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The first phase of the Hambantota Port Development Project is expected to be completed by November 2010, five months ahead of schedule, according to local reports.

The China-financed project, which commenced on January 15th 2008 and was initially due to be completed by April 15th 2011, will be the deepest port in the Indian subcontinental region with a draft of 17 metres.

News of the project proceeding ahead of schedule will be welcomed by the Sri Lanka Ports Development Authority, which in September 2008 was being asked about claims that the project was facing suspension due to a cash flow crisis following a letter written by Q. L. Tang, Project Director of the China Harbour-Sinohydro Consortium, to Ports and Aviation Minister Chamal Rajapaksa.

In the letter, Tang was reported to have said: "We will be compelled to suspend work if the outstanding amount due to China Harbour is not made available to us by 30th September 2008."

Almost two years later, the first phase of the port project appears to be only four months away from completion. The entire port development project is scheduled to be completed in 15 years in four phases with the first phase alone costing between US$350 - US$450 million.

However, fears of the project facing a cash flow crisis have now been replaced with concern that the port may not earn enough to help repay the Chinese loan if cargo volumes are not sufficiently high.

Lack of income could lead to the government requesting that shippers shift container handling from Colombo to Hambantota, which shipping firms may be reluctant to do if it is not economically viable.

Local sources point out also that Sri Lanka would not benefit financially from shifting business from Colombo to Hambantota. The country's economy only benefits if Hambantota generates new business.

Bunkering

Rohan Samarajiva of the think tank, LIRNEasia, has proposed the construction of a massive oil refinery combined with a bunkering operation at Hambantota.

The new bunkering terminal at Hambantota is expected to provide a major boost to the Sri Lankan bunker market. The terminal will be designed to handle up to 500,000 metric tonnes of oil products a year. Depending on the requirement the terminal can be further expanded up to one million metric tonnes.

Last year the Sri Lankan government confirmed that the country would receive a $US65 million loan from China's Exim Bank to build a bulk storage tank farm in Hambantota that will also be used to store marine fuel.

The new facility will supply and store marine fuel, aviation fuel and LP gas and provide bunkering services for vessels passing by Sri Lanka. It is expected to have a total storage capacity of 82,000 cubic metres.