When it was conceptualised in 2012, the rationale for the second terminal at the Bandaranaike International Airport (BIA) was that the six million annual passenger capacity of Terminal 1 (T1) would not be able to serve the 14 million passengers expected by 2020.
Accordingly, Sri Lanka borrowed Japanese Yen 74 billion (JPY 29 billion in 2012 and JPY 45 billion in 2016) from Japan, mainly to design and construct the 185,900 sq m Terminal 2 (T2) with a nine million annual passenger capacity, and to increase the total capacity of the BIA to 15 million passengers by November 2019.
However, this project has taken many twists and turns since then. Airport and Aviation Services (Sri Lanka) Ltd. (AASL) and the Government took 19 months after the design was completed and 52 months after the second loan agreement was signed to award the $ 357 million civil works contract in July 2020.
Timeline of events
The selected contractor, Japan’s Taisei Corporation, began the work in December 2020, despite Covid-19 restrictions and supply chain disruptions, which only eased in June 2021. Then came the debt crisis in early 2022 and subsequent price escalations. Japan suspended the $ 405 million project loan in July 2022. The contractor suspended the work in December 2022 and terminated the contract in mid-2023.
By then, the original time for completion had almost elapsed, but only 6% of the work had been completed. The slow progress is attributed to the Covid-19 pandemic and events such as the engineer rejecting the subcontractor proposed by Taisei in July 2021. Nevertheless, according to the subcontractor’s company website, it completed the “first platform foundation” in November 2021.
Since Taisei’s termination, AASL has made numerous attempts to restart construction. It was rushing a new procurement because the work, for which Taisei was paid 15% of the contract amount, is deteriorating and will be unusable unless work restarts immediately.
It called for international bids in December 2023 for the major work and procured construction worth $ 12 million from a local contractor through a national competition in April 2024. From the international competition, a national contractor was chosen in July 2024 after Japan agreed with the Government to lift the loan suspension.
However, a Court of Appeal order on 26 September 2024 suspended the award based on a writ application by a competing bidder citing irregular procurement. Neither the winner nor the petitioner in this case is an experienced and reputable airport contractor. In fact, there is no record of them constructing even a domestic airport terminal.
Two days before the ruling, AASL again called for international bids. This competition, for which only two bidders entered, is also marred by controversy, and a contract has yet to be awarded as of 30 June 2025.
Hidden blessings
Even if three years are attributable to delays because of the pandemic and the economic crisis, failure to deliver the project seven years after the loan signing is unusual. Recent media reports have highlighted deficiencies in the design and supervision consultancy services of the AASL-selected Japan Airport Consultants (JAC).
The T1 upgrading project that started in 1999 with Taisei and JAC as contractor and consultant, respectively, was delayed for 24 months. This implies that T2 is not jinxed, but that AASL has failed.
So why are these delays a blessing in disguise? Because they have created an opportunity for the Government to change the mindset of AASL, modernise the design, and find an efficient financing modality to reduce its debt obligation.
This approach is justifiable for several reasons. One, even if the contract is awarded in July 2025, delivering T2 in 30 months is a challenge. Two, the $ 690 million estimated cost of the work (assumed based on the 2% bid security of Rs. 4 billion), which is 100% more than the original contract amount, is questionable.
Three, SITA, an international airline agency, has forecast Colombo’s passenger traffic to be 14 million by 2027. Therefore, even if T2 comes on stream in 2028, the combined annual capacity of 15 million of T1 and T2 will soon be exceeded.
The fourth justification is the adequacy of T1. Passenger terminal capacity is better assessed using peak period traffic instead of annual traffic. The United States Federal Aviation Administration (FAA) uses 14 sq m per Typical Peak Hour Passenger (TPHP) and the International Air Transport Association (IATA) uses 35 sq m/TPHP for estimating capacity.
The standard used in Japan International Cooperation Agency (JICA)-funded projects elsewhere is 20 sq m/TPHP. JICA used 30 sq m/TPHP for the refurbished T1 in 2005 and 46 sq m/TPHP for T2.
However, Figure 1 below shows that at the FAA standard and IATA passenger growth rate, T1 has sufficient capacity until 2032. At the IATA standard and the IATA growth rate, T1 saturation will be in 2029. The saturation year can be further extended if AASL spreads the peak in consultation with the airline to reduce TPHP in T1.
This is a common practice in the airport industry to maximise capacity utilisation. Therefore, T2 is neither urgent nor necessary at present. Tourism and economic growth will not be impeded by rescheduling the commissioning of T2 to at least 2030.
The last, but not least, justification is that AASL can update the current design, completed in 2018. It can introduce efficient energy sources, intelligent systems such as virtual queuing and robotics for baggage handling, and security systems such as biometric authentication and advanced imaging.
The Government can consider alternative financing options such as a Public-Private Partnership (PPP) through a Swiss challenge, like in the Philippines, as well as green financing and revenue bonds. This is a significant opportunity to change the way of doing aviation business that must not be missed. We must use this opportunity to give future travellers and taxpayers their value for money.
In the interim, the Government can continue with T1 upgrades, focusing on travellers’ complaints about signing, seating, and staff attitude highlighted by Skytrax, an international air transport rating organisation.
(The writer is a former Professor of Civil Engineering at the Utah State University and former Team Leader at the Asian Development Bank)
Figure 1
