Sri Lankan Prime Minister Mahinda Rajapaksa has put a lid on the controversy over President Gotabaya Rajapaksa’s remark that his Government will re-negotiate the 2017 agreement with China over Hambantota port to gain greater control over it and reduce the lease period, which is now 99 years.
With the Prime Minister’s statement and formal assertions from the Chinese side, renegotiating the port deal is ruled out.
Mahinda told the Chinese news agency Xinhua in an exclusive interview on Saturday that President Gotabaya had been “quoted out of context.” Explaining, the Prime Minister said: “ The President didn’t mean there is any problem about sovereignty. What he meant was that our Government, unlike the previous one, has a principle of not privatising assets.”
He does not believe that Sri Lanka’s engagement with the China-initiated Belt and Road Initiative (BRI) amounts to a “debt-trap” as portrayed by some Western media.
“We are very confident that Sri Lanka can very clearly repay the loans for the Hambantota Port and other development projects. Today, the economy has collapsed, but when we rebuild it paying back loans won’t be a question,” Mahinda said.
“If Sri Lanka and China have any problems, we can easily discuss and resolve them as friends,” he affirmed and added that his Government is looking forward to continuing developing friendly relations with China.
“The two countries enjoy a strong, long-standing friendship, which has laid the foundation for practical cooperation,” the Prime Minister added.
On a visit to the US$ 1.4 billion China-built Colombo Port City to mark the inclusion of 269 hectares of reclaimed land to Colombo District on Saturday, Mahinda said that his Government will “firmly support and accelerate the development of the Colombo Port City project constructed by China to ensure that it will emerge as a new business hub in the island country.”
The prime minister pledged to accelerate the implementation of the preferential policies of the Colombo Port City from the Government level as early as January 2020, the Colombo Port City said in a statement following discussions with the Prime Minister.
The Colombo Port City is Sri Lanka’s largest Foreign Direct Investment project and is expected to attract billions of U.S. dollars of investments in the coming years and generate 80,000 jobs.
Earlier in November, before going to New Delhi on his first foreign visit as Executive President, Gotabaya Rajapaksa had told the Indian Defence Journal Bharat Shakti: “ We should never have given control of the port to China. That was a mistake. Even though China is a good friend of ours and we need their assistance to develop, I’m not afraid to say, that was a mistake. I will request them to renegotiate and come with a better deal to assist us. Today, people are not happy about that deal.”
However, it soon became apparent, that China did not take kindly to Gotabaya’s assertion. President Xi Jingping’s congratulatory message to the newly elected President was rather matter of fact, clearly stating the bases on which Sino-Lankan relations rest, and should rest. The reference to “trust”, “docking development visions” and “being part of the Belt and Road Initiative,” in his message had deep meaning.
Beijing acted quickly
As the international media went to town over Gotabaya’s renegotiating the Hambantota port deal, Beijing acted quickly to douse the fires and firm up its relations with Colombo. It sent former Ambassador to Sri Lanka, Wu Jianghao, as the representative of the Chinese State Councillor and Foreign Minister Wang Yi, to thrash out matters with the Sri Lankan leaders.
At the end of the two-day visit, the Chinese embassy released a statement saying that China and Sri Lanka have agreed to speed up the implementation of cooperation on big economic projects, including the Hambantota Port “under the existing consensus,” thereby ruling out renegotiations.
The statement further said that on the basis of the “existing consensus”, the two countries will “draw up and promote a new blueprint for future cooperation.” This was in line with an earlier statement by a Chinese embassy spokesman that the existing agreements were drawn up on an “equal-footed basis” for a “win win” outcome.
It is not as if China does not negotiate or has not renegotiated projects. It has done so in many parts of the world, including Sri Lanka. The US$ 1.4 billion Colombo Port City project was stopped in 2015 by the Sirisena-
Wickremesinghe Government on various grounds. But it was allowed to resume in 2016 after changing parts of the agreement by mutual consent.
The Government’s opposition was to the fact that 20 hectares Sri Lanka’s land was going to be owned in full by China. Even India had raised objections to China owning land in Sri Lanka on a freehold basis. The Government renegotiated with the China Harbour Engineering Corporation Port City Ltd., and gave the 20 hectares on a 99-year extendable lease. The Government had decided that no lands would be granted on a freehold basis to any foreign entity.
Because the Chinese company had agreed to drop its US$ 125 million compensation claim for the duration of the project’s suspension, the government awarded a further two hectares which it could hold on a 99-year lease.
The Rhodium Group, which studied 40 Chinese debt negotiations in 24 countries involving debts totalling US$ 50 billion, found that there were cases of deferment, forgiveness, and refinancing. According to “Forbes”, China has forgiven loans to the tune of US$ 10 billion.
But Sri Lanka cannot be equated with other countries easily. The stakes here are high for both China and Sri Lanka, which make renegotiation a tough prospect. While the Hambantota Port is of great economic and strategic value for China, which makes renegotiation tricky, China’s economic involvement in Sri Lanka is too significant for the island nation to be tough on China.
China has pumped in much money in Sri Lanka in the vital infrastructure sector. And in contrast to the popular impression, Chinese loans comprise only about 10% of Sri Lanka’s total foreign debt of US$ 15.3 billion, points out Dr.Dushni Weerakoon, Executive Director of the Colombo-based Institute of Policy Studies. She says that out of the Chinese loans, over 60% was lent on concessional terms that were not really excessive. Typically, they are at fixed rates of 2%, with other fees of 0.5 % and with average maturity of 15–20 years.
“The remaining 40% of non-concessionary Chinese loans accounted for only 20% of Sri Lanka’s total debt from such borrowings. The rest (80%) was borrowed from international capital markets in the form of sovereign bonds, term financing facilities and foreign holdings of gilt-edged securities,” Dr.Weerakoon adds.
It is a myth that the Hambantota port was ceded to China because Sri Lanka faced problems paying back Chinese loans, she asserts. The debt is due to borrowing from other sources.
“From an initial US$500 million international sovereign bond (ISB) issue in 2007, Sri Lanka went on to amass US$ 15.3 billion in debt from subsequent ISB issues and foreign currency term financing facilities from 2007–18. Sri Lanka’s debt problem was (and is) really about avoiding default and meeting its obligations to international investors and commercial lenders from this growing and costly form of foreign borrowing.
“These high interest borrowings now exceed a third of Sri Lanka’s total debt. As a result, Sri Lanka faces a record foreign debt repayment of nearly US$ 6 billion in 2019 — of which US$2.6 billion had to be paid in the first quarter of 2019 alone. With low reserves and tightening market conditions, finding ways to meet these repayment obligations was an effort. Leasing the Hambantota port was part of a strategy to find cash and stave off pressures on the available fund of reserves,” Dr.Weerakoon explains.
Shorn of Western-inspired propaganda, Sri Lanka’s economic relations with China have benefitted the island which makes it imperative for its leaders to be wary about making radical changes.