MV X-Press Pearl: lack of preparedness fanned the flames

Originally appeared on The Morning

By Dhananath Fernando

There have been many sentiments expressed on social media that Sri Lanka did not have luck in the recent past. Adverse weather, a third wave of Covid-19, and the sinking ship are just the most recent incidents from a much longer list. I was reminded of the meaning of luck when I was watching a documentary on Hollywood star Will Smith. Smith recalled his father’s advice on his successful career from his humble beginnings. “There is nothing called luck. Even if there is anything called ‘luck’ it is where opportunity meets preparedness.” Smith recalled how his father used to call him at 3 a.m. after seeing his box office numbers.

When I think about Sri Lanka; it is true we really haven’t had any luck for the last decade, but I believe it is simply because we haven’t been prepared. So when the opportunity comes or even when a crisis occurs, we are not prepared. The delay in preparing our policies costs us each time.

Reforms in the shipping and maritime industry is one such area of policy reform that we have postponed for too long. With the X-Press Pearl sinking near the “Pearl of the Indian Ocean” in our territorial waters, it is clear that the economics and our policy of a maritime hub have to be re-evaluated.

One may be surprised at the connection I am implying between a fire in a feeder vessel and the country’s shipping and marine policy, and one may even wonder what economics has to do with it. Whilst it is true that there is no recipe or economic model to douse a fire, economic policy can create an economic ecosystem where we have many firefighters, technology, and partners capable of dismantling an emergency of this scale or even at a bigger scale. If we did have such a policy, it could have presented may options, which in turn could have helped us avoid such a catastrophe for the economy, our invaluable marine environment, and our pristine beaches. 

How good policy could have helped

An incident like an emergency fire and an event of this scale and the ability to avoid it will undoubtedly have numerous variables. It is a rare incident. There are thousands of feeder vessels and mainliners passing our Colombo Harbour and Sri Lanka ranks 24th on the list of “Best Container Terminals” in the world, so how is it that we did not have a system in place to fight a fire? This is a question we have to ask ourselves as a nation aspiring to become the centre of the Silk Route.

The adverse monsoonal weather and the Indian fire brigade vessels taking about two to three days to arrive, have fuelled discussions surrounding “luck”. However, something that should be explored immediately is why Sri Lanka did not have sufficient auxiliary services such as maritime fire brigade services, especially in a backdrop where the Port of Colombo is a regional transhipment hub.  

It is not a question of our commitment to overcome this particular emergency but about the absence of policy to bring in technology and international businesses to arrest the situation. Undoubtedly, it is one out of many alternatives. There are incidents where even with superior technology, ships have been sunk into deep depths.

The economic argument brings in the question of what alternatives could have been available to us to control the fire and avoid damage to marine life. The Sri Lanka Port Authority Fire Brigade and Sri Lanka Air Force did their best to stop the fire at its initial stages. In one reel of footage it was clear the officer in a helicopter was throwing some chemicals from bags to douse the fire. While their efforts are appreciated, in the modern world, there are more advanced helicopters, aircraft, and vessels for fire-fighting, and our Air Force helicopters or Navy vessels are not crafted to fight a fire of that scale. In the industry of shipping there are more and more companies that provide such facilities. The shipping industry is an ecosystem and container transhipment is just a one tiny part of it. 

It is easy to point fingers at the Government and ask why it can’t have such high-tech vessels and aircraft to combat fires at sea. The answer is simply that it is not the Government’s responsibility to douse fires nor does our Government have the money to make such massive investments. But it is the policymakers’ responsibility to create a business environment in the shipping industry where such supportive services can be established within our country. 

There are many reasons why such companies do not establish their businesses in Sri Lanka. One main reason is that there is no reason for smaller, supportive businesses to enter the Sri Lankan market when none of the bigger shipping companies or principals are based in Sri Lanka. Then, we have to ask the question why the main shipping companies or giant players are not entering the Sri Lankan market. The reason is there is a law that 51% of the ownership of the company has to be kept with a local agency. There is no reason for a globally reputed big shipping company to enter Sri Lanka by offering 51% of the ownership to a local company where there are many better options available in the region and globally.

