Colombo Port City Bill: The devil will be in its implementation

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By P. K. Balachandran

COLOMBO – The Sri Lankan government has said the Colombo Port City Economic Commission (CPCEC) Bill will be amended entirely on the lines suggested by the Supreme Court. And the main opposition party, the Samagi Jana Balawegaya (SJB), has extended its support to the amendments, affording a national consensus to the hitherto highly controversial Bill, on the running of the US$ 1.4 billion Chinese-built Colombo Port City.

However, many issues persist. And unless these are addressed at the earliest, the desired goal of attracting foreign investments may not be achieved.

The Colombo Port City, also known as the Colombo Financial City, is meant to be an International Financial Centre catering primarily to the needs of foreign investors. It is expected to earn billions of dollars of foreign exchange for cash-strapped Sri Lanka, which is also heavily indebted to the outside world.

The Supreme Court, which gave its ‘determination’ (view) on the Bill, had suggested amendments meant to smooth out the rough edges and also make the Bill entirely compatible with the Sri Lankan Constitution. The suggested amendments will ensure and clarify that the Sri Lankan Parliament and the various statutory oversight bodies and judicial institutions in the country have overall control over the Commission which would be running the Port City.

The court had allayed fears of the nationalistic-minded petitioners that the Port City would go into the hands of foreigners, especially the Chinese. As China has built the Port City, and its rivals are not expected to invest in it, it was feared that only the Chinese would invest in it, making it a Chinese colony eventually.

On the fear that the appointments made to the Commission by the Sri Lankan President would be arbitrary, the court said any appointment that is not in accordance with the law is open for judicial review. Registration, licensing or authorization would not be entitled to compulsory automatic concurrence of the existing Sri Lanka regulatory bodies.

Companies in the Port City will be subject to the provisions of the Inland Revenue Act and the Customs Ordinance. Key authorities such as the Central Bank of Sri Lanka, Central Environmental Authority, Department of Labour, and the Courts of Sri Lanka will be able to supervise and monitor the implementation of laws in the Port City, the court clarified.

Several petitioners contended that the clauses of the Bill infringed the legislative power of Parliament. Responding, the Additional Solicitor General (ASG) agreed to amend the provisions to make them accord with the Constitution. It was contended that the tax exemptions or incentives were sought to be given without the approval of Parliament. But the Court observed that as per Clause 53(1) of the Bill, the Commission only makes recommendations to the President or the minister in charge of the Colombo Port City in this regard. It is the minister who takes the decisions and gets parliamentary approval for them.

The petitioners complained that the Bill did not provide for any guidelines for the grant of exemptions or incentives. The ASG then submitted that suitable amendments would be made in this regard. On the supervision of offshore companies, the ASG pointed out that the Registrar of Companies will supervise them in the manner it would an offshore company registered under Part XI of the Companies Act.

The Court observed that laws which seek to prevent money laundering and terrorist financing such as The Convention on the Suppression of Terrorist Financing Act No. 25 of 2005, Prevention of Money Laundering Act No. 5 of 2006 and the Financial Transactions Reporting Act No. 6 of 2006 would apply to the Port City.

On behalf of the Petitioners it was submitted that arbitration is consensual and that it cannot be mandatory. But the court held that arbitration is recognized by the law of Sri Lanka as a method of dispute resolution and added that the courts in Sri Lanka could also be resorted to.

According to Lasantha Somaratne, a leading business development strategist, integration of the Colombo Port City with the institutions of Sri Lanka would spell its ruin. He suggests Sri Lanka follow the Dubai International Financial Centre (DIFC) in toto because DIFC is totally independent of the rest of the UAE in terms of laws. Furthermore, the DIFC’s institutions are managed by competent and internationally reputed personnel. He wonders if the Sri Lankan personnel in the Port City Commission would have the required competence and international experience.

While modern commercial laws might be in place in the Colombo Port City, the devil will be in the implementation. Sri Lanka is 99th among 190 countries in terms of the World Bank’s Ease of Doing Business. This is because its institutions do not work as they should. There are delays due to red tape, absence of commitment and of course, corruption. If the Port City is to serve its international clientele, it has to have a totally different system operated by internationally recruited personnel.

Other experts recommend that like the Dubai, Singapore and Hong Kong financial centres, the Colombo Port City should accept English Common Law as the basic law. The International Commercial Dispute Resolution Centre, which is to come up in the Colombo Port City, can rival those in Singapore and Hong Kong only if manned by competent personnel with international experience. As of now, arbitration in Sri Lanka is time consuming.

In a letter to Sri Lanka’s parliamentarians earlier this month, the Advocata Institute pointed out that Sri Lanka‘s laws in regard to money laundering and terror financing are weak. They must completely conform to the Basel Committee on Banking Supervision and the Financial Action Task Force, Advocata said. The labour market in the Port City should be highly flexible. But a cushion in the form of an unemployment insurance scheme should be created to protect labour.

Rohan Maskarola, CEO of the Colombo Shippers’ Academy, pointed out that investors will not pour into the Port City merely because there are internationally accepted laws or other modern facilities there. They would look at conditions in the country as a whole –its legal, administrative and political systems, Rule of Law situation, political stability and policy consistency. Offering the Colombo Port’s Eastern Terminal Project to India and then suddenly reneging on it, will not do as the policy inconsistency it shows, will put off potential foreign investors.

Maskorola also said that there should be a national consensus on all matters relating to the Port City   so that policy does not change with a change of government.

Then there is the regional and geopolitical situation which will impinge on investment prospects in Colombo Port City. Given the hostility towards China and opposition to its efforts to make a presence in Sri Lanka and the Indian Ocean, investments from India and the US-led West are unlikely to come. Therefore, to begin with at least, investments is likely to be only or mainly from China perhaps in collaboration with some Lankan firms. There is already a commitment to put in US$ 1 billion into the Port City.

This will turn out to be in favour of China eventually. China looks at the Port City as a part its larger Belt and Road Initiative (BRI). Over time, with a preponderance of Chinese investments, the Port City will be a key link in the BRI with great strategic implications for the region.

In this context, some wonder if other regional and global powers would subtly encourage investments by entrepreneurs close to them so that the Colombo Port City does not become wholly Chinese.

-ENCL

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