Sri Lanka: Hambantota back in news

Image credit: Livemint621. The Hambantota Port, overlooking the Indian Ocean,

N Sathiya Moorthy 3 July 2018

Sri Lanka’s controversial Hambantota port project, involving massive Chinese investments, real estate holding and large human presence, and well into the future, is back in the news. First, there was local news reports about the China Merchant Port Holdings Ltd (CM Port) holding back the last tranche of the 99-year equity-swap deal before paying up. Recently, The New York Times has put out an analytical report, possibly to kick up fresh dust without actually bringing up anything that the average Sri Lankan newspaper reader has not known over the past decade.

According to local media reports, China holding back the last tranche of $ 585 m over the equity-deal owed to Colombo’s objection to plans for using a reclaimed island forming a part of the project-site for entertainment purposes. The reports, quoting local officials, said that the Chinese could use the leased land only for marine and port-related activities.

However, China has since paid up the last and final tranche, making Hambantota ‘investments’ (?) the single largest FDI project in the country – as incumbent UNP Prime Minister Ranil Wickremesinghe has been pointing out ever since the ’equity-swap deal’ was signed last year. With the current instalment, China’s C M Port has paid up all of the $ 976-m investment ‘Value 1’ of the port concession. Under the Concession Agreement, CM Port has also agreed to invest another $ 146 m on ‘Value 2’, to be utilised for port and marine related activities.

“CM Port is one of the most successful global companies in the ports sector, and their investment in the Port of Hambantota can be described as a credible vote of confidence in its potential as well as in the economy of Sri Lanka,” Dr Parakrama Dissanayake, chairman, Sri Lanka Port Authority (SLPA), said while accepting the last tranche of China funding. However, both sides were silent on the Chinese use of the artificial island for entertainment purposes.

‘Increased profitability’

Between them, the two companies set up to run the Hambantota affairs plan a further investment of $ 400-600 m on Phase-I and Phase-II of the port project.  According to Sri Lankan promotional efforts (possibly to offset local and international criticism), “these investments will attract many other foreign investors to the country, making Sri Lanka a pivotal maritime and logistics centre”, the Sunday Times reported.

As the Colombo-based Sunday Times issue of 24 June 2018 recalled, in 2017, Port of Colombo, which has been in existence for long, was ranked as the 23rd largest Container Port and 13thbest-connected port in the world. With the Sri Lankan fiscal year corresponding to the calendar year, the SLPA, the public sector owners of the Colombo port recorded a net profit of SL-Rs 13.2 billion in 2017, as SL-R 1 b in the previous year.

According to the report, the transhipment volume at Colombo during the first five months of the current year has gone up by 19.2 percent against the corresponding figure for 2017. Likewise, the Jaya Container Terminal managed by SLPA too recorded a transhipment growth of 21 percent during the same period. The argument was clear. “The Hambantota Port would further enhance profitability,” the Sunday Times said quoting the SLPA statement.

However, there has been no explanation why then has the Hambantota port not seen higher, or even nominal business that was expected in the first place before the then government of President Mahinda Rajapaksa signed up with China. If the idea is that China (alone) would be able to bring in that kind of business, and only after it had taken possession of Sri Lankan real estate in the name of the 99-year ‘equity-swap’ deal as now, even the Sri Lankan Government has not explained to its people how it was going to be achieved.

Old wine in old bottle

Against the Sunday Times report, which was episode-specific, the longish New York Timesanalysis has not said anything much new. Given the timing of the NYT publication, when Sri Lanka is already on the longish run-up for the presidential polls, due only by early January 2020, some specifics may be able to still entangle the Rajapaksas in new criminal investigations and court cases, with both national and international ramifications.

In a way, the New York Times report remains the proverbial old wine in old bottle. If there was/is anything exciting, it owed to the NYT claims that the Chinese firms operating in Hambantota had made specific payments through their accounts in an international bank in the country to the Rajapaksa campaign ahead of the 2015 presidential polls. Rajapaksa lost the poll and the presidency.

The New York Times analysts claimed to have had access to Sri Lankan Government’s investigation documents regarding the bank transactions. This is possibly the first time that any media outlet has made such a specific claim. Otherwise, reports about such payments and such investigations were doing the rounds, the former during the 2015 poll run-up and the latter post-poll, when the current Government came into place.