As a result of Sri Lanka not transforming to a maritime hub because it is sticking to its archaic laws, none of the advanced technologies or support services that exist in the industry will enter Sri Lanka, and we will have the same discussion even in five years unless the reforms are made. 

Our snail’s pace movement in a dynamic industry has driven Sri Lanka away from becoming a maritime hub and we have become just a port with high container transhipment volumes – which is also now coming to a saturation with delays in operationalising the East and West Container Terminals. The lobbying against reforming these laws is very high, as there are many beneficiaries in the current system. Policymakers who attempted to do the reforms have failed or are set to fail. 

There has been another discussion on getting a reasonable insurance claim for the damages caused to our marine environment through this recent incident. Some policymakers even mentioned that the claim will be supported to overcome national financial difficulties. However, we have to re-evaluate whether our policymakers have enacted the supporting legislations on global conventions under the International Maritime Organisation, in our Parliament. Since the ship is still within our territorial waters, it is the domestic legal framework that the shipping company has to abide by. But without the necessary legal framework in place to become a maritime hub, facing such incidents in Sri Lanka with the big insurance companies and their experienced lawyers will be challenging. They will always find legal reasons to escape from paying compensation, the same as our motor insurance companies. Ultimately, poor Sri Lankan taxpayers have to bear the entire loss that will be caused to our pristine beaches, marine environment, fisheries sector, tourism sector, and all industries and livelihoods connected to the incident.

Many Sri Lankans are of the view that during the incident, luck was not on our side. If Will Smith’s father was right, it is true that Sri Lankans did not have the luck of combating the fire; it was that the opportunity in the form of the fire met our lack of preparedness for decades in the shipping and maritime industry. The rest is history.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

Falling in love and developing a country

Originally appeared on The Morning

By Dhananath Fernando

Why both are about processes and not single moments

Simon Sinek, a management consultant and the author of the book “Start With Why”, in a video interview provides some interesting thoughts about measuring “how much you love”. He questioned the moderator: “Do you love your wife?” and the moderator answers: “Yes, of course,” and Simon asks back: “Can you prove it? What are the metrics that you use to prove that you love your wife?”

Obviously it’s a difficult question to answer by anybody, because while love is a feeling which we know exists, it is very difficult to prove in which form it exists. Simon then explains how “falling in love” is a process rather than just an event. It is true there is love at first sight but proving how much you love someone and quantifying it is not easy. Simon explains how tiny little acts like greeting, listening, sharing, caring, dating, and understanding convert to love over a period of time, and that it’s really difficult to pinpoint at which point it became love or how much we love someone. You can check it yourself by trying to recall at what point you really fell in love with the ones you love.

I feel that Simon’s thoughts are not just relevant to love but also applicable to the concept of development of a country. Many of us think development is just a one-off event without really understanding it as a process that occurs over time. We always associate the “development of Sri Lanka” to actions and outcomes such as electing appropriate leaders or utilising an existing natural resource. If we look at recent Sri Lankan history, we have always been of the opinion that one single event can transform Sri Lanka into a high-income country. As a country, we were excited when there was news of a gold mine or even a single incident about a herbal syrup developed for Covid, thinking that this could have taken Sri Lanka out of poverty, by exporting the syrup to the entire world. We tend to get excited when we see news stories on exploring our valuable phosphate mines or hear about explorations of crude oil in our marine territory. We repeatedly forget that all these resources have zero value if we do not have the right institutions as a country. Just take Venezuela for example. They were the fifth largest crude oil supplier in the world, but the exploitation of such a valuable resource is not reflected in the ailing economy.

Sri Lanka’s case remains quite similar. We too have an adequate resource base, but the same resources have become a barrier to our development. This is mainly because we have failed to set up the right institutions. As a result, we always tend to celebrate events and just spend the days, rather than thinking about our economic development in the long term. Now the public discussion on economics is on the China swap agreement of $ 1.5 billion and on the investments in the West Container Terminal (WCT). In both cases, we have failed to propose a credible plan for our debt sustainability or to set up an open transparent tender process on selecting investors for the WCT. This has been the same operating procedure across all governments. So, most likely, these two discussions would just become events to celebrate, which will then be forgotten after a few weeks’ time. Then, we will be back at square one after a few months’ time on our development agenda.

