News Will the Hambantota Port Lease Be The Financial Death Of Us?

Will the Hambantota Port Lease Be The Financial Death Of Us?

2017 Aug 2

“We are giving the country a better deal without any debt,” –Ranil Wickramasinghe

Tracing the history of this agreement, we could see that it has been fraught with controversy and publicity . From the general uproar by the public who do not trust the Beijing agenda to those who want to welcome Uncle China with open arms, we can say that Sri Lanka as a whole is torn on the matter. But despite the delay caused by protests and claims by opposing politicians that this deal would threaten national security, the amended agreement was signed between the Sri Lanka Ports Authority (SLPA) and the China Merchant Port Holdings at the Ministry of Ports and Shipping under the auspices of Prime Minister Ranil Wickramasinghe and other relevant ministers and government officials of both countries.

Image Courtesy of asiantribune.com

Secretary of the Ministry of Ports and Shipping L.P. Jayampathy, Chairman of the Sri Lanka Ports Authority Dr. Parakrama Dissanayake signed the agreement on behalf of the Sri Lankan government and Executive Vice President of China Merchant group, Dr. Hu Jianhua signed this agreement representing the government of China.

On Saturday the $1.1 billion deal to lease the southern Hambantota port to China was inked after much revision and delay. The initial 80 percent stake was revised and tweaked due to the protests and pressure dished out by the public and signed between state-owned China Merchants Port Holdings (CMPort) and Sri Lanka Port Authority, the initial  80:20 share distribution ratio in the agreement was revised as 69.55 to CMPort and 30.45 for SLPA accordingly.

Located near the main shipping route from Asia to Europe and likely to play a key role in China’s “Belt and Road” initiative, the port is said to be a part of the Republic’s modern-day “Silk Route” across Asia and beyond.  They also plan to acquire 15,000 acres (23 sq miles) to develop an industrial zone next door. For China to be able to get its foot in, and essentially take over this port, is considered quite an important part of its plan particularly with the new Silk Road initiative.

Image Courtesy of globalsecurity.org

Important little snippets from the Deal signed last weekend

  • Under the agreement, the Sri Lanka Ports Authority and China Merchant Port Holdings Company Ltd will establish the Hambantota International Port Services Co. (Pvt) Ltd – with a capital of USD 606 million and 50.7% shares to SLPA and 49.3% to CMPort.
  • The Hambantota International Port Group (Pvt) Ltd – with a capital of USD 794 million and 15% shares to SLPA and 85% to CMPort as in SAGT terminal and CICT terminal, will also be established.
  • The lands will be only given to the newly establishing two companies [Hambantota International Port Services Co.(Pvt) Ltd. (HIPS) and Hambantota International Port Group (Pvt) Ltd (HIPG)] on a lease basis and their shares are allowed to be purchased by the SLPA 70 years after the effective date of agreement at a fare rate decided by Government Assessor and an independent assessor.
  • After 80 years of the effective date SLPA has the right to purchase shares of CMPort and its affiliated companies at a rate of USD 01 as the SLPA’s share holding in HIGP to be 60% and HIPS to be 76.8%.
  • 99 years after the effective date, all the shares of CMPort and affiliated companies should be transferred to SLPA at a rate of USD 01.
  • The sole authority of managing the defence situation of the port is in the hands of Sri Lanka and use of the port in military activities is prohibited.
  • The former Minister of Ports & Shipping, Arjuna Ranatunga also wanted a 60 percent stake in the port to be kept by state-run Sri Lanka Ports Authority. 
  • CM Port has agreed to given an option for Sri Lanka to buy a 20 percent stake within 10 years of signing the deal, increasing Sri Lanka’s stake to 40 percent, Minister Senasinghe said.
  • Sri Lanka’s government or any private party will have to pay an amount arrived at after an independent valuation. Whether the valuation will include the industrial zone is not known. 
  • A Sri Lankan party also has the option to buy stock in the port company within five months of signing the deal, Megapolis Minister Patali Ranawaka said.
  • Any immediate sale should be done at the 1.4 billion US dollar valuation 
  • There was no information on when royalties or throughput are to be paid to the Sri Lanka Ports Authority.  The port is also expected to get tax breaks.
Image Courtesy of businesstoday.lk

Sri Lanka’s government has dismissed unions’ concerns, saying that the agreement would prove profitable and will help repay loans taken on to build the port. The nation is certainly facing a debt crisis where it is finding it difficult to repay its maturing debt and the related interests. It may not be in a debt trap yet, but it is close to one and remains a highly indebted nation.

The IMF ‘Heat Map’ analysis indicates a high risk to debt sustainability in Sri Lanka. PM Wickramasinghe, speaking to reporters earlier this week, said the partnership arrangement was necessary to free the country from the debt incurred to build the port. He said the industrial zone was necessary to make the port and the nearby Chinese-financed airport, also running at a heavy loss, viable.

He went on to say that money realised from the 70 per cent transfer of equity on a 99-year lease of the Hambantota port will be set off against debts owed to China. Furthermore, analysts say Hambantota is a difficult proposition for Sri Lanka or a private operator to make viable, but China has the long-term capacity and strategic intentions to make it viable.

So did we make a step in the right direction? Despite the uproar and protests, are we able to make the best of this deal and catapult our country forward?

Image Courtesy of colombogazette.com

As I opened the Sunday papers  I saw emblazoned across the page, “Beijing not satisfied”. But on the other hand, what if we, the Sri Lankan people aren’t satisfied? The local community has expressed their discomfort about the issue. However, what are we really dealing with here? Are we witnessing a slow and sure takeover of our strategic ports to help further the superpowers’ agenda? If the time comes can we really trust anyone with our country’s safety? Are the promises of the creation of jobs and opening up of the global market enough to silence our concerns? At what cost are we reducing our debt?

The questions burn at the back of our minds….

1 COMMENT

  1. China’s track record is not good, neither is the small list of its friends. So many small and large countries supporting India in its stand-off against China also emphasize the bully China is not loved by the world.

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