Sri Lanka takes next step to opening strategic China-built port

COLOMBO (REUTERS) - Sri Lanka will start storing bunker fuel at the US$1.5 billion (S$1.9 billion) Hambantota port in June, a senior official said, after years of delays to the Chinese-built installation that sits on strategic shipping lanes, and a key step to making it commercially viable.

The state-run Sri Lanka Ports Authority (SLPA) originally had plans to open the facility for ship fuel in May 2011, six months after President Mahinda Rajapaksa launched the port in his home town on his 65th birthday.

"We are about to get the test samples in March. Then we will do the trials. After that we will start proper bunkering operation in June," Mr Priyath Wickrama, chairman of the SLPA told Reuters in an interview.

The US$130 million storage project contains eight tanks of bunker oil for ships and six tanks of aviation fuel and LPG.

The port is envisioned as a refuelling and service point for cargo ships which pass a few kilometres away off the southern tip of the Indian Ocean island nation, on one of the world's busiest East-West shipping lanes.

The growing influence of China in Sri Lanka has worried India, a neighbour that feels hemmed in by a string of similar port developments stretching from Myanmar to Pakistan and that it fears give the Chinese navy a strategic boost in the region.

However, the ports are designed for commercial operations and are mostly not yet fully operational.

China has lent US$400 million for the first phase of the new port in Hambantota and another US$810 million has been given for the second phase with China Communications Construction Company as the contractor.

Mr Wickrama said the expected handling volume in 2013 is about 45,000 metric tonnes (mt) of ship fuel, rising to 125,000 mt in 2015. China Exim Bank has loaned US$77 million for the terminal, which the ports authority will operate.

The port is part of Mr Rajapaksa's push to turn Hambantota, a fishing village ravaged by the 2004 tsunami, into one of Asia's leading commercial cities. Hambantota is set to be Sri Lanka's biggest port once the second phase is completed.

Mr Rajapaksa's ambitious plans for his home town following the end of three decades of civil war in 2009 have already helped build the country's second international airport, a 35,000-seater cricket stadium that hosted 2011 World Cup games, and a massive convention centre, mostly financed and built by China.

The port, airport and the stadium are all named after Mr Rajapaksa, who is still hailed by many for winning the war against Tamil Tiger separatists, despite international concerns about rights abuses in the intense final months of hostilities.

The Mahinda Rajapaksa International Airport is due to open on March 18, after being built with a US$209 million Chinese loan, with China Harbour Engineering Company building the first phase.

An entire new commercial city is planned. A smooth four lane highway has slashed travel time to the capital Colombo, while South Korea is helping build the international convention centre.

Shangri-La Asia Ltd is building a resort due to open in 2014.

But the viability of the whole plan will depend largely on the success of the port, which has had a rocky start and is increasingly criticised for its low returns on investment.

Thousands of ships were meant to use Hambantota port soon after its November 2010 launch as an alternative to Singapore or Dubai, and unload goods to be moved across Asia and Australia.

But, after the lavish opening ceremony, Sri Lanka had to seek an additional loan from China to remove an undersea rock blocking the mouth of the port, a hitch played down by Mr Wickrama.

"Unfortunately due to certain clearance issues, there was a slight delay," he said.

For now, the main traffic comes from local tourists gawking at the long breakwaters, along with the occasional ship laden with cars. The government ordered all car imports to come through Hambantota in July 2012, to unclog the capital Colombo.

Mr Rajapaksa's political rivals say the move was also aimed to give some life to the facility, where the gilt is peeling from the president's name emblazoned at the port's entrance.

M Wickrama said Sri Lanka has already secured US$700 million in investments, including US$220 million from India's Shree Renuka Sugars Ltd to handle some 500,000 tonnes this year.

The Ports Authority expects another US$1 billion in investment through requests for proposals by May, he said.

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