However, there has not been any great Sri Lankan follow-up on such investigations and reports, since first reported after the present leadership took over in January 2015. While the Government has hauled up the Rajapaksas repeatedly before the Financial Crimes Investigations Division (FCID) formed near-specifically for the purpose, the ‘Hambantota poll payments’ have not found any serious mention.

However, now after The New York Times mentioning the claim, otherwise buried in a larger analysis on the Hambantota project and equity-swap, someone in the Government seemed wanting to act. In what could be dubbed an unusual move, Deputy Minister for Social Empowerment, Ranjan Ramanayake, has moved the FCID, citing the New York Times report.

It is not clear what had happened to the early reports of the Chinese funding, or if the FCID was already seized of the matter and if any progress had at all been made through the past years. It is another matter no senior government leader has not reacted to the New York Timesreport thus far, or if it is appropriate for an incumbent minister to move the FCID in such a way lest charges of bias and partisanship should be laid against the investigation on a later day.

‘Third-party interference’

The New York Times report has once again flagged larger questions that have remained mostly unanswered for long. For one thing, no answers have been found for the medium and long-term financial feasibility of the Hambantota Port, which has lost out in the short-term, already. If China has had plans and successive governments in Sri Lanka from either side of the nation’s majority Sinhala-Buddhist political spectrum have all known, the nation does not know it, as yet.

It is the opaque nature of the deal that has triggered ‘sovereignty discomfort’ in many Sri Lankans as it has also flagged security concerns in all nations using the busy Indian Ocean sea-lanes of communications (IO-SLOC), which is also the busiest SLOC in the world. Hambantota is also posited across the US military base in Diego Garcia on the other side, and this has been an added concern for Washington. Even otherwise, the US (navy) is already the ‘elephant in the Indian Ocean’, as Prime Minister Ranil Wickremesinghe has been flagging from time to time.

If anything, unlike as may have been expected, the New York Times report did not stir up, at least thus far, any fresh Sri Lankan discourse on these aspects of the Hambantota deals, signed over the past decade and more. Whatever reaction has come and belatedly was from the Chinese Embassy in Colombo, which called the report as “full of political prejudice and completely inconsistent with the fact”.

An embassy statement said that “China has always been pursuing a friendly policy toward Sri Lanka, firmly supporting the latter’s independence, sovereignty and territorial integrity, and opposing any country’s interference in the internal affairs of Sri Lanka. It is encouraging that all sectors of the Sri Lankan society highly appreciate China’s tremendous support and selfless assistance for ending the civil war and post-war reconstruction in the Island nation.”

Without naming, the statement said, “Despite any interference from a third party, China would like to work together with Sri Lanka to actively implement the important consensus reached by the leaders of the two countries, and concentrate unwaveringly on our fixed goals, continuously promote the pragmatic cooperation under the framework of the Belt and Road Initiatives following the ‘golden rule’ of ‘extensive consultation, joint contribution and shared benefits’, to better benefit the two countries and the two peoples.”

No debt-trap: Myanmar

Interestingly, China may have received a shot-in-the-arm on the Hambantota deal from a not-so-directly connected source. The Sunday Leader, based in Colombo, citing a report in the South China Morning Post, quoted Myanmar’s Union Minister and Security Adviser Thaung Tun that his nation has “dismissed fears linked to the Chinese-funded Hambantota port and said it will go ahead with a Chinese-backed deep-water port project in Kyaukpyu. Minister Tun said that his Government was eager to begin work on the Chinese-backed deep-water port project in Kyaukpyu, and a decision is expected soon. Tun dismissed the fear of a “debt-trap”, saying he was confident it would be a “win-win” deal.

“We would like to see this project get off the ground,” Thuang Tun, who is also chairman of the Myanmar Investment Commission (MIC), said. “I would say we (China and Myanmar) are negotiating, the process is moving ahead and a decision is imminent,” The Sunday Leader said, quoting further from the South China Morning Post.