Many have misunderstood the role and purpose that institutions play in the road to development, here in Sri Lanka. Sri Lankans generally perceive a building or an agency as an institution. The Supreme Court or Election Commission are also associated as the bedrock institutions of a country. However, in reality, it is what they represent in a democracy that really defines the meaning of an institution. So the meaning of an institution goes beyond physical places.

According to Jim Collins’ book “Good to Great: Why Some Companies Make the Leap…and Others Don’t”, it is not the time tellers but the clock builders that matter. Building an institution is something like building a clock where the concept of time is communicated to anybody at any time without any discrimination. It is a platform where time is shown to all, even without the presence of the actual builder. Just take the election process as an example. The election process is an institution where people have the right to exercise their choice in selecting the person who is suitable to govern. It is not the Election Commissioner or the Election Commissioner’s office that matters. Of course the physical building matters, but it is the concept of election that matters rather than the office.

It is the same when it comes to our economy and facing economic challenges. The recent swap we received would be a great relief for Sri Lanka. Especially at this juncture, as this column highlighted many times, this creates a need to engage with our bilateral partners and international agencies. But instead of just celebrating the swap, we need to direct the institutions to ensure our debt sustainability. We should establish a mechanism for managing our debt, under a single office and a system to avoid borrowing beyond our capacity to repay. Our currency and Central Bank must have the institutional power to roll out the right monetary policy to ensure that our currency is worth holding and people’s hard-earned money is not devalued due to higher inflation.

When it comes to ports and foreign direct investments (FDIs), our need is not to speak to investors and select them single-handedly and offer unsolicited projects, but to set up the right institutional framework, so that any investor will have the ability to invest and to make the process simpler, easier, competitive, and transparent. That is a “clock” that we have to build instead of celebrating the short-lived “time telling” moment. We have to face the moment of truth at one point and our moment of truth for the last few decades is that we have failed to reach $ 4,000-plus per capita income except for a short period before Covid. Our basic needs such as housing, transportation, education, and healthcare have been the same as the last few decades and the improvements are not taking place. As a result, Sri Lanka has become what it is today.

The fundamentals behind sustainable development involve setting up the institutions. When institutions are built and strengthened, the physical infrastructure falls in place, human values such as genuine, integrity, and hard work get recognised. 

The path to development is like falling in love, as per Simon Sinek’s example. It’s a result of so many tiny little actions. Same as “love”, the importance of institutions cannot be seen sometimes or even cannot be measured. But it’s there and it’s the foundation of the development of a country if we are serious about making Sri Lanka a free and a prosperous nation.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.

A sportsman’s advice for the ports game

Originally appeared on The Morning

By Dhananath Fernando

The problem with GoSL’s ‘East to West’ plan

I was of the opinion that rugby was always a big boys’ game, till I met Sudath Sampath, the legendary former Sri Lankan rugby Captain who was fondly known as “Little Serevi” (Waisale Serevi is a Fijian former rugby union football player and coach, and is a member of the World Rugby Hall of Fame). 

I met him at the University of Colombo when he was the head coach. I was surprised how he became one of the best rugby players Sri Lanka has ever produced, given his physical stature. He did not fit into the typical rugby player profile of six feet tall and about 90kg in weight; but he was agile, fast, and very sharp at assessing the game.

He is also a master of the rules of the game. Rugby is a complicated game with many rules. There is one set of rules for the scrum, another set of rules for a ruck, and separate set of rules for a lineout, in addition to the general rules, such as not dropping or passing the ball forward. 

One main advice by Mr. Sampath to be successful in the game is to “know the rules of the game and know it really well”. He wanted players to watch the same game many times on how the “All Blacks” understand the game and its techniques.

His second advice was that “it is better to be agile and be a team player than being stiff and play an individual game”. I not only often recall Mr. Sampath’s advice in personal life, but also in Economics, especially when it comes to the Colombo Port and its container terminals.

“As a country, do we know the rules of the game in ports and do we have an efficient and flexible turnaround system?” is the question we have to ask ourselves everytime we see the debate on Colombo Port. After a massive national debate on East Container Terminal (ECT), the discussion is now moving towards the West Container Terminal (WCT). According to media reports, it will be a 35-year agreement with an 85% share to India’s Adani Group of Companies to operate it on a Build-Operate-Transfer (BOT) basis, and keep a 15% share for the Sri Lanka Port Authority.

