Economic Growth of Sri Lanka with New Hambantota Port

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Introduction

A 3D Modal of Port Hambantota

Hambantota is situated along the Southern cost of Sri Lanka and it is only six miles away from the East-West sea routs. More than 3,600 ships including 450 oil tankers are moving through this route annually[1]. The new port in Hambantota is proposed to provide facilities for the port related industries and services.

Hambantota port development project is a part of the larger development project centred Hambantota district. It will be the second largest port in Sri Lanka after completing its first phase and the port will be operated by the Sri Lanka Ports Authority.

The first phase of the project includes four berths. Two of them will be 600 meters long general purpose berths. The port will also contain a 120 meters long bunkering berth as well as 120 meters long small craft berth. Port Hambantota will provide the bunkering facility and a tank farm which consists of eight tanks of marine fuel, three tanks of aviation fuel and three tanks of liquid petroleum gas. Hambantota port has a 1.5 kilometres long breakwater with minimum basin width of 17 meters. The port will also contain a 600 meters of turning circle that has a depth of 22 meters.

The second phase of the project includes a container terminal and the third phase includes a dock yard. After completion the port will cover 400 acres of land and will have facilities to accommodate 33 vassals at anytime.

“When completed, the port will be the biggest port constructed on land to date in the 21st century.”[1]



Statistical Descriptions

Total Estimated Cost and Investors

The estimated cost for the first phase of the project is $360 million. Above estimated cost will include a bunkering terminal worth of $76.5 million. 85% from the total investment is provided by the Government of China[1]The Exim Bank of China will be funding for this project on behalf of Government of China[2]. Sri Lanka Ports Authority has invested the remaining 15%. The estimated cost for the second phase is $600 million. Total estimated cost for whole project is $1 billion.

Time Span

The first stage of the construction of the port was started on 7th June 2007[3]. The project consists of four phases. The first phase is expected to be completed by November 2010. The first ship will be anchored in port Hambantota in December 2010[1]. The entire project will be completed in 15 years.

Expected Employment

The expected employment of this project estimated is more than 50,000[1].

Work Progress

Progress of Work as End of July 2009:[4]

  1. Construction of Break water - 65% completed
  2. Operation of Quarry Production – In Progress
  3. Construction of Coffer Dam – 100% completed
  4. Construction of Chinesepodes - 9000 Units
  5. Basin Excavation - 15% Completed
  6. Dredging of Entrance Channel - 15% Completed
  7. Rock Blasting in Entrance Channel - In Progress
  8. Construction of Service Quay wall – 80 % Completed
  9. Construction of Cargo Quay wall - 40% Completed
  10. Manufacturing of Concrete Paving Units – 150,000 units completed
  11. A 2 Main road was closed at Mirijjawila junction and traffic has been diverted through newly constructed road.


On 23rd June 2010 Sri Lanka Ports Authority signed a contract agreement with China Harbour Engineering Company Limited to begin the construction of phase 2 of port Hambantota development project (Agreement sighed for hambantota port project phase ii 2010). More than 95% of the project is now completed[3].

Impacts of Implementing the Project

Economic Growth

Port hambantota chart1.jpg

To expect an economic growth, our GDP should be increased with no doubt. Our government expenditure for the first phase of this project is $54 million[1]. Government expenditure is an injection to the economic system of the country. Therefore according to the Keynesian approach, our aggregate expenditure of open economy should be increased. According to the consumption function, we can expect a high national income which increases the GDP. National income has a direct impact on the economic growth of the country. Therefore we can expect a balanced and sustainable economic growth in Sri Lanka with this huge project.

But there can be side effects of increasing the national income. When government invests on new long term projects, the demand for labour force is increased. Therefore labours will start doing over-time work, so that the cost of the production (good or the service) is gradually increased. That can affect our price levels to be increased.

But always we have to remember that there is a cost of economic growth. An environmental damage or hazard can be happened due to implementation of this project. Hambantota is an area that consists of various types of beautiful birds and it has a very traditional and cultural background. Both cultural problems and labour problems can be expected with the economic growth.

Employment

Port hambantota chart2.jpg

When government invests on long term projects the demand for labour force is increased. As a result, the price level is also increased as described in Economic Growth section. If government is not investing on long term projects then the unemployment can arise. Therefore we can make a relationship between price level and unemployment as shown below. As mentioned in above Economic Growth section, with this project the price levels have a probability to increase. Therefore theoretically the unemployment should fall upon completion of the project.

Sri Lanka is gradually decreasing its unemployment. As mentioned above, this project may produce more than 50,000 job opportunities including labours, engineers and transport and logistics managers. The government expects that the whole project may produce a number of indirect job opportunities too. Therefore With this project we can expect a reduction of rate of unemployment in Sri Lanka. I think this project will be an answer for any unemployment situation that can occur in future. It will reduce the unemployment in Sri Lanka definitely expect voluntary unemployment.

