VZCZCXRO5766
RR RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHLM #0971/01 2941002
ZNR UUUUU ZZH
R 211002Z OCT 09
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 0654
INFO RUEHKA/AMEMBASSY DHAKA 1964
RUEHIL/AMEMBASSY ISLAMABAD 9000
RUEHJA/AMEMBASSY JAKARTA 0625
RUEHKT/AMEMBASSY KATHMANDU 7238
RUEHNE/AMEMBASSY NEW DELHI 3383
RUEHGP/AMEMBASSY SINGAPORE 5776
RUEHCG/AMCONSUL CHENNAI 9561
RUEHKP/AMCONSUL KARACHI 2547
RUEHCI/AMCONSUL KOLKATA 0437
RUEHLH/AMCONSUL LAHORE 0087
RUEHBI/AMCONSUL MUMBAI 6861
RUEHPW/AMCONSUL PESHAWAR 0367

UNCLAS SECTION 01 OF 02 COLOMBO 000971 
 
SIPDIS 
 
DEPARTMENT FOR SCA/INSB 
 
E.O. 12958: N/A 
TAGS: CE ECON ETRD PGOV EINV EWWT
SUBJECT: EXPANDING THE PORT OF COLOMBO:  A VIABLE FUTURE 
SHIPPING HUB? 
 
¶1.  (SBU) SUMMARY:  The Government of Sri Lanka sees 
substantial economic potential in becoming a transshipment 
hub, and to that end, the Port of Colombo is poised for 
significant physical growth over the next several years.  The 
port currently has both government and privately run 
facilities, and it is looking to add a third facility 
primarily funded by a Chinese company.  The Sri Lankan Port 
Authority (SLPA) believes this growth will position the port 
as a major international hub.  Despite ongoing SLPA efforts 
to expand the size of the port, there are no current 
indications that container traffic is poised to increase 
sufficiently with the port's expansion.  Current facilities 
have existing space for growth in their operations.  A rapid 
port expansion may create excess space with little 
possibility of near-term use and return on the investment. 
End Summary. 
 
THE CORPORATE PLAYER AT THE PORT OF COLOMBO 
 
¶2.  (U) South Asia Gateway Terminals (SAGT), the sole private 
port operator at the Port of Colombo, has increased its 
business in a down market.  In 2008 SAGT handled an average 
of 1.7 million twenty-foot equivalent units (TEU).  Through 
September 2009, SAGT has already handled more than 1.8 
million TEU's with an expected 2 million TEU's by the end of 
the year.  82% of SAGT's container business involves 
transshipment to/from India, with the remainder being 
domestic container traffic destined for locations generally 
within a 30 kilometer radius of Colombo.  SAGT receives four 
times more revenue from domestic cargo than from transshipped 
cargo.  The world economic crisis has spurred an 18% 
reduction in domestic container traffic at SAGT while 
transshipment traffic has risen, in part due to rebates 
offered to shippers who increase their business at the port. 
Maersk and Mediterranean Shipping Company S.A are currently 
SAGT's two primary shippers.  SAGT maintains a 16 meter 
access channel for its 940 meters of berthing space and a 15 
meter dredge depth in its harbor area.  SAGT also maintains a 
storage yard of more than 20 hectares and can accommodate 
5,500 ground slots at any given time.  SAGT currently 
averages 27 container moves per hour when operating at 
optimum efficiency. 
 
