Before taking office, Sirisena had promised that he would look into alleged corruption, stating he would investigate how Sri Lanka is ‘being obtained by foreigners by paying ransom to a handful of persons’. His election manifesto simultaneously acknowledged Sri Lanka’s economic difficulties. It reads, ‘Sri Lanka is a country with excessive state debt and a dangerous ratio with regard to loan payment and state revenue’.
During the previous regime, led by former president Mahinda Rajapaksa, Sri Lanka borrowed billions from China to develop mega-projects that many thought were economically unviable. Critics also feared that Sri Lanka would not be able to pay back the loans and as a result China may take control of these vital infrastructure projects, providing it with a strategic presence in the country.
At the time, no information was available in the public domain regarding interest rates on the loans. There were also allegations of corruption and bribery, which may have allowed Chinese companies to secure these projects without open bidding process. As a result, the incoming Sirisena government promised that it would re-assess all mega-projects undertaken by the previous government.
One especially controversial project is the Colombo Port City project. The Colombo Port City project is being built by China Communication Construction Company (CCCC), a subsidiary of China Harbour Engineering Company, in cooperation with the Sri Lanka Port Authority. The project amounts to a US$1.4 billion investment, but — according to Sri Lanka Government Spokesperson Rajith Senaratne — the project was awarded ‘without relevant approvals’. Interestingly, the World Bank has barred CCCC on charges of corruption until 2017.
During his visit to Beijing after being elected president, Sirisena assured China that ‘the current problems facing the Colombo Port City is temporary and the problems do not lie with China’. Chinese President Xi Jinping in return expressed his hope that ‘Sri Lanka could ensure the legitimate rights and interests of Chinese enterprises’.
But in an interview with CNN Money, Sri Lanka’s Finance Minister Ravi Karunanayake said, ‘the Chinese companies used the opportunity of a corrupt regime to crowd out other companies coming in … There was no even playing field’.
Other Chinese projects have also drawn criticism for being unproductive investments and are considered bad loans. Chinese companies built the Hambantota Port, Mahinda Rajapaksa International Airport (MRIA) and a cricket stadium in the former president Rajapaksa’s political constituency, Hambantota. These are now incurring losses because they are not commercially viable. In September 2013, the interest rate for MRIA, which cost US$209 million to build, was increased from 1.3 per cent to 6.3 per cent.
Rajapaksa’s government took several steps to make the airport commercially viable. For example, according to Civil Aviation Authority 2014 Annual Report, the Rajapaksa government implemented an ‘open skies’ policy for granting third, fourth and fifth freedom traffic rights out of MRIA to foreign airlines. It also provided concessional landing and parking facilities. But MRIA attracted only 20,474 international passengers and 2984 flights according to this report. In the same year, it incurred a loss of LKR2.75 billion (approximately US$20 million).
The Hambantota Port has also not been able to return the economic dividend it promised. The port was built with a US$306 million loan, 85 per cent of which was provided by China’s Exim bank with a fixed interest rate of 6.3 per cent. In September 2014, Sri Lanka reportedly granted Chinese state-owned companies, China Merchants Holdings International and CCCC, operating rights to four berths at the Hambantota Port, providing it with nearly 65 per cent share in the project as per the agreement reached with China in 2010. But Hambantota is yet to attract investment despite being declared a ‘free port’, alongside Colombo Port, in July 2013.
The Sri Lankan government has also declared that Katunayake Export Processing Zone, Koggala EPZ and MRIA are bonded areas in an attempt to attract investors. According to the Minister of Port and Shipping the loss from the Hambantota Port in 2012 was LKR678 million (approximately US$5 million). The Hambantota Port was maintained from the profits made by the Colombo Port. The Sri Lanka Port Authority, which was earlier providing bunkering services, has now asked private companies to takeover or develop a joint venture for bunkering operations.
China has invested around US$5 billion in Sri Lanka. The Sirisena government faces a dilemma. While Sri Lanka is not in a position to spurn Chinese investment, or to repay the huge loans, it also does not know how to ensure these mega infrastructure project make profits that would help pay back the loans. It is under tremendous pressure from China on the Colombo Port City project, where CCCC is reportedly claiming to be losing US$380,000 a day. It would be financially difficult for the Sri Lankan government to provide such huge compensation in case it decides to cancel the project.
