By Rusiripala Tennakoon –

Asia is emerging as the fastest growing regional economy in the world today. China has surpassed US in its trading power and India has recorded the fastest growth among large economies. Flowing of Foreign investment into South-east Asia has increased to significant levels. The historic tensions that prevailed among the Asians apparently do not affect the growing stability of their relationships. Several common institutions have been formed providing formidable strengths to the Asian nations paving the way in the creation of a Mega-Region reshaping the global outlook.

We already witness the establishment and the formation of a number of common forums such as Asian Regional Forum, East Asian Community (EAC), Regional Comprehensive Economic Partnership (RCEP) in addition to the only supportive institution that was there over a long period of time, the Asian Development Bank (ADB). The facilitation of the free flow of services, goods, and provision of capital and financing cross- border commercial activities is fulfilled by the Asian Infrastructure Investment Bank (AIIB).

Asia has several of the world’s largest economies, most of the word’s foreign exchange reserves, many of the largest banks and Industrial and technology companies and most of the world’s biggest armies. It accounts for 60% of the World’s population. Following excepts quoted from authentic publications, explains the Asian scenario in the current global context;

“Five Billion people, two-thirds of the word’s mega cities, one third of the global economy, two thirds of global economic growth, thirty of the fortune 100, six of the ten largest banks, eight of the ten largest armies, five nuclear powers, massive technological innovation, the newest crop of top rank universities”

We are also witnessing the development of the Belt and Road Initiative (BRI) of China as a multilateral market-based operation. Already under this program the longest freight railway is running through many cast-away countries from Soviet Russia between Teheran and Shanghai. Even US has recognized the inevitability of BRI. Both World bank and ADB have committed to finance associated projects jointly with the AIIB.

Asia is planning to put in place to source USD 30 Trillion estimated in middle-class consumption growth between 2015 and 2030 with only 1 Trillion to come from Western economies.

It is in such a context that the Colombo Port City is getting into this Developing Asian arena.

The most important issue about this mega investment project is to properly identify it’s ‘pros and cons’ with authentic information. In the absence of details and particulars transparently available to the public, our task becomes cumbersome and also subject to reprehension.

The original Port City project (I wish to use this distinction of calling it original), is acknowledged as the germination of an inspiration grown in the heart of former President Mahinda Rajapaksa, during the early period of his second term of office. Basically the project is to Reclaim a part of the sea surrounding the southern part of the Colombo Harbor facing the Galle Face green area. This concept advanced into an unsolicited proposal by the Company that was engaged in the contract for land fill associated with the Colombo South Port Development, viz. China Harbor Engineering Company. After a fairly long embryonic gestation period starting from March 2011, the project was launched by the Sri Lankan President on 17^th September 2014 with the attended Participation of the Chinese President Xi Jinping. 

With an estimated investment of US $ 1.5 Billion, by the Chinese Government, the project was to be carried out by, China Harbor Engineering Corporation (CHEC), the investor selected company. According to available information, the area of reclamation initially envisaged under the project was approx. 233 Ha, (579 acres). The agreed basis for sharing of reclaimed land  has been 310 Acres(125Ha) to be owned by the SL Government, 220 acres (88 Ha) to be allocated to the investor under a 99 year lease and another 49 acres (20 Ha) to be given free hold. Several counter views have been expressed by critics in this regard involving concerns such as;

* Environmental hazards

* Issues involving the sovereignty and security

* Transparency aspects

* Mandatory powers of the Port Authority to engage in the contract as the SL Agency etc. etc.

To the best of our recollection there was no serious uproar even at the Legislature by the Opposition. However, with the defeat of the Government, the Good Governance regime (yahapalana) that came to power immediately suspended the project attributing adversities of environmental impacts and Sovereignty. The agreement was renegotiated and finally replaced with a new version with many changes which included the following inter-alia;

* The role play entrusted to the SL Ports Authority reviewed in the context of certain legal ramifications arising out of the limitations of the Port Authority Act in dealing with activities to be undertaken as project objectives.

* Assignment of the reclaimed lands to the Urban Development Authority as the institution responsible for the project on behalf of the Government.

* The 20 ha to be granted on free hold basis under the previous agreement to be released only as a 99 year lease hold.

* Under the new agreement the reclaimed areas of land would be allocated in the first instance to the UDA by the President for the UDA to declare them as development areas under UDA Act. before leasing them to the Chinese investor.

