By The Pulseline News Desk
Sri Lanka will pay US$21.9 million to settle investments in a proposed China Merchants-backed logistics hub at the Colombo Port after the parties agreed to abandon the project, bringing an end to a development initiative that had been granted extensive tax concessions and exclusive operating rights.
The Sri Lanka Ports Authority (SLPA) has reportedly agreed to make the payment following the decision by China Merchants Port Holdings Company Ltd (CMPort) to terminate the proposed five-storey South Asia Commercial and Logistics Hub (SACLH) Project.
In a filing to the Hong Kong Stock Exchange on Thursday, CMPort has reportedly said it had reassessed the project considering changes in external circumstances, including adjustments to the implementation environment and timeline, as well as the commercial considerations of the parties.
The company has concluded that terminating the project would be in the best interests of all parties involved.
Under the settlement arrangement, the SLPA will pay US$21.905 million to SACLH as a lump sum within 30 days of the agreement. The funds will subsequently be distributed among the project’s three shareholders.
The payment represents the bulk of the approximately US$26 million invested by CMPort’s subsidiary, after deductions for specified tax liabilities and late-payment obligations.
CMPort has said the parties had agreed to refund the investments made in the project and reach a comprehensive and final settlement of all matters relating to its termination.
Tax concessions and exclusive rights
The project’s termination raises questions about the future of a development initiative that had received significant concessions from the Sri Lankan Government.
In December 2023, Sri Lanka gazetted SACLH as a strategic development project, granting it 15-year exemptions from corporate income tax and taxes on dividends.
According to reports, despite CMPort’s announcement that the project would not proceed, the relevant gazette had not been shown as revoked on the website of the Department of Government Printing at the time of the reported developments.
The project had also been granted 50-year sole and exclusive rights to operate the logistics hub at the Colombo Port.
Under the arrangement, the SLPA was restricted from granting a third party the right to provide port-related logistics or warehousing services at the port at rates lower than the royalty fees payable by the project company.
These provisions were intended to establish a protected operating environment for the proposed facility. The project’s abandonment, however, leaves questions about the status of the concessions and exclusive rights granted to support the investment.
Three shareholders involved
CMPort had established Fortune Centre Group Limited (FCGL), a wholly owned subsidiary incorporated in the British Virgin Islands, to develop and operate the logistics hub.
The proposed ownership structure has allocated a 70% stake to CMPort, 15% to the SLPA and the remaining 15% to Access Engineering PLC.
With the project now being terminated, the settlement payment will be distributed among the three shareholders in accordance with the arrangements governing the investment.
The SLPA’s participation in the settlement means that the Sri Lankan port authority will be responsible for the agreed payment, although the final distribution of funds will take place at the project-company level.
Questions over the project’s future
The decision to abandon SACLH marks the end of a proposed logistics development at one of Sri Lanka’s most strategically important commercial gateways.
The Colombo Port is a major regional shipping and transshipment centre, making logistics, warehousing and related services important components of its commercial operations.
The proposed facility was expected to operate under a long-term arrangement backed by CMPort, a Chinese port operator with an established presence in Sri Lanka.
However, the company has attributed the decision to terminate the project to changes in the external environment, implementation arrangements and the commercial considerations of the parties.
While the settlement provides a financial resolution for the investments made, questions remain over the future status of the strategic development project designation, the tax exemptions and the exclusive operating rights previously granted.
The immediate financial consequence is clear – the SLPA has agreed to pay US$21.905 million within 30 days of the settlement agreement, allowing the parties to bring their investment relationship in the abandoned project to a close.
Leave a comment