At the same time, there is enormous domestic pressure to abandon the Colombo Port City project because it has no environmental clearance and is likely to provide China a strategic foothold in the Indian Ocean, which could draw the wrath of India and the US. The Chinese Foreign Ministry spokeswoman Hua Chunying said it expects Colombo to ‘preserve Chinese companies’ confidence to invest in Sri Lanka in the overall interests of China–Sri Lanka friendliness and the fundamental interests of Sri Lanka’s national development’.
Sri Lanka has always tried to leverage its ties with Beijing in its relations with India and the West. But the previous Rajapaksa government went too far in courting China and did not consider the strategic consequences. It would be difficult for Sri Lanka to withstand Chinese pressure. But it is likely that China will not be in a hurry to take punitive action if the Colombo Port City project does not materialise. After all, Colombo continues to be a major lynchpin in China’s Maritime Silk Route and is an important partner in the larger geopolitical game.
Dr Smruti S Pattanaik is a research fellow at the Institute for Defence Studies and Analyses, New Dehli.
Probably for petty political point scoring, the present regime has scuttled the previous regime’s plans to develop these ports and attract investments to eventually start making profits for the nation. Change of management half way through these projects obviously did not help either. Therefore, we would never know which regime is at fault for low productivity relating to these ventures. But we do lament for bringing these development projects to a grinding halt either due to a lack of vision and incompetence or some other unknown reason.
Except for Colombo Port City Project, work on all other projects (like the MRIA, Hambonttota port and the Cricket Stadium) is complete. Therefore it is not part of the party politics. All the three projects in Hambonttota are incurring huge loses and are commercially unviable. The recent Commission instituted by the Sri Lankan government also found the increase in interest rate to 6.3 was done at the previous government behest. How does one attract investment where there is no market.
The former President Mahinda Rajapaksa allocated several mega projects to Chinese companies without proper tender procedure – feasibility study was restricted to a nod from the Court Astrologer. Mahinda was confident to be President for life but Lankans rejected him. The new President Maithripala Sirisena was part of the Mahinda team till a few weeks before election. He has absolutely no clue as to how and why the projects originated. Of course the then Leader of Opposition like 20 million Lankans was kept in the dark. Maithripala delved into the projects and every day new instances of abject corruption is being unearthed. This must be investigated. This is not anti-Chinese or pro someone else. Any jittering from any quarters must be construed as complicity
I completely agree with you. There was no competitive bidding for the project. Bribes were paid and the project cost went up. Therefore it is not surprising that the previous government led by Rajapakse requested for the hike of interest rate on the loan provided by China. I dont see why should any country want a hike in the interest? Now the Sri Lankan have to pay. Therefore it should not be seen Mathripala vs Mahinda or China Vs India and the western countries.
What is the current government is waiting for?
Let China build the port city and if India/West worried they can build another city off Mt Lavinia!
Oh, those environmentalists, the kind who graduated by stealing my home work! These are the same guys who said Kandalama was not good for the enlivenment!
The Present government has set up a Commission to look into the irregularities that were committed in allocating this project to China. There was no open public tender. Environmental concern is just one of the concerns. In this particular case assessment was not even done. Is Sri Lanka ready to pay the interest rate on this huge loan that would be required to build the port city? Already, the government is finding it difficult to pay back the loans at 6.3 % interest rate for the already three loss making projects in the south. I guess Sri Lanka is not a rentier state that it will sale itself to India, US and China and they will build projects which is not economically viable. The political elite will make money through bribe and citizens will pay for that. The interest rate was increased to 6.3% at the behest of Rajapakse government for Hambantotta. Who benefited from the increase in interest rate? I guess not Sri Lankan tax payers.
I think you are right it is such a shame for Rajpakhse govt who even sold his motherland for his selfish motives, but finally the common man going to suffer for this, I think some good people who love their motherland , should organise and awaken the general public and change the regime where govt is irresponsible
Appropriate , prudent and timely analysis for those groping in the dark
After plenty of back and forth discussions it seems that all these mega projects are moving forward. The present government made a big deal of these projects so its up to them to expose any corrupt activities and give transparency to these project. If they are going forward they need to explain how they will benefit the country and the economy. They also need to explain how the handling of these projects differ from the previous regimes handling of these projects so their credibility is intact.