* The road infra-structure cost of the project and that of the periphery to be shared by the Investor and the GOSL.

* Replacement of the previous agreement with a new tri-lateral agreement to be signed with the Investing Company by the Ministry of Mega-polis and Western Development (representing GOSL), and UDA as the assigned institution.

In the re-negotiation process the following aspects have been addressed;

* A new EIA to be carried out to eliminate the controversial areas in respect of environmental impacts and a new development permit issued by the Dept. of Coast conservation, to reclaim an area of 269ha (660 acres).

* To allocate extra 2ha to the investors in lieu of all compensation claims that arose due to the suspension of the project during the interim period between the two agreements.

* The original Master plan which included provision for ‘night racing’ tracks was discarded and a new Master plan by the UDA to increase public land area by 28 ha for parks and walkways etc. was mutually agreed.

* One of the most significant changes to the original agreement is the inclusion of provisions to accommodate the establishment of a Financial City in the SL land area initially planned for real estate, cultural development activity, education and night racing etc…

* In the final analysis out of the required 269 ha of reclaimed land, allocations under  the project  proposal would be, 116 hectares to be owned by the China Communication Construction Company (of which the China harbor Engineering Company a subsidiary), 62 ha to the GOSL and 91 hectares as common public spaces.

On successful completion of this joint venture developed by the Sri Lanka Govt. and China Harbor Port City Company, we will witness the birth of a man- made island in extent of 269 hectares blooming into a Central Business District adjacent to the capital city of Sri Lanka. This 1.5 Billion US$ investment project would be the highest single FDI Sri Lanka has so far achieved in the history. In a modern developing world with many wonders materializing we can rejoice the creation of the Colombo Port City in the spirit of a glory added to our country as a ready- made rice pudding grown with much toil and turmoil for the consumption of the future generations.

Grey areas and covert realities associated with the project

There is a need for a positive contribution of our Diplomats and Foreign service personnel to attract the right international players to come in as business tycoons as well as highly acceptable international banks to establish their branches in the proposed Financial Center.

Enactment of Laws which provide unambiguous facilitations to the investors without compromising our sovereignty and the traditionally upheld culture of the supremacy of the country’s legal system. We have to be mindful about;     

* The inevitability of unintended consequences arising due to international politics

We are already witnessing the open trade war that is taking shape in our region and our closeness to various disputes among the big powers. Eg. recently US announced sanctions on 24 Chinese State owned enterprises and China’s construction Giant China Communication Construction Company (CCCC) is included in this entity list issued by the US dept. of commerce. Strangely the cause of concern, the main bone of contention for this sanctioning is about, China’s involvement in constructing artificial islands in the South China Sea region!

* Maintain our sovereign and independent stand

Need to introduce and maintain systems compatible with other off-shore Financial Centers who will be our competitors.

Off-shore Financial Centers could be set up for legitimate purposes as well as for dubious purposes including tax-evasion and money laundering.

These Zones are territories where foreign capital accumulates as a result of special tax concessions for companies registered in such domains.

* Our constitution provides a clear definition of the territory of our republic in article 5;

The territory of the Republic of Sri Lanka shall consist of the 24 administrative districts, the names of which are set out in the first schedule, and its territorial waters.

According to what is known the newly created island will be brought within the jurisdiction of Sri Lanka. The land will be allocated to the investors by the UDA, on a 99- year lease only after the President issues a gazette under the Lands Ordinance transferring the authority to the UDA.

It is also to be noted that the land area of the Financial City would fall within the Administrative District of Colombo but outside the purview of the Colombo Municipality. Administration as well as legal frame work applicable for operations in this area, therefore need special focus.

The integration has to take place in a seamless manner providing facilitations as required by Financial Centers now in operation elsewhere while keeping the controls with the country at the same time.

* Under the agreement (conditioned up on the debts provided) Sri Lanka is faced with certain restrictions such as a bar to sell any portion of our land till 2023.

The public awareness about the arrangements for investment promotion activities in the land areas allocated to the Investor Company and to the UDA is limited. The best we can expect to happen is that these investment promotions do not overlap and there will not be any undermining of the mutual interests.

* Employment opportunities should be a clearly defined area in the agreements.

Present Prime Minister, Mahinda Rajapaksa expressed high hopes about the new employment opportunities to be created under this project. This should be a major concern of the country as an immediate benefit to be gained by us from the Project.