THE GOVERNMENT PLAYER AT THE PORT OF COLOMBO 
 
¶3.  (U) The SLPA is the Government of Sri Lanka's (GSL) port 
operator and controls the majority of the Port of Colombo. 
In 2008, the SLPA handled only 1.7 million TEU's despite 
being almost twice the size of SAGT.  The port's Harbor 
Master advised Econoff that SLPA's container transshipment 
business will see a 10%-12% reduction from 2008 numbers.  The 
SLPA has a maximum capacity of 3.0 million TEU's per year, 
and is currently running well under maximum efficiency.  SLPA 
has more than 1200 meters of berthing space for container 
traffic and has an 18 meter dredge depth in its harbor area. 
70% of SLPA's business is transshipment (70% of that traffic 
is from India with much of the remaining percentages coming 
Pakistan and Bangladesh).  The Harbor Master was keen to 
point out to Econoff that the SLPA cannot pick and choose its 
customers and it must accept all traffic, large or small, 
requesting use of its facilities. Currently, the SLPA 
averages 25 container moves per hour when operating at 
optimum efficiency, an increase from an average of 18-19 
moves six months ago.  The SLPA would like to make 75 total 
container moves per hour per ship.  Inefficiency seems to be 
a significant issue at the SLPA.  The Harbor Master commented 
that SLPA has 12,000 personnel at the Port of Colombo, 
although it really only needs 6,000 personnel.  In contrast 
the private SAGT has approximately 1,000 workers. 
 
PLANS FOR EXPANSION 
 
¶4.  (U) Plans are underway to significantly expand the size 
of the Port of Colombo with the construction of the southern 
container harbor in a new south terminal.  The port has ample 
space for future construction of planned east and west 
terminals.  Each terminal will be 1200 meters long with three 
berths.  The dredged depth of the harbor will be 18 meters 
 
COLOMBO 00000971  002 OF 002 
 
 
and the access channel depth will be 20 meters.  A China 
Merchant-Aiken Spence consortium is currently the sole bidder 
for this project.  China Merchant will be a 70% stakeholder, 
Aiken Spence a 15% stakeholder, and the GSL will own the 
remaining portion as a silent stakeholder.  Completion of the 
southern container harbor should dramatically increase the 
available space for container business at the port. 
According to the SLPA, a port operator will be awarded a 
long-term contract to maintain the southern harbor as well as 
provide all container-related services.  The SLPA hopes that 
port expansion will position it as a major port hub at the 
cross roads of East Asia and the west, although no 
commitments have been made by mainline or feeder operators 
for new or additional traffic at the port. 
 
¶5.  (SBU)  The state-controlled Chinese company was able to 
move in as a majority partner in the South Port project after 
the Government of Sri Lanka failed to award the bid 
previously.  Two years ago there were five bidders for the 
South Port project, including large companies such as 
Hutchensons, Maersk, CMA Haleys, and China-Hong Kong 
Shipping.  Aiken Spence was in partnership with PSI, a large 
Singaporean company, but the government never awarded the 
contract.  There has been local speculation that China 
encouraged the GSL not to award the contract.  The GSL 
finally re-bid the contract last year, but due to the global 
financial crisis, the only bidder was the China 
Merchant-Aiken Spence consortium.  Their bid was considerably 
lower than previous bidders' efforts to secure the southern 
container harbor contract, so the GSL lost many millions by 
not accepting the first rounds of bids. 
 
¶6.  (SBU) Comment:  The GSL's plans to expand the Port of 
Colombo are ambitious and in line with the "if you build it, 
they will come theory."  Unfortunately, there is no 
indication that "they will come."  In order to become the 
true international container hub the SLPA wishes the port to 
be, the port will need to attract significantly more 
transshipment traffic as well as increased local container 
traffic.  There is no commitment or pledge by any mainline or 
feeder operators to increase container business at the port. 
While SAGT seems to running at close to peak efficiency with 
room for moderate growth, the SLPA is more than 1.3 million 
TEU's short of capacity at its existing facilities. 
Available capacity will likely grow given ongoing efforts 
underway at SLPA to retrofit two general cargo berths to 
handle container shipments.  It may provide difficult if not 
impossible to become the container hub for Asia if a large 
percentage of existing capacity currently remains unused. 
GSL plans to expand the port look great on paper, generating 
many new jobs, but the commercial viability of the expansion 
project is in doubt.  End Comment. 
BUTENIS