valid permits and documents on March 6, 2015. Approximately one year later, on March 9, 2016, the Cabinet of Sri Lanka lifted the suspension. Then, on August 12, 2016, CHEC Port City Colombo (PVT) Ltd. signed a tripartite agreement with the Ministry of Megapolis and Western Development and the Urban Development Authority of Sri Lanka in order to resume construction. On April 10, 2018, the revised Development Control Regulation and Master Plan of Port City Colombo were approved. Phase 1 of the city infrastructure construction commenced in July 2018. Then, on January 16, 2019, a total of 269 hectares of land were reclaimed from the ocean, laying a foundation for infrastructure construction and land sales and development. Phase 1 of the so-called 'sustainable green' project commenced on April 15, 2019. All marine structures of Port City Colombo were completed in August 2019. The first batch of land lease agreement for Port City Colombo were signed in November 2019. As Sri Lanka defaulted on USD 51 billion foreign debt with most of its forex reserves drained out with no money to import fuel and cooking gas, the expansive Chinese build infrastructure projects were being showcased as projects that drained public exchequer for that lack of utility. To attract more investments from the international community, Sri Lankan government provided tax breaks for the Project for 40 years. The project's new expected completion date is April 2024.