* The legal reforms associated with the project are of great importance. There will be many areas to be covered under this need. New banking Laws, Tax policy revisions, and above all providing of some structured space for activities in line with other major Financial centers of the World.

* The three Top Financial Centers in the World today according to the order of the GFCI ratings are;

1. New York GFC (Global Financial Center)

2. London GFC

3. Shanghai GFC                                                    

WE have to take into account the broad spectrum of services, facilities and concessions offered through these centers. Introduction of the institutional and legal framework will have to be addressed in this background.

Global Scenario

The World Bank Global Economic Prospects released in June, in a base line forecast expects the Global Economy to Shrink by 5.2% this year. With the expected contractions in per capita incomes this year, many millions are likely to fall back into poverty. 2021 too will be a rebound forecast.

Governments are adopting mitigatory measures as common applications all over. Relaxing capital and liquidity coverage requirements, allowing banks to draw down capital and liquidity buffers, and encouraging banks to offer temporary loan repayment holidays to distressed borrowers etc.

Blessing in Disguise

In a crippling global economy, the chance we have got to proceed progressively with a project of this magnitude and future economic importance has to be considered as a sanctification. Are we waiting to see the emergence of a unique World Class Island City with an  Off-Shore  Financial Center in the South Asian Region?

Through this dream venture we are entering into a highly competitive as well as highly controversial area with long established similar institutions in several other countries with a regional distribution as follows;

Africa – 5;  Asia and Pacific – 17; Europe – 16; Middle East – 3; Western hemisphere – 3.

Some of the leading and well known O.F. Centers are located in, Macao, Singapore, London,  Monaco, Bahamas, Bahrain, British Virgin Islands, Panama and US.

Their activities and operations broadly include;

Asset management and protection. Wealthy individuals and enterprises in countries with weak economies and fragile banking systems avail services of these centers to keep assets overseas to protect them against the collapse of their domestic economies, and outside the reach of existing or potential exchange controls. 

Tax evasion and money laundering. There are also individuals and enterprises who rely on banking secrecy to avoid declaring assets and income to the relevant tax authorities. Those moving money gained from illegal transaction also seek refuge to protect themselves from tax and criminal investigation.

Tax planning. Wealthy individuals make use of favorable tax environments in, and tax treaties with, OFCs, often through offshore companies, trusts, and foundations.

Special purpose vehicles. One of the most rapidly growing uses of OFCs is the use of special purpose vehicles (SPV) to engage in financial activities in a more favorable tax environment.

Offshore corporations or international business corporations (IBCs). IBCs are limited liability vehicles registered in an OFC. They may be used to own and operate businesses, issue shares, bonds, or raise capital in other ways. 

The successful operation of an off-shore financial center in such a scenario is a major threat. We can assess the magnitude of the Challenge before us.

When we examine the behind the scene operations now ongoing towards the materialization of this vision we observe the following.

The gazette issued by the President on 9^th August 2020 assigning the subjects and functions and Departments, Public Corporations and Statutory Institutions to the Ministers appointed by the new Government, identify seven Institutions announced to fall within  the ‘NATIONAL PRIORITY PROGRAM’. They were not allocated to any Ministry. On 25^th September 2020 these institutions were brought under the Presidential Secretariat.

The Colombo Port City Project was included there.

The activities coming under the Presidential Secretariat in relation to these institutions include, inter-alia;

* Introducing legal and institutional provisions for transforming Colombo Port City into an international, Commercial, trading & financial center.

It is evident therefore, that the requirements correlated to the progress of the Port City Project have been given the highest priority under this program.

Food for thought  Sri Lanka is well known as one of the few countries bearing a variety of Precious and Semi-Precious Stones. Some of our Gem stones are unique to us, such as Blue Sapphires and Pathmaraja. Our traditional lapidary art is also world renowned. We have highly skilled gem cutters accustomed to high-tech lapidary work and  skilled artisans in hand made jewelry manufacture. Sri Lanka claim to produce about 75 varieties of gem stones much in demand the world over. Our Gem trading history date back to the first century A.D. and to the Chinese Silk Route period. A concept could be drawn up covering all aspects of this massive industry (with a resource base of precious wealth) encompassing all facets including, treasure banks, lapidary training and service, Jewelry designing and manufacture, a trading floor of international standards not only for local produce but to serve as an Exchange for all gem producing countries to serve as an international center.

Let us wait in expectation of its materialization, creating history in our economic development.