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UNCLAS SECTION 01 OF 05 COLOMBO 002086 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
DOL/ILAB FOR TINA MCCARTER 
 
DRL/IL FOR LAUREN HOLT 
 
STATE FOR SCA/INS 
 
MCC FOR S GROFF, D NASSIRY AND E BURKE 
 
GENEVA PASS USTR 
 
 
E.O 12958: N/A 
TAGS: ECON ELAB EIND ETRD EAID CE
SUBJECT:  SRI LANKA: HUGE PUSH TO DEVELOP THE PRESIDENT'S HOME 
DISTRICT 
 
 
¶1.  Summary.  Since President Rajapaksa's election, there has been 
renewed interest in pursuing several infrastructure projects in 
Hambantota District, his home district and one of the poorest and 
least developed areas in Sri Lanka.  Proposed projects include an 
international airport, an industrial port, a new town, a convention 
center, extension of a new highway and extension of a new railway to 
Hambantota. Many of these projects have been talked about for years, 
and observers in Colombo and Hambantota are skeptical that they will 
ever be completed.  However, Government of Sri Lanka (GSL) officials 
point out that this time things are actually happening:  work has 
started, and people are being relocated. Econoff and EconFSN 
traveled to Hambantota in November to see first hand if progress was 
being made.  After meeting with GSL officials in Colombo and 
Hambantota, it seems there is sufficient political will to push 
forward, but no overall strategy for developing the area and a lack 
of coordination between projects.  End Summary. 
 
------------------------------------ 
Rail Service to Hambantota District 
------------------------------------ 
 
¶2. A rail line near the southern coast of Sri Lanka from Matara to 
Kataragama, going through Hambantota, would connect Hambantota 
District to Colombo by rail for the first time.  According to 
officials in the New Railway Ministry, the new stretch will 
accommodate high speed trains at 100-110 kilometers per hour.  The 
new track will be farther from the sea than the existing Colombo to 
Matara stretch, making it easier to maintain.  Survey work has been 
conducted by Korea. Several foreign investors, including China, 
Malaysia, Australia and Korea, have submitted proposals for the 
construction which will be completed as a 10 year Build Own Operate 
Transfer (BOOT) project.  A second proposed line would also go to 
Hambantota from Padukka in Colombo District. According to the New 
Railway Ministry, the railway will be used to transport oil once the 
planned refinery is complete and will facilitate the yearly Buddhist 
pilgrimage to the southern city of Kataragama. 
 
------------------------------ 
Sri Lanka's First Expressway 
------------------------------ 
 
¶3. A new highway, Sri Lanka's first limited access expressway, is 
being constructed from Colombo to the southern city of Matara, 
located 100 miles away from Colombo.  This expressway will 
accommodate speeds of up to 120 kilometers per hour and will cut the 
commute from Colombo to Matara from 5 hours to about 1.5 hours, a 
significant achievement since current travel times are often cited 
as a primary cause of the Southern Province's underdevelopment. A 
feasibility study is also underway for extending the new highway to 
the planned new airport in Wirawila in Hambantota Province.  The 
Director of the Southern Transport Development Project, told Econoff 
that the Asian Development Bank (ADB) recently agreed to widen the 
road from two to four lanes after safety studies revealed that a two 
lane expressway would be dangerous. The road will have 10 
intersections between Colombo and Matara, will be fenced, and will 
have a toll to cover maintenance costs.  Hundreds of families have 
been relocated to construct the road.  They received compensation 
packages including electricity, water, land, and income replacement. 
 Many encroachers were even given deeds to their new land, making 
them more economically secure. 
 
¶4. Econoffs were able to travel along a 10 kilometer stretch of road 
from Galle to Matara, parts of which are already paved. Underpasses 
are being constructed to allow people and cattle to easily cross 
under the street.  Drainage systems are being put in place, and 
grass is being replanted where the hillside was cut away. The 
highway has the appearance of any first-world highway (albeit 
undivided) and, once completed, will provide an entirely new travel 
experience for Sri Lankans accustomed to narrow two-lane roads full 
of potholes and obstructed by pedestrian and animal traffic. 
 
COLOMBO 00002086  002 OF 005 
 
 
 
----------------------------------- 
An Industrial Port for the Future 
----------------------------------- 
 
¶5. The biggest of the planned new projects is an industrial port in 
Hambantota.  The proposed port will process coal, cement and oil, 
and is intended to become a container port in 30 to 40 years when 
Sri Lanka's main Colombo Port reaches capacity.  Sri Lankan Port 
Authority (SLPA) officials say it would currently be too difficult 
and politically sensitive to shift container traffic away from 
Colombo since the business district is in Colombo.  GSL port 
planners argue that Hambantota is a highly strategic location for a 
port because it is less than one hour from the major shipping lanes 
that run just south of Sri Lanka, while Colombo is nearly 8 hours 
travel time from these shipping lanes.  Planners argue that this 
proximity, as well as the natural harbor depth of 20 meters, makes 
Hambantota ideal for a deepwater port handling transshipment, 
industry and refueling. SLPA officials admit, however, that Colombo 
may always be the best location for a container port in Sri Lanka 
since it is closer to India, Sri Lanka's biggest shipping customer. 
 
