Reviving a partnership

THE $1.4-BILLION COLOMBO PORT CITY project was once again in the public eye when Prime Minister Ranil Wickremesinghe and his team left for China in the second week of April to begin talks on the recommencement of the project. In the run-up to the January 2015 presidential election, there was intense debate over the efficacy of China-funded infrastructure projects, particularly the port city project.

The port city project’s execution came to a grinding halt immediately after Maithripala Sirisena succeeded Mahinda Rajapaksa as President in January 2015. Wickremesinghe, who backed Sirisena in the election, had said during the campaign that the project would be scrapped in the event of Sirisena’s election. The project, which was conceived during Rajapaksa’s presidency as a real estate development venture, was inaugurated by Chinese President Xi Jinping in September 2014. It was envisaged to convert Colombo into a tourism, living, working, shopping and entertainment destination. Its stated objective was to make the city “more vibrant” so that it could attract more tourists from South and East Asian countries.

Tourists make short trips to Colombo, staying, on an average, only for 1.6 nights, which is considered low according to international standards. Ideally, the average duration of personal trips should be 5.5 nights. Keeping these factors in mind, the project’s master plan envisaged, among other things, the setting up of commercial establishments, residential apartments, health and educational institutions, marinas and convention facilities. According to the project’s supplementary environment impact assessment report of December 2015, there will be no industrial activity within the port city.

Originally, the city was proposed to be built on 200 hectares of reclaimed land; the revised plan is to cover 269 hectares.

The Sirisena government decided to suspend the project in March 2015 on the grounds that it needed a complete environmental impact assessment. But, it was quite apparent to the new dispensation that the project could not be abandoned for a variety of reasons.

Sirisena’s visit to China in the third week of March 2015 was intended to assure the giant neighbour that Colombo would not go against Beijing, and the situation of Sri Lanka and China as “all-weather friends” was reiterated. In the first week of October 2015, China sent its Vice Minister of Foreign Affairs Liu Zhenmin to follow up the matter, and in January 2016 came the formal announcement from Wickremesinghe in Davos, Switzerland, that the project would be revived.

A megapolis

The Sirisena government has planned to upgrade the project into one of creating a “financial and business hub” in the Indian Ocean, perfectly fitting in with Wickremesinghe’s grand plans of establishing a megapolis that would subsume Colombo and the neighbouring areas of the Western Province. He is of the view that no megapolis exists between Dubai in West Asia and Singapore in East Asia.

The Sirisena-Wickremesinghe government had to address the concerns of the Indian government before taking any steps to clear the project. Although India has never made its position public, it expressed reservations over the location of the massive project in the vicinity of the Colombo port. While India accounts for nearly 90 per cent of the port’s trans-shipment, the harbour handles nearly 30 per cent of the container trans-shipment business of India. Besides, India was not happy with the “opaque” manner in which the project was sought to be implemented during the Rajapaksa regime.

The Sirisena government felt it should not give India any room for complaint, especially when it was in dire need of the support of its big neighbour and the West at the September-October 2015 session of the United Nations Human Rights Council, where the U.N. High Commissioner for Human Rights presented an exhaustive report on the alleged human rights violations during the final phase of the civil war. A resolution on accountability and reconciliation was adopted at the meeting.

In Beijing, Wickremesinghe went on record as saying that his government had kept India in the loop (about the project) and “we are willing to discuss it with India further”. He insisted that this was not going to be “China-Sri Lanka venture” but would be open to everyone.

What is often overlooked is the fact that the two countries have had a fairly a long relationship even in contemporary times. Before establishing diplomatic relations in 1957, Sri Lanka and China entered into the famous rubber-rice pact in 1952. By agreeing to exchange rubber for rice, Colombo earned the wrath of Washington as communists had just captured power in Beijing and the West did not recognise their assumption of power.

Sri Lanka cannot be unmindful of big-ticket infrastructure projects implemented with Chinese support during the Rajapaksa regime. When United States Secretary of State John Kerry visited Colombo in May 2015, Sirisena told him: “China is a development partner and we have to consider that China has made heavy investments in Sri Lanka.”

New landmarks

In the words of Yi Xianliang, Chinese Ambassador to Sri Lanka, projects such as the Colombo South Container Terminal, the Norochcholai Coal Power Plant, the Colombo-Katunayake Expressway, the Southern Expressway, the A9 Road (Jaffna-Kandy highway), the Mattala International Airport, phase one of the Hanmbantota Port and the Nelum Pokuna Theatre have become the “new landmarks” of China-Sri Lanka friendship. Arjuna Mahendran, Governor of the Central Bank of Sri Lanka (CBSL), said China’s assistance was sought to market many of these facilities.

Of course, there has been criticism in certain quarters that the projects led to a “huge debt burden”. The 2014 Annual Report of the CBSL stated that in respect of project loans, China accounted for about 12 per cent of Sri Lanka’s liability (at the end of December 2014) with Sri Lankan rupees (SLR) 229,882 million.

Apart from the larger issues concerning the port city project, there were other issues that required to be resolved between Sri Lanka and China before the project could be resumed. Among them were the nature of land possession and the payment of compensation to be made to the project promoter, CHEC Port City Colombo (Pvt.) Ltd, which is a subsidiary of China Communications Construction Company, an entity listed in the Hong Kong Stock Exchange.

The Sri Lankan government said land for the project would be given on a 99-year lease. There will be no need for any payment of compensation as the scope of the project has been enlarged, which will entail greater benefits to the promoter.

When Wickremesinghe and his team were about to leave for Beijing, some environmentalists raised protests citing the adverse environmental impact of the project and the absence of consultation with communities that would be affected by it.

The authorities are confident that the proposed mitigation measures will take care of the protesters’ concerns. They also feel that the recommencement of the project holds the key to the revival of the fortunes of the economy, especially when Sri Lanka is facing fiscal deficit expansion, increase in public debt, and deterioration of the balance of payments position.