Chinese investment in Sri Lanka is causing major problems for the president of Sri Lanka Mathripala Sirisena and has become a point of tension in relations between Sri Lanka and China.
Before taking office, Sirisena had promised that he would investigate alleged corruption, indicating that Sri Lanka would investigate how it is' foreign obtained by paying a ransom to a handful of people. " His electoral program at the same time acknowledged the economic difficulties of Sri Lanka. It reads: "Sri Lanka is a country with excessive state debt and a dangerous relationship with respect to the payment of the loan and state revenues."
During the previous regime, led by former President Mahinda Rajapaksa, Sri Lanka borrowed billions of China to develop megaprojects that many thought were economically unviable. Critics also feared that Sri Lanka would not be able to repay the loans and, as a result of China can take control of these vital infrastructure projects, providing a strategic presence in the country.
At that time, there was no information available in the public domain in relation to interest rates on loans. There were also allegations of corruption and bribery, which may have allowed Chinese firms to secure these projects without open bidding process. As a result, Sirisena incoming government promised it would re-evaluate all mega-projects undertaken by the previous government.
A particularly 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 collaboration with the Port Authority of Sri Lanka. The project amounts to US $ 1.4 billion investment, but - according to government spokesman Rajith Senaratne Sri Lanka -. The project was awarded "without appropriate approvals' Interestingly, the World Bank has banned CCCC on corruption charges to 2017.
During his visit to Beijing after being elected president, China Sirisena said that "the current problems facing the Colombo Port City is temporary and the problems do not lie with China." President of China, Xi Jinping, in turn, expressed his hope that "Sri Lanka could guarantee the legitimate rights and interests of Chinese enterprises."
But in an interview with CNN Money, the finance minister of Sri Lanka Ravi Karunanayake said, "Chinese companies took the opportunity of a corrupt regime to move to other companies that come ... there was not even playing field".
Other Chinese projects have also been criticized for being unproductive investments and are considered bad loans. Chinese companies built the port of Hambantota Mahinda Rajapaksa International Airport (MRIA) and a cricket stadium in the policy of former President Rajapaksa, Hambantota district. These are 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 percent to 6.3 percent.
The Rajapaksa government took several steps to make the commercially viable airport. For example, according to the Civil Aviation Authority Annual Report 2014, Rajapaksa's government implemented a policy of "open skies" for granting rights of third, fourth and fifth freedom traffic MRIA foreign airlines. It also provided facilities for landing and parking. But MRIA attracted only 20,474 passengers and 2,984 international flights according to the report. In the same year, it incurred a loss of LKR2.75 million (approximately US $ 20 million).
Hambantota port has not been able to return the promised economic dividend. The port was built with US $ 306 million loan, 85 percent of which was provided by the Exim Bank of China with a fixed interest rate of 6.3 percent. Chinese SOEs in September 2014, reportedly gave Sri Lanka, China Merchants Holdings International and CCCC, the exploitation rights to four berths in the port of Hambantota, providing nearly 65 percent stake in the project agreement with the agreement reached with China in 2010. But Hambantota it is still to attract investment despite being declared a "free port" with Colombo Port, in July 2013.
The government of Sri Lanka has also stated that Katunayake Export Processing Zone, Koggala EPZs and MRIA are bonded areas in an attempt to attract investors. According to the Minister of Ports and Transport Loss Hambantota port in 2012 was LKR678 million (approximately US $ 5 million). Hambantota port was maintained from the profits made by the Port of Colombo. The Port Authority of Sri Lanka, formerly providing fueling services, has asked private companies to acquire or develop a joint venture for bunkering operations.
China has invested about US $ 5 billion in Sri Lanka. The Sirisena government faces a dilemma. While Sri Lanka is unable to reject Chinese investment, or to pay huge loans, they also do not know how secure these mega infrastructure projects profit to help pay for the loans. It is under tremendous pressure from China in the Colombo Port City project, where CCCC is reportedly claiming to be losing $ 380,000 a day. It would be financially difficult for the government of Sri Lanka to provide such a huge compensation in case you decide to cancel the project.
At the same time, there is a tremendous internal pressure to leave the Colombo Port City project because it has no environmental clearance and is likely to offer China a strategic foothold in the Indian Ocean, which could draw the ire of India and the US .S .. The Chinese Foreign Ministry spokeswoman Hua Chunying Colombo said he hopes to 'preserve confidence Chinese companies to invest in Sri Lanka in the overall interests of China-Sri Lanka friendly and the fundamental interests of national development "of Sri Lanka.
Sri Lanka has always tried to exploit their ties with Beijing in its relations with India and the West. But the previous government Rajapaksa went too far in courting China and did not consider the strategic consequences. It would be difficult for Sri Lanka to support Chinese pressure. But China is likely to be in no hurry to take punitive action if the Colombo Port City project does not materialize. After all, Colombo remains an important cornerstone in the Maritime Silk Road of China and is an important partner in the wider geopolitical game.
http://www.eastasiaforum.org/ by Smruti S Pattanaik, IDSA
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