¶6. According to the Deputy District Secretary in Hambantota, nearly 
2,500 acres of land have been set aside for the port project. 
Feasibility studies for the overall basic design were conducted by 
the Danish firm Ramboll, and detailed designs of the breakwater are 
being provided by a Chinese firm recommended by the Chinese Embassy. 
 An MOU was signed agreeing that Sri Lanka and China would produce 
the detailed plans together, that there would be joint ownership of 
the plans, and that the Chinese government would provide funding for 
the project as long as the recommended Chinese firm was used to 
build it.  The SLPA is hoping that China will offer the initial $300 
million at a concessionary 3 percent interest for 5 years.  If the 
Chinese funding does not come through, the SLPA will have to buy out 
the Chinese portion of the plans and find alternate funding. 
 
¶7. The plans for the port are scheduled to be completed in early 
¶2007.  Environmental studies have been submitted and a public 
hearing will be scheduled. The $300 million for Phase 1 will cover 
three berths, the breakwater and several small tugs. Phase 1 could 
start as early as April 2007 and will take two and a half years to 
complete. Once construction starts, the SLPA will launch a campaign 
to attract private investors for the next phases.  The final size of 
the planned port will accommodate 20 million containers.  In 
contrast, Colombo Port currently accommodates only 3 million. 
 
¶8. Since President Rajapaksa's election, the focus of the Hambantota 
port project has shifted from only bunkering to a full industrial 
port. The SLPA is currently looking for interested investors.  SLPA 
officials say there has been interest from the cement and power 
industries as well as commodity storage and bunkering.  Tillak 
Collure, Secretary of Ports and Aviation, told Econoff that Indian 
companies have been coming to look into the new port and are 
interested in investing. Part of the port project includes an oil 
tank farm connected to the port.  These tanks will store oil, gas, 
and aviation fuel. The oil tank project will be completed through an 
MOU with a separate Chinese company.  The Board of Investment is 
also considering a proposal for a new oil refinery near the new 
port. 
 
¶9. According to the Deputy District Secretary, there has been no 
opposition to the port. Nearly 400 families are being relocated and 
compensated. When asked, local officials say there have been no 
studies conducted on employment generation of the project.  One 
official offered that there would probably be some indirect 
employment generated since there would be more people around to stay 
in hotels and eat in restaurants. 
 
-------------------------------------- 
An International Airport for the South 
 
COLOMBO 00002086  003 OF 005 
 
 
-------------------------------------- 
 
¶10.  A project that has received extensive media coverage recently 
is the new airport planned in Wirawila in Hambantota District. 
Secretary Collure justified the new airport to Econoff by explaining 
 
SIPDIS 
that Sri Lankan planes currently have to carry extra fuel called a 
safety load to get them to Chennai in case of an emergency landing. 
Once Wirawila is up and running they will be able to use that 
location in emergencies, requiring a much smaller safety load of 
fuel and saving the airlines fuel costs.  Collure also argued that 
the airport will be a necessity once the port and highway are 
completed and more people are coming to Hambantota.  The airport is 
also intended to promote tourism in the South; Wirawila is close to 
Yala National Park and Kataragama, a religious tourism destination. 
Collure explained that the new airport will be small in size like 
the Cochin airport in India and will be low cost and environmentally 
friendly. It will be rustic in appearance, but big and modern enough 
to accommodate full size commercial aircraft including the new 
Airbus A380.  The airport project was competed through an open 
bidding process and is expected to take 4 years to complete.  It 
will be entirely government funded and will cost between USD 60 and 
70 million. On November 19, a foundation stone laying ceremony was 
held in the rice paddy fields that are designated to become the new 
airport. 
 
¶11. The Deputy District Secretary told Econoff that more than 2800 
acres of land have been designated for the airport.  Three hundred 
families will have to be relocated.  The government is building new 
homes for them and working to determine compensation packages.  The 
little opposition there has been to the project has come mostly from 
encroachers lacking proper title to the land. 
 
