Port Expansion, Colombo, Sri Lanka

Transport infrastructure is a crucial component in economic development of ta nation. It braces the

personal well-being of the community and the national economic growth. Transport infrastructure is
a key factor which linked to the transport services and, necessary to allow for the market exchange
of final goods and services which results in providing welfare benefits such as travel time saving
and cost benefits. Transport infrastructure is comprised with the fixed installations of waterways,
airways, railways, seaports, roads, and terminals, as well as pipelines such as refueling depots,
trucking terminals, warehouses, bus stations.
Ports are critical for the reinforcement of economic activities of a country as it links the sea and
land transport. In terms of quantity, maritime transportation is the effective and cheapest
transportation system.
The outdates systems, equipment and terminals creates inefficiencies and delays in operations. It
impacts on the growth of throughput of the traffic. For instance, when the throughput reaches to
maximum capacity, the traffic remains steady level, that restricts the smoothness of regular
operations which unable to make solutions in short term. This scenario diverts the traffic to other
competitive ports in the region. For instance, this study shows that around 40 per cent of traffic was
diverted from Colombo Port to the Indian ports due to the inefficiencies and delays. Hence, to
maintain the competitive edge, it needs infrastructure investments to maximize the capacity and
modernize the equipment, operations, and procedures. This proves that the need of modern port
facilities and requirement of capital investment to maintain or increase its market share is critical.

The case study is based on the expansion of Colombo Port with updated technologies, operations
and equipment under a Private public partnership agreement. The project becomes the first in the
transport related PPP agreement and the first modern container terminal project. This is consist of
three objectives to achieve namely, to expand the Queen Elizabeth Quay (QEQ) terminal, to
improve port efficiency, and to demonstrate to the international community and the private sector
that public-private infrastructure projects in Sri Lanka.
Queen Elizabeth Quay terminal was expanded and modernized in terms of physical changes and
efficiency under the SAGT partnership. The original capacity of 250,000 TEUs per year was grown
to a capacity of 1.1 million TEUs. This is the best achieved outcome from the PPP. The expected
increment of throughput is 50 per cent. But the project reached 350 per cent of throughput by
earning the project a rating of a huge success. It is again proven by the statistics such as continuous
throughput growth in consecutive years after the construction. (Container traffic increased from
200,186 TEUs in 2000 to 899,720 TEUs in 2004, a 350-per cent increase, with no net increase in
QEQ staffing). Gross gantry moves per hour rose from 12 in 1998 to 30 in 2003. And the berth
0
efficiency increased from an average of 6.9 hours of wait time for vessels in 1997 to 0.9 hours in
2003.
The second objective was achieved as it improved efficiency of QEQ as well as Port of Colombo.
For instance, the gross gantry moves per hour, berth efficiency, waiting time for container vessels
were improved.
Management strategies and technology were transferred from the private sector port management
companies and used by the SAGT partnership. And also trained management and staff affect to
achieve the quick adaptability and efficient work processes within the company. Effective training
and investment in infrastructure and technology make workers more productive than the original
staff which results in increasing employee efficiency.
This creates direct 500 job opportunities and indirect job opportunities form maintenance and
constructions and surrounding sectors. Demand for ancillary services is specifically increased
around the port. It can be concluded that the economic internal rate of return was over 15 per cent
for the life of the project, which measures the quantifiable net economic benefit to all of society.
In order to achieve third objective, the PP project concern on socializing transport related PPP
projects to demonstrate to the international community and the private sector that public-private
infrastructure projects could have positive outcomes in Sri Lanka. As an example, after this project,
a partner from the SAGT partnership increased its holdings from 26 to 33per cent. This is one of
achievement of the third objective. The interest for investing PPP projects has been changed
(grown) from this port expansion project. The proposed south harbor project, and related
procedures are came into consideration. This is another step forwarding of demonstrating
community and private sector for PPP transport infrastructure investments.

Infrastructure investments are involved in having huge sunk costs and create assets that are long-
lived and location specific. Hence, creation of these types of projects must need to achieve ultimate
goals and objectives. As the projects consists of economics in terms of scale and scope. It can be
illustrating as minimum size of facilities, inelastic adjustment of capacity to demand, long term
project completion, etc. This case study depicts several criteria which essential in achieving the
main objectives of port authorities under a PPP model.
The partnership offered contract to all 5000 employees in QEQ, to accept or dissent to the working
under SAGT with suitable options. This depicts in order to success a PPP project, it is necessary to
consider organization stakeholder in both point of views, private and public agencies.
The case study mentioned that the construction under the PPP model was continued around 2 or 3
years. But the strategy was selected and followed as to maintain both operations and construction.
The construction was completed in three phases to ensure the smoothness of operations of the port.

1
The selection of suitable PPP model is another crucial factor. According to the political and legal
framework, public policies, tax and risk return on capital, the models should have to be selected.
The expansion of Colombo port project was financed based on a debt-to equity ratio of 60:40. And
there were eight agencies who represent public agency. The shares were divided with a prompt per
cent values. It is a beneficial scenario that the ownership, decision making and dividend allocation
were under a controllable level.
The newly recruited management and staff and existing staff were trained to improve the
knowledge and skills, with the possibility of working with updates systems within the organization.
It results in improving employee efficiency as well. Better training modernized and improved
equipment and working procedures were directly impact on employee efficiency. Hence the crew
management and employee qualifications are impact on achieving objectives as pre to expected
level.
The political stability and the secure international trade are also impacted. It is proved that, during
the civil war and surcharge period, the vessels were deviated to neighboring countries’ ports.
Hence, the political stability, legal and adnminisriative policies are important to achieve the main
objectives of port authority under a selected PPP model.