Security concerns

The security concerns for and in neighbouring India is far more real and greater. Apart from the traditional adversity flowing from the 1962 war that India and China fought along the land-border, New Delhi should also be concerned about the increasing Chinese prowess to become a ‘Blue Water navy’ as fast as it can. Apart from the real threat to the nation, India should be even more concerned about the real possibilities of a US-China naval competition in the IOR neighbourhood, possibly triggering a ‘neo cold war’.

Even otherwise, in times of heightened bilateral tensions with China if and when it came to that, India should be concerned about the East-West-East maritime transportation between the nation’s two shorelines, even if it does not actually turn out to be a naval engagement of any kind. Given the high cost of road and rail transport and related issues, industries, trades and also State Government institutions across the shore-lines have been using the sea-route for ‘internal transportation’ of bulk goods like coal and other volume-based consumables and other goods.

Underscoring the unmentioned Indian concern of the time was the Vajpayee Government’s decision to go launch the ‘Sethusamudram Project’. Though suspect in techno-fiscal terms, the project was still expected to provide a sure and possible alternative ‘inland waterway’ route linking the two wins of the Indian shore-lines.

After the exit of the Vajpayee Government, however, his BJP has been in the frontline of court battles, which have stalled the project. The delays do not relate to techno-fiscal feasibility or corruption charges, but derive from faith-related issues, that Lord Rama had laid a now-submerged stone-bridge between the India and Sri Lanka, using an ‘army of monkeys’ and that it should not be tampered with.

SLN Command HQ

Today, when Hambantota is on its way to become a full-fledged port in its own right, albeitChinese funding, participation and strong presence, India especially may have to ask itself if China were interested wholly on using it for military purposes. It is more so, now the amended agreement draft, signed last year, clearly states that Sri Lanka Navy (SLN) would be in exclusive control of port and adjoining sea security and China would have no role or claims to it.

Sri Lankan media reports at the time had claimed that the amendment more than India, SLN and other arms of the nation’s armed forces had expressed strong reservations to handing over Hambantota port security to the Chinese or any other foreign power. Before the incumbent Government’s assertions in this regard, both the Rajapaksa Government and that of President Chandrika Bandaranayake-Kumaratunga dispensation before it, had said as much – both to domestic queries and to international interlocutors.

In this regard, Prime Minister Wickremesinghe’s office has made a further clarification now, declaring that the SLN’s Southern Command Headquarters was being moved to Hambantota. The statement claimed PM Wickremesinghe’s claims to negotiating the Hambantota deal with Chinese Prime Minister Li Keqiang and President Xi Jinping of China and “came up with a proposal which was beneficial for both parties”.

The statement recalled that “Sri Lanka also informed the Chinese that Hambantota cannot be used for military purposes. The Sri Lanka Navy is moving its Southern Command to Hambantota. There is no need to be frightened as security of the port will be under the control of Sri Lanka Navy.”

The statement said further: “Once an American has asked him, “what would you do if the Chinese troops land in Hambantota”. The Prime Minister has responded saying that there is a full army division stationed at Hambantota. The Prime Minister never mentioned that we will not be resisting any invasion. Further, no Navy in the region has the capacity to land an army division in Sri Lanka,” the statement said, clarifying media misquotes in this regard.

‘Sensitive to Indian interests’

Nearly a week after the New York Times report, Mahinda Rajapaksa, in a lengthy statement, has denied accepting any campaign funding from China. Stating that the London-headquartered news agency Reuters had reported as far back as July 2015 that China gave his campaign $ 7.6-m, the statement recalled how the present Government had suspended the Hambantota deal, only to revive it not long after, with PM Wickremesinghe describing it as the ‘premier project on which his Government has placed its hopes”.

Early on after the New York Times report, Mahinda’s parliamentarian-son Namal Rajapaksa had, in response to New York Times article titled ‘How China Got Sri Lanka to Cough Up a Port’, MP Namal Rajapaksa had tweeted to say that it “has many inaccuracies’. He added that the “country’s assets shouldn’t be used as geopolitical pawns in this power struggle” (between China and the West).

