Building the Megapolis: A look at Sri Lanka’s big plan

Sri Lanka has ambitious plans to transform its capital into South Asia's most vibrant city. But it is keen to avoid the pitfalls experienced in East Asia — and maintain ‘a laid-back vibe’.

"If we end up looking like Singapore we’ll have failed.”

These are the words of Nayana Mawilmada, head of investments at the Ministry of Megapolis. 

Mawilmada has one of the most important jobs in Sri Lanka, running investments at a ministry tasked with turning Colombo and the surrounding Western Province into South Asia’s most vibrant city. 

His comments may seem bold, but Sri Lanka was once more economically advanced than Singapore. The South Asian country fell behind after adopting a Sinhalese-first policy in the mid 1950s (perhaps Donald Trump should take note) and slid into a three-decade long civil war, which ended in 2009.

Sri Lanka believes it is now well placed to learn from other Asian countries’ mistakes and create a capital city which is not only commercially dynamic, but also a pleasant place to live. For investors and corporations, that provides opportunities from massive infrastructure projects and food for thought on Sri Lanka as a place to invest and do business.

Want to learn more about opportunities in Sri Lanka? FinanceAsia hosts its 2nd Sri Lanka Investment Summit in Hong Kong on March 16.

Nayana Mawilmada

“We have the right location and good diplomatic relations across the Indian Ocean,” Mawilmada noted, highlighting that there is no comparable city between Singapore and Dubai on the highly strategic shipping lane between the two. “We want to achieve our goal through planned urban development, but we’re very focused on maintaining what’s unique about our country.”

The government’s masterplan was developed with Singapore’s SESMA in the early noughties. Standard Chartered’s Sri Lanka CEO, Jim McCabe, says it has been carefully put together. “It should help to fast track modernisation and give Colombo a marvelous new skyline,” he commented.  

But balanced development Sri Lankan-style does not just mean an integrated transport system and middle-income housing, but also conserving the environment and history, according to the government.

Wetlands cover about 40% of Western Province and the government wants to maintain them as a bio-diversity hotspot. It also wants to renovate Colombo’s colonial-era buildings — while avoiding an overly sanitised approach of the kind that has seen Singapore accused of Disneyfying its heritage. 

Yet time is running out.

Traffic is getting appreciably worse by the day. The population is also losing patience after seeing no tangible results two years after a coalition government took office under president Maithripala Sirisena and prime minister, Ranil Wickremesinghe.  By contrast their predecessor, former president Mahinda Rajapaksa, was very good at building things — even if Chinese-backed projects were on commercial terms the country could not afford. 

The business community thinks the government needs to improve communication about the Megapolis plan to the general population. There are also concerns about implementation given the competing demands of two coalition partners. All agree 2017 is a crunch year given a new electoral cycle and inevitable giveaways will begin in 2018.

But recent steps look promising. Mawilmada highlights how hard the government is working to ensure there is financial and technical co-ordination. 

This involves enacting straightforward public-private partnership (PPP) legislation and facilitating ministerial co-operation through centralised agencies. The World Bank, for example, has advised on a PPP unit, which will sit under the Ministry of Finance and should be operational within the next few months. 

Deshal de Mel, senior economist at Hayleys Group, says one of the government’s most pressing issues relates to land. “Access to the right amount of land is by far the biggest issue here,” he stated. “The state has large amounts of land, but it’s never clear whether it’s owned by central or provincial government bodies.”

Mawilmada says the government is working on the consolidation of state land, although it is not yet clear whether there will be an act of parliament, or a centralised agency to manage it. 

One huge advantage the coalition government has compared to its predecessor is the backing of multilateral agencies. As a result, infrastructure projects are now being implemented with matching funding and income streams. 

Preservation: Colombo

On the right track

One of the most important is a $3 billion-plus light rapid transit system (LRT). The Japan International Cooperation Agency (JICA) is providing a $1.25 billion 40-year loan with a 10-year grace period and 0.1% interest rate. 

“It’s basically free money,” Mawilmada said. “The JICA loan will pay for the capital costs of the first 25 kilometres of the network from Colombo to Malabe, which should cut journey times from one and a half hours to 22 minutes. 