Revenue Generation

The main expectation of this project is revenue generation for the future development of the country. Therefore the project includes a number of service providing departments. The project will also support port related industries too.

Port Hambantota will have a tank farm that includes 14 fuel tanks which consists of marine fuel, aviation fuel and liquid petroleum gas[1]. Selling fuel to foreign ships can make revenue. On the other hand, we have started exploring crude oil in Sri Lanka too. The project also includes a ship repair unit and a ship building unit that can sky rocket our revenue. Ship repairing can be a more profit making business to Sri Lanka since more ships are using the main East-West shipping lane. The port will also provide bunkering facilities which is currently not available in Colombo port. The project also includes a warehouse complex that can increase the port’s total revenue by providing warehousing facilities to goods which are exchanged by ships through port Hambantota.

The project also includes a $550 million worth of tax-free zone which is located at outside of the port that allows local or international companies to handle businesses on ship repairing, ship building or providing warehouse services too[1].

Disposable Income

Port Hambantota is a source of revenue generation. It increases the national income with no doubt as mentioned in above sections. The disposable income can be increased by increasing the national income.

Currently, more than 90% of national income is collected by taxes. But if the government can increase its non-tax income, the government would be able to reduce its tax percentages. As a result government can reduce the tax percentages on VAT, NBT and CES etc. Reducing tax percentages has a direct impact on the disposable income. When the tax is reduced the disposable income is increased.

When the government is collecting more revenue through the port related industries, it will also help the government to provide lots of subsidies to the people in the country. Sometimes the government can start a new subsidy system for unemployed people or sometimes government can increase the amount of money allocated for transfers such as Samurdhi or Mahapola. With Mahapola, more poor students will get opportunities to get a higher education and it will help the country to generate more people with high knowledge to get support to the development of the country in future. Increasing transfer payments can increase the disposable income.

Therefore, an increment of disposable income can be expected by implementing this project.

Living Standard

As mentioned in above topics, with this project, both national income and disposable income will be increased. So that the government taxes will be decreased and the transfers to the people will be increased. Since this project is providing more than 50,000 job opportunities[1], the unemployment will be also decreased further more.

Therefore, we can expect a fairly high living standard of people in Sri Lanka by the completion of the project. It will be a step forward of making Sri Lanka a Singapore in near future.

Imports and Exports

With the completion of the project port Hambantota, Sri Lanka should have a direct impact on its imports and exports. Sri Lanka can definitely increase its exports and can reduce the export cost since most of the new manufacturing plants are now moving to South. The government is also expecting to build a tax-free trade zone near the port[1]. Therefore the products can be manufactured with low cost by the manufacturing plants in the tax-free trade zone, so that our products will get a higher demand in the international market. Therefore our export income will be increased at a higher rate.

Since the port Hambantota is very closer to the main East-West sea route our import cost has a probability to reduce. As a result our net exports will be increased and more money will be injected to our economic system too.



Appendices

Disposable Income

When analyzing the effect on Disposable Income, the following formula has been used.

Yd = Y – T + TR

Yd = Disposable Income
Y  = National income
T  = Tax (T = tY; t = tax percentage)
TR = Transfer payment

Phase 1 Project Features[4]

  • Design Vessel - 100,000 DWT
  • Approach Channel Width - 210m
  • Approach Channel Depth - 16m
  • Turning Circle - 600m
  • Quay Length (General cargo) - 600m
  • Service Quay - 105 m
  • Oil Quay - 310 m
  • Depth of Basin - 16m
  • Cost of the Construction Works - US $ 361 million
  • Date of Commencement - 15th January 2008
  • Project Duration - 39 months

Hambantota Port Project Staff[4]

  • Client: Project Director - Priyath Bandu Wickrama – Chairman
  • Project Director: Agil Hewageegana – Deputy Chief Engineer
  • Chief Engineer: Janaka Kurukulasuriya – Ports Authority
  • Contractor: China Harbour Engineering Co & Sinohydro Corporation ltd JV

References

  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Port of hambantota n.d. Retrieved July 17, 2010, from http://en.wikipedia.org/wiki/Port_of_Hambantota
  2. Wijewardena, S 2008, Hambantota port: a new dawn for the south. Retrieved July 17, 2010, from http://www.montagelanka.com/?p=561
  3. 3.0 3.1 Hambantota port progress impress imf 2010 Retrieved July 17, 2010 from www.defence.lk/new.asp?fname=20100221_09
  4. 4.0 4.1 4.2 Development of port in hambantota n.d. Retrieved July 17, 2010, from http://www.slpa.lk/port_hambantota.asp?chk=4



--Gishan Chaturanga 22:19, 8 May 2011 (MDT)