So first let’s try to understand the game behind the port operation’s business model. Then let’s try to debunk the myths. It must be first understood that a port cannot survive just because it has a strategic location. The strategic location is important, but it is no more the single deciding factor for a port to be successful. 

The Port of Djibouti in Africa is strategically located, while it is also a member of the Belt and Road Initiative. However, the port is not considered a successful one. On the other hand, the port of Salalah in Oman and the Port of Tanjung Pelepas in Malaysia are thriving ports in the world, handling significant container volumes, but are not strategically located.

The simple reason behind the latter two ports’ success is that they know the rules of the game, and have a sharp understanding of how the port business works. It is a networking industry, requiring investors and their management practises that can increase the efficiency or number of moves per hour and the turnaround time, thereby making the port operations faster  and helping shipping lines process their containers faster. 

Distance to a port from the main shipping route matters, but efficiency matters too, as they both determine the cost for the shipping line. Therefore, in order to be a global player in the shipping business, Sri Lanka must be connected with the main shipping lines, as well as being efficient and agile in our delivery of our port operations. 

To maintain that connectivity with shipping lines, Sri Lanka should be open to foreign direct investments and create an investment-friendly environment. Improving efficiency must be the bedrock of this business model, along with private domestic investment. This way, any investor who risks his money, time, and resources is psychologically motivated to recover the investment. 

One can understand the importance of this factor by comparing employment numbers and efficiency rates (number of movements per hour) of the SLPA-operated JCT, and private sector-operated joint ventures, SAGT and CICT.

So what would be the consequences of picking WCT before ECT? First, being open for foreign direct investment and attempting to get global partners is a decision in the right direction. Foreign direct investment brings much-needed knowhow, which spills over to other industries and increases productivity. 

However, the ideal procedure should have been an open tender process, so that the best business offer of foreign direct investment could have been evaluated competitively. To avoid the geopolitical tug-of-war between China and India, the tender procedure could have been structured by the respective geopolitical interests. 

If the Government is to be believed, the current procedure has been to request the respective governments to nominate their business partners. However, this prevents the achievement of best possible outcomes for the country as it is brought by a competitive bidding process.

Secondly, is there an incentive in leaving the SLPA to operate the ECT, and opening the WCT to foreign direct investment? Well, this simply doesn’t make much sense, for it will be disadvantageous for the ECT! 

Given the financial situation in Sri Lanka, it is very unlikely that the Sri Lankan Government and the SLPA will have the fiscal space to invest in the  ECT. The gantry cranes and all other machinery for the necessary infrastructure will need to be imported, and the availability of foreign currency for such an investment remains a question mark. 

The ECT is already late by more than two years, and it will take another 18 months from the date of commencement for the infrastructure development to be completed. So in simple terms, chances are limited for the ECT to take off in the next few years.

If the operation of the WCT, which requires more infrastructure development compared to the ECT, does get off the ground soon, the business ecosystems will be focused towards the WCT, as they can be more efficient and have the scale to connect with other global partners. 

That may leave the ECT in its current stage with only hollow ownership for the Government, without generating revenue and profit, or its full capacity being utilised. Ultimately it will affect the entire efficiency of the port. 

The concept of making Colombo Port a maritime hub will be just another daydream. The original design of the entire port is to handle about 30 million TEUs with the development of the port along identified phases. 

This was the identified strategy to become a maritime hub but the delays we incurred from political parties and trade unions is most likely to pull us back and make us more insignificant in the Indian Ocean.

The Galle Port, which is under SLPA, was involved in discussions for years to be developed as a yacht marina. However, the opportunities have now shifted to Oman and Dubai. We haven’t been able to optimise the Trincomalee Port, even more than a decade after the war ended.

All these resources remain under our ownership but remain underutilised or underperforming. Unfortunately, we continue to play the ports  game without knowing the rules, thereby losing lucrative opportunities and playing self-interested petty politics without being a team player, whereas the entire country could have been a beneficiary of the competitive transhipment business. “Little Serevi” Sudath Sampath would not have approved.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.