Against this, Mahinda’s belated response was not perfunctory, but contained great many details, starting with how two western consultancies chosen by the CBK Government twice and that of PM Wickremesinghe’s earlier dispensation in the first half of last decade had certified the project as an economically feasible proposition. Claiming that the higher project cost owed to the swift hike in the standard LIBOR (London Inter-Bank Offered Rate) to which Chinese funding was linked, Mahinda also argued that the number of ships calling at Hambantota Pohad gone up from 32 ships in 2012, the port’s first year of operation, to 3,667 ships at the Colombo port, but the New York Times cited only the former figure and not the latter.

According to him, the “port made an operating profit of SL-Rs. 900 m in 2014 and Rs. 1,200 million in 2015… and a “new harbour that opened in 2011 cannot be expected to produce profits by 2012”. In this context, the statement also denies the New York Times report that there was a debt-trap, forcing the “present government was compelled to lease the port to China”.

Possibly for the first-time ever by any Sri Lankan or Chinese stake-holder with personal knowledge of the Hambantota project costs and time-line, Mahinda said that the “total cost of financing the (capital plus interest) will be $ 1,761 m by the time the loan expires in 2036. By the end of 2016, nearly $ 500 m of this total amount had already been repaid. There was never any problem … because it was paid out of the profits of the Sri Lanka Ports Authority (SLPA).”

Mahinda’s statement said further: “The Auditor-General’s report for 2014 states that the profit of the SLPA in 2014 after paying all loans and taxes was SL-Rs. 8.8 b… the government did not use the $ 1,120 m received from the port-lease to repay the loan taken to build it. Instead it went to the treasury to meet the day to day expenditure of the Government and the loan still remains on our books.”

Mahinda concluded his statement, declaring that his Government was ‘sensitive to India’s interests’, and said that the leasing of Hambantota port to China “would never have arisen if my government had continued in power”. In this context, he quoted from former Indian National Security Advisor (NSA) and Foreign Secretary Shivshankar Menon’s 2016 book “Choices: Inside the Making of India’s Foreign Policy” and said that “my Defence Secretary, Gotabaya Rajapaksa had a clear view of Sri Lanka’s interests which was completely compatible with India’s interests and that India had been given assurances about the nature of Sri Lanka’s relationship with China”.

Mahinda went on to quote Menon to say that “Gotabaya was sensitive to India’s concerns and that the assurances given to India by my government were respected throughout the duration of the Congress Party government which was voted out in May 2014”.  As coincidence would have it, Mahinda Rajapaksa, in an interview to the Colombo-based Daily Mirror, said that in the Sri Lankan presidential polls, due by January 2020, the West “can make an impact. Actually, India is the country that can make the biggest political impact… India influences to a certain extent. We have to reach a position to overcome such influences. I hope India would not meddle with Sri Lanka’s internal political affairs.”

Buying up liner firms

Independent of the politics and allegations of bribes pertaining to the  Hambantota projects, which continues to centre on the Rajapaksa clan, there was national consensus of a kind on the need for the same, its feasibility and involving China, long before Mahinda R became President. The project was often been mentioned over the previous three or four decades. It was also Mahinda Rajapaksa’s predecessor President, Chandrika Kumaratunga, who actually signed the Hambantota MoU with China after India had declined the offer. Rajapaksa offered it again, and India declined it again – for valid fiscal and technical reasons, all of which may not have been put out in the public domain.

In this context, critics of China in Sri Lanka, who see the Hambantota deal only through the prism of political possibilities nearer home and security concerns elsewhere may have to look beyond them both, to get a fuller picture of Chinese intentions. There have been reports that China has been increasing its equity stakes in major ocean-liner firms in the world, and may become a major player in that sector before other nations and stake-holders realised it in full measure.

If so, China could then dictate terms to those ocean-liners, with the result, not only Hambantota but also other port-points in the nation’s ambitious BRI project could also become economically feasible. This could mean that China would end up calling shots on the global maritime trade, insurance, and even manipulate both, especially if the rest are going to raise the ‘China bogey’ in security matters constantly. This is apart from the real security concerns, if not outright threat, that China’s Hambantota presence and all along the BRI route could pose for the rest of the world.

https://www.orfonline.org/research/42084-south-asia-weekly-report-vol-xi-issue-27/

(The writer is a Senior Fellow at Observer Research Foundation, Chennai Chapter)

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