China-Sri Lanka deal on controversial deep water port to be signed on Saturday

By P.K. Balachandran The Sino-Sri Lankan deal over a controversial deep water port in Hambantota in south Sri Lanka, which has been hanging fire since January 2015, will at last be signed here on Saturday. Prime Minister, Ranil Wickremesinghe, told the media here that the agreement with China Merchants Port Holdings Company (CMPort) would bring in US$ 1.

1 billion as an upfront payment and that the agreement would be beneficial for the country. “We will sign the Hambantota agreement tomorrow. We are giving the country a better deal without debt,” Wickremesinghe said.

The agreement was to have been placed before parliament on Friday for its approval, but this could not be done as the House was adjourned till August 5 due to disturbances on account of another issue. Earlier in the week, Ports Minister, Mahinda Samarasinghe, said that under the agreement, China would have a 70 percent stake in the port while Sri Lanka will have 30 percent.

The CMPort will be spending US$ 640 million to further improve the infrastructure in the port for it to function well and attract customers. China will invest US$ 1.12 billion for its 70 percent stake and will also manage the operations of the port. Sri Lanka will manage the security of the port along with the movement in the port. The Harbor Master and the pilots will be under the control of the SLPA. Samarasinghe said all foreign naval vessels could call at Hambantota Port as they did at the main port in the capital Colombo, but only with the permission of the Sri Lankan government.

This addresses the security concerns of some countries principally India. India has been wanting the port to be in Sri Lankan and not Chinese hands. Minister Samarasinghe further said that after 10 years, if Sri Lanka wished to purchase an additional 20 percent stake of the Port, they could do so by purchasing it, resulting in China and Sri Lanka owning an equal share of 50 percent each. China is Sri Lanka’s largest Foreign Direct Investor with many mega projects including the construction of a US$ 1.

4 billion Port City close to the Colombo Harbor.

The Chinese company CMPort is already involved in the Colombo International Container Terminal.

Background The Hambantota port project was initially offered to India by the government of President Mahinda Rajapaksa after the end of the war against the separatist Tamil Tigers in 2009. But India did not take it on the grounds that the port will not attract business for a long time.

It was then that Rajapaksa gave the project to China which built the port at a cost of US$ 1.4 billion. However, the port could not attract business because of the absence of a hinterland with good facilities. The number of ships calling at the port was small and the losses incurred had to borne by Colombo port. Colombo port’s development suffered on account of its loss bearing responsibility. In the run up to the January 2015 Presidential election, Rajapaksa was heavily criticized for creating a White Elephant and making the people pay for its maintenance. This and other charges cost him the Presidency.

The new government headed by President Maitripala Sirisena and Prime Minister Ranil Wickremesinghe stopped further work on the port and declared its intention to work out a new agreement with China. In December 2016, a new Framework Agreement was signed by the government and CMPort. By that agreement, CMPort was to get 80% of the shares in the port and the Sri Lanka Ports Authority was to get 20%. It was also agreed that CMPort will immediately infuse US$ 1.1 million for the shares it was going to take. Sri Lanka wanted this amount to help it repay debts. Fresh Controversy But handing over 80% of the stake sparked a new row with Sri Lankan nationalists who charged that there had been a “sell out”. The government then had to renegotiate to bring down the share ratio to 60:40, but China would not agree to such a drastic dilution. Finally, 70:30 was arrived at with a provision for converting it to 50:50 after 20 years if Sri Lanka could afford to buy the extra shares at that time.

The CMPort will be spending US$ 640 million to further improve the infrastructure in the port for it to function well and attract customers. This, along with other safeguards regarding administration and the security of the port, got the approval of the Sri Lankan cabinet this week.

(– P.K.Balachandran is a senior Colombo-based journalist currently writing on the countries of South Asia. He can be contacted at pkbalachandran11 @gmail.

com–)