6 April 2017

Will China swallow Sri Lanka?

by Victor Cherubim 

It is an accepted norm that when one party renegades on any deal the original contract becomes void and has to be re-negotiated.

“The influx of Chinese economic assistance into Sri Lanka …. has raised questions regarding the intentions behind these massive loans.” Asia Times 27 March 2017. 

( April 1, 2017, London, Sri Lanka Guardian) There is pressure mounting on President Maithripala Sirisena on many sides. We are informed both from inside the Yahapalanya Government and from political opposition from outside including by Ex President Mahinda Rajapaksa, in his well articulated Press Statement in respect of the Concessionary Agreement on the 99 year lease of the Hambantota Port to Chinese Merchant Port Holdings, Hong Kong (CMP).

Besides, there is unrest among the Port workers and their Unions on the outcome of a deal, To add to it all, there is covert “arm twist” from the IMF on Sri Lanka’s estimated national debt of US$64.9 billion of which US $ 8 billion is owed to China.

How much do we know of intricate business negotiation?

Funds we know are urgently needed to combat Sri Lanka’s current financial crisis.

There is so much “toing and froing,” to secure a deal, for the expected “first instalment of 10% of US$1.12 billion within one month, and balance within 6 months” if and when “transaction documents” are signed. We know that Chinese Port Merchant Holdings held it’s AGM on 29 March 2017 and would have preferred to report it as a done deal?

When did we plan strategically for infrastructure development?

When the 30 odd year war was over in 2009, we knew that like every war, our country would be starved of investment and would need to be built up, more or less from scratch. Infrastructure development was the need of the hour to build our economy and our reserves.

Sri Lanka’s ex President Mahinda Rajapaksa some say was shrewd enough to deal with, not one but two, Chinese partially State enterprises: China Harbour Engineering Company and Chinese Merchant Port Company to get the best deal possible for Hambantota, with the outside world only interested in pursuing “war crimes.”

Yahapalanaya government proposed a different agenda

The stance taken by the new government may have caused mistrust, as “once a deal always a deal.” But China was more diplomatic, accommodating, and farsighted. They “managed” the same two companies to made rival bids to lease the entire Hambantota free port under the present government. On foresight it appears, they put us on the wrong foot making us play politics, rather than serve the national interest?

“Deal or no deal, we bear the consequences”

It is an accepted norm that when one party renegades on any deal the original contract becomes void and has to be re-negotiated.

China Harbour Engineering Co which built the Colombo City Port had according the Rajakapsa statement put in a more favourable bid to lease the Hambantota free port on a 65-35 equity sharing basis for 50 years with an upfront payment of US$750 million plus all royalties.

Rajapaksa now maintains that the new deal with China Port Merchants (CPM) is not in favour of Sri Lanka. His original plan was to break even within ten years. If the new offer appears to be similar to a Debt for Equity Swap, then there is always a price to pay for renegotiation?

Sri Lanka –China Contracts 

Relationship between Sri Lanka and China are not new. Sri Lanka has much experience dealing with the Chinese. The Rubber-Rice Pact in 1950 was a bold move between the two nations, ignoring sanctions imposed on trade with Communist China.

Besides, we have had more recent dealings with the Chinese Harbour Engineering Co with the Colombo Port City, the Hambantota Free Port, the Southern Expressway, and the Mattala Airport. Days ago the BIA Airport runway resurfacing was carried out by the Chinese contractor, China National Aero Technology International Engineering Corporation (CATIC-ENG) deploying 310 Chinese expats and more than 3000 Sri Lankans. Further, the recent international negotiation for a Japan funded project from Taisei Corporation subcontracted to China Harbour Engineering for a road section of the Central Expressway from Pothuera to Galagedera section 3, (32.5 km) was a tri party agreement.

Given all this experience, what really made Sri Lanka to go out on a limb?

The question of rebalance geopolitical influence 

China has billions of dollars strategically invested around the nations and in Sri Lanka. The fear of China swallowing up Sri Lanka has perhaps been instilled by our neighbours and the West for geopolitical reasons. But, have we mistaken that China has a lot to protect in its investment in Sri Lanka, notably the Port City in Colombo which it already owns for the next 99 years on lease and Hambantota Port it will soon come to own and contract?

One Belt, One Road initiative 

Sri Lanka should have taken note in advance of managing its debt crisis, rather than changing its policies short term to convert its debt into equity. Infrastructure projects are long terms contracts and returns on investment do not flow in the short term?

China has Plan A – its long term project to build “One Belt, One Road” linking China with ports in South Asia to Europe. Sri Lanka could have had Plan B to stick with the deal done by President Mahinda Rajapaksa with the Chinese Public Private Partnerships, rather than “politically tinkering” and lurching in the dark. That said a new approach may produce results, as playing the blame game is “neither here, nor there?”

Diplomacy, Defence and Development 

We need to take note that in today’s business environment; no one seems interested in countries but in strategies. Consider how China and Britain resolved a thorny problem, 

The deal for the giant £18 billion Hinckley Point Nuclear plant (operational 2025) was signed last year between China, France and Britain, defying a wave of controversy.

Britain set conditions for the deal which meant EDF the French contract consortium could not cede majority control and obtained more scrutiny, by introducing a general national security test, rather than only on Chinese investment. That does not say that we have to blindly follow precedent.

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