----------------------------------- 
Countless New Changes for Hambantota 
------------------------------------ 
 
¶12. The big infrastructure projects planned for Hambantota bring 
with them other smaller projects and changes.  As a result of the 
new port, the road from Matara to Hambantota will have to be 
rerouted up and around the port, away from the sea.  The actual town 
of Hambantota will also be moved 2.5 kilometers north of its current 
location to the new road. The nearly 6,000 houses constructed after 
the December 2004 Tsunami are also located north of the current city 
and will be close to the new town once it is built. Plans are in the 
works for a new commercial district, new hotels and a stadium.  The 
Urban Development Council told Econoff that the Korean International 
Cooperation Agency (KOICA) gave a grant of USD 25.5 million for a 
convention center in Hambantota.  Funding is still needed for the 
new town center and 26 families must still be relocated.  A new 
administrative complex is also being provided through a Korean loan. 
 The existing town will be converted to a tourism area.  A water 
supply scheme is planned to meet consumption needs. According to the 
Deputy District Secretary, the Ministry of Promotion of Botanical 
and Zoological Gardens is also proposing a new botanical garden in 
the district. 
 
------------------------------------ 
Business Community Remains Doubtful 
------------------------------------ 
 
¶13. Econoff met with the Hambantota District Chamber of Commerce 
where members were eager to share their views with the U.S. Embassy. 
 They expressed concern that the business community has not been 
consulted about the many development projects. They said they would 
be happy to see some of the projects come to pass, but suspected 
that it was all just talk.  The Chamber recently sent a 
representative to meet with President Rajapaksa to request that the 
government conduct regional development in partnership with the 
Chamber, but have received no response.  There was a sense among the 
Chamber members that if the port was not built now, business 
 
COLOMBO 00002086  004 OF 005 
 
 
opportunities would be grabbed by other ports in the region. 
 
¶14.  One of the main concerns of the business community is the state 
of Hambantota's agricultural sector. Farmers get low prices for 
produce because they can not get it to market in a timely manner. 
The district needs transportation facilities like the planned rail 
and roads.  They also said that Hambantota offers no value addition 
in agriculture and that farmers need better seeds for their crops. 
According to the Chamber members, the Minister of Agriculture is 
from Hambantota and wants to help, but is not sure how.  The Chamber 
hopes to work with the National Agribusiness Council to improve 
marketing. 
 
¶15. The Chamber members are concerned that even if these major 
development projects come about, they will not generate jobs for the 
average resident of Hambantota.  Locals do not have the skills 
needed to work in these new industries and there are no programs in 
place to train them.  Even local technical colleges teach outdated 
skills.  They said they took this message to Colombo, but so far 
they have received no response from the GSL. 
 
¶16.  There is a lack of coordination and information dissemination 
concerning these development projects. The various government 
agencies are not communicating with each other, much less with the 
business community or the general public.  For example, the Urban 
Development Authority has not told the business community much about 
the plan to move the city, leaving a lot of uncertainty surrounding 
the move.  A planned water supply scheme would probably not be big 
enough to supply all of the new projects with water.  The two 
proposed water lines would run through the same area where the port 
is planned.  The businessmen viewed this as evidence that neither 
project would actually ever be completed.  The airport is being 
built on lands that were only recently converted into paddy fields. 
The Chamber members claimed that the government is still repaying 
the loan they took out to create those paddy fields and now they are 
destroying them, leaving the taxpayers to bear the cost of this lack 
of planning. 
 
---------- 
Comment 
---------- 
 
¶17. After meeting with GSL officials in Colombo and in Hambantota, 
it seems that there is genuine political will to make these projects 
happen this time.  While most projects are still in the planning 
phases, significant money has already been spent on their 
development, on acquiring land and resources, and on relocating 
people who live in the project areas.  The government also seems to 
want to do things the right way and is taking great care to conduct 
environmental studies, compensate relocated people, and bring in 
experts for technical advice. 
 
¶18. The problem, however, is that the projects are being driven from 
the top down.  President Rajapaksa wants big improvements to happen 
quickly and has chosen large projects that will attract a lot of 
attention and praise for him and his party.  Unfortunately, little 
thought has been put into what Hambantota District actually needs, 
what types of projects would provide jobs that locals can fill, and 
what would raise standards of living.  There is no strategic 
approach to developing the region and no coordination between the 
agencies responsible for the different projects.  There also seems 
to be a lack of understanding, even within the business community, 
that a certain level of demand and investor interest is necessary 
for some of these projects to be successful.  An empty port, an 
empty airport, and an empty vast convention center would not 
generate the benefits that Hambantota needs, and may, if 
constructed, be considered the President's folly. 
 
¶19. There are practical hurdles as well.  This is the first time the 
GSL has undertaken so many large projects simultaneously, and it is 
 
COLOMBO 00002086  005 OF 005 
 
 
not clear where all of the funding will come from.  Given Sri 
Lanka's poor track record for implementation, the completion of 
these projects in a timely, efficient manner is doubtful.  It is 
also unlikely that the GSL will have the resources to dedicate to 
coordinating, planning and funding these projects while also 
managing the ongoing ethnic conflict. 
 
BLAKE