Sri Lanka to spend $350 mln to expand Colombo seafront

COLOMBO Feb 10 (Reuters) - Sri Lanka plans to build a new port city by reclaiming the seafront at a cost of $350 million and selling the land as it expands the island nation's main harbour, the state-run Port Authority said on Thursday.

As presently envisaged, the creation of 340 acres of new land would partially, if not entirely, block Colombo's historic Galle Face Green seafront by moving the shoreline farther away.

That stretch of shore is in front of the current location of the Defence Ministry and army headquarters, where Shangri-La Hotels Lanka Ltd., a subsidiary of Hong Kong-listed hotel operator Shangri-La Asia Ltd is building a 500-room hotel.

"It is going to cost us about $350 million to fill it up," Nihal Keppetipola, managing director of Sri Lanka Ports Authority, told Reuters.

The filling would be funded by deposits on sales, he said.

"So we are not going to put up the capital investment. People, including foreigners, will put an advance and then purchase. We will use the money to fill," he said.

The area will have eco-parks, residential areas, offices, and high-rise buildings, Keppetipola said.

However, he declined to comment on pricing.

"We will be working on that. But we have to make sure that we earn very much more than $350 million," he said.

Sri Lanka since 2004 has imposed a 100 percent tax on land purchases by foreign citizens, and it was not immediately clear whether that tax would apply to the new land.

The Indian Ocean nation since the end of a 25-year war in May 2009 has been spending heavily on ports to attract much-needed foreign investments to its $50 billion economy.

Already, the government has been creating new land about a kilometre away from the proposed area, as part of its expansion of the Colombo port.

South Korea's Hyundai Engineering and Construction Co is expected to complete a $300 million port expansion by April 2012 with a 6.8 km breakwater for three new container terminals.

Sri Lanka in August signed a $450 million deal with China Merchants Holdings and local conglomerate Aitken Spence to build the first of the three terminals.

Each terminal is expected to add the capability to handle 2.5 million TEUs more. The port now handles 4.5 million TEU.

The island nation is also hoping to attract $1.5 billion in investment to build a new city and add services to the new Hambantota port in the deep south, which has been financed by China and opened in November. (Editing by Bryson Hull and Miral Fahmy)