“It’ll be the most expensive part of the network because it’s all elevated,” he added. “Other segments should be cheaper because they’re at ground level.” 

A technical study is under way and Mawilmada says the government hopes to tender for the construction work at the end of the year. If it runs to schedule, the government can point to progress on infrastructure development even though this phase has a five-year construction timeline.  There will likely be a second tender to operate the line, which should carry 30,000 people per direction, per hour.

The government hopes that by demonstrating its own financial commitment, private sector companies will be confident enough to pitch for other lines on the 75km network, which will be run on a PPP basis.   

One big debating point is how and when these lines should become profitable. One idea is to build high-density housing alongside them. When it comes to ticketing, Mawilmada says cars need to come off the road, but prices have to be affordable for ordinary citizens. 

The LRT is part of a bigger railway upgrade. The Asian Development Bank (ADB) will deliver an overarching report this spring and Mawilmada says the multilateral has agreed a $650 million loan covering the capital costs for new rolling stock and electrification of a 110km line skirting Colombo from Panadura to Veyandgoda.  

He says the government hopes to upsize the ADB loan further. A second priority is the heavy-density Kelani Valley Line stretching 60 km east out of the capital, which needs to be double-tracked. Mawilmada says the government is studying the phasing for all the lines and hopes the Asian Infrastructure Investment Bank will become a co-financier of the overall railway upgrading.

The final piece of the transportation puzzle is the bus network. The government wants to consolidate small operators then modernize and re-route the fleet so it feeds into the rail and LRT network. 

The major transportation nodal point will be a central terminus covering 200 acres of state land close to the existing central railway station, which Mawilmada suggests may become a museum. 

The terminus is close to the controversial Colombo International Financial City. This is owned and under Chinese development, although the government is parceling out seven hectares of lands per year to prevent oversupply. Mawilmada confirms it will operate as a separate legal jurisdiction governed by English law. 

But not everyone agrees a finance hub is the way forward. Hayley’s de Mel believes it will be difficult for Colombo to transform itself into a financial services centre when it does not have deep financial markets to begin with.

Outside of central Colombo, the government is creating a host of townships as part of the Megapolis plan. These include a science and technology city in Malabe and industrial townships in Horana and Mirigama. The government has already purchased 1,000 acres of land in Horana to release for development in 2017. 

“There’ll also be an Aero City at Katunayake and a Logistics City strategically planned around the port area,” noted HSBC’s Sri Lanka CEO Mark Prothero. “They will no doubt generate increased opportunities for FDI inflows.”

Out of India’s shadow

The country certainly needs more FDI, given it is lagging behind much smaller regional rivals such as Laos and Myanmar. Asia Securities CEO, Dumith Fernando, believes one reason is because India has been such a shining beacon for multinationals, pulling in foreign investment that would otherwise go to its neighbours. 

Yet as a relatively small country, Sri Lanka has the potential to get its infrastructure right in a way which has bedeviled its much larger neighbour for decades. As de Mel points out, it is quicker to ship goods up the Indian coast than transporting them overland.  

If it succeeds in upgrading its infrastructure, Sri Lanka’s government may persuade multinationals and Indian companies to establish their regional headquarters in Sri Lanka instead. 

But the government needs to ensure it lifts the rest of the country alongside Colombo. If it creates a massive income divide between rural and urban areas, the capital will act as a people magnet, creating huge pressure on the Megapolis infrastructure, which is designed to cope with a population increase from roughly six to nine million over the next 25 years. 

Inclusive growth also means bridging the ethnic divide between the Tamil-dominated North and Sinhalese-majority South by bringing more investment to the north, returning requisitioned land and reviewing the military’s role.

The government says it wants to achieve a developmental model, which is economically profitable and socially progressive. The two do not always go hand in hand. 

Sharhan Muhseen is head of Credit Suisse’s financing institutions group for South East Asia and also covers Sri Lanka for the bank.  He neatly sums up the debate. 

“We want multinationals to work and play here, but there’s some discussion about which model will work best,” he commented. “Sri Lanka has a laid-back vibe, which means it might be hard to replicate the East Asian model.

“Some advocate the Scandinavian model, which balances work with personal happiness and welfare support, as the one most suited to this country,”he concluded. 

¬ Haymarket Media Limited. All rights reserved.
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