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Crisis-hit Sri Lanka bets big on $14 bn China-backed Port City, wants reluctant India to invest

China has invested $1.4 billion in the strategically located project. But the Rajapaksa govt wants India to invest in the potential metropolis, which is Sri Lanka's first SEZ.

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Colombo: Sri Lanka is struggling to cope with a debilitating economic crisis with inflation soaring, food and fuel shortages and fears of a sovereign default looming on the horizon.

But unmindful of the crisis, in a not-so-quiet sea-front corner of capital Colombo, construction is afoot to pursue an ambitious dream of the Rajapaksa government: The tiny Indian Ocean island nation is building the Port City of Colombo (PCC), hoping to make it a financial hub like Dubai and Singapore.

The belief is that the project will transform Sri Lanka’s tourism-and-tea economy into a thriving, multi-services one. And it is an expensive dream, especially so for a country in the grip of unprecedented economic turmoil.

The project is estimated to cost $14 billion, largely funded by potential investors who will buy into the idea of the financial hub and set up shop there. For starters though, China has invested $1.4 billion to help PCC reclaim 269 hectares of land on the Indian Ocean. In exchange, China has got about 116 hectares of the land there on a 99-year lease.

Aerial view of Port City Colombo. Photo courtesy: Port City Colombo
Aerial view of Port City Colombo | Photo courtesy: Port City Colombo

Port City Colombo is a public-private partnership project between the Sri Lankan government and CHEC Port City Colombo Pvt. Ltd, which is a subsidiary of China’s state-run infrastructure firm, China Communications Construction Company (CCCC), a company that is leading President Xi Jinping’s Belt and Road Initiative (BRI).

The move comes even as the economic crisis has pushed well-heeled Sri Lankans to take to some of the upmarket streets to protest against the Rajapaksa brothers — President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa — nearly daily.

Protests in Sri Lanka. | Photo: Nayanima Basu/ThePrint
Protests in Sri Lanka | Photo: Nayanima Basu/ThePrint

That still doesn’t explain the extent of the government’s belief in the project.

Even as China’s shadow looms large over the project, the Sri Lankan government is keen to see northern neighbour India investing in the city in a substantial way. This is despite awareness within the Rajapaksa government of the current border tensions between India and China.

On its part, India is apprehensive of the project. New Delhi believes the city is part of President Xi’s BRI, and has thus chosen not to make any public statement on the project expressing its “discontent and displeasure”, a top-level source told ThePrint on the condition of anonymity.

Port City Colombo is expected to be fully operational in the next 25 years, though Phase 1 of the mega project will be completed by 2027, according to the Sri Lankan authorities. 

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‘Myth’ of Chinese ownership needs to be broken, says official

Saliya Wickramasuriya, member and official spokesperson, Colombo Port City Economic Commission, insists the project is “not” linked with China’s BRI and that there was “no borrowing” made for this project, and hence, there’s “no debt” on the Sri Lankan government.

The Colombo Port City Economic Commission is an arm of the government of Sri Lanka. It is responsible for the governance and regulation of the port city.

Wickramasuriya also believes Indian investment firms can “reap long-term benefits” from the project if they engage themselves in developing the special economic zone.

The project is “not owned by the Chinese government but by the Sri Lankan government”, which Wickramasuriya thinks is a “myth” that “needs to be broken”. He added that any Indian firm keen to invest in the project will have to reach out to the Port Commission and not to the Chinese firm.

“The objectives of the project have changed over the years in terms of the fact that this project has been started by one government, continued by another, and now in its third incarnation of the Sri Lankan government… This is a jurisdiction within a jurisdiction,” said Wickramasuriya.

A former Indian diplomat, who has served in Sri Lanka, told ThePrint that the project is being built on land reclaimed from the sea, and while it is claimed that is an extension of Sri Lankan land, this definition does not easily apply.

“It could be argued that international maritime laws should apply, which do not. This technical point apart, the bigger point is that the governing structure and framework for the project are very loosely defined, and deliberately so,” the diplomat said.

“Sri Lanka’s Supreme Court has said that the framework envisaged is not in consonance with the Sri Lankan constitution. Questions of sovereignty have been raised. Many have raised suspicions that it could just be a piece of Chinese real estate, and the Sri Lankan people may not be the beneficiaries of this,” the diplomat added.

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Threat to maritime security? Where India stands

Speaking about India’s apprehensions, a source said New Delhi has already suffered a “setback” when it was suddenly pushed out — along with Japan — of a $500 million deal to develop the strategically-located East Container Terminal (ECT) in February 2021 due to the Rajapaksa government’s decision to scrap the project.

Instead, Colombo signed a deal with the Adani Group to develop the West Container Terminal (WCT). According to the agreement, the WCT is to be operated over a period of 35 years as a public-private partnership.

A view of the ECT and WCT in Colombo. | Photo: Nayanima Basu/ThePrint
A view of the ECT and WCT in Colombo | Photo: Nayanima Basu/ThePrint

On this issue, Wickramasuriya said: “The result is not that the Chinese got the terminal, the result is that SL Ports Development Authority is developing the terminal from where others were booted out of. That should draw the line to who actually wanted it… The Port Authority Unions wanted to develop the terminal (ECT) as their own asset and that was really what was behind the political pressure.”

According to Wickramasuriya, the US and German Embassies in Colombo have already approached the commission to enquire about the port city project.

However, New Delhi believes Indian investors will look for “predictability and stability” and may not invest in the project as desired. “For the idea (of PCC) to become a reality, Sri Lanka will need investments from India and without that it will be difficult for them to market it in a big way,” a second source said.

India also sees the project as a “serious threat” to its maritime security with growing Chinese presence in the Indian Ocean, the source highlighted.

Its concern over the Colombo Port project stems from what had happened at Hambantota Port. Sri Lanka had taken massive loans from China, which it could not repay, leading to Beijing taking control over the port under a 99-year lease for debt relief in 2018.

However, Yamuna Jayaratne, Director (Sales and Marketing), Port City Colombo, denied any such fears.

“This is a Sri Lankan government-owned sovereign asset. The investment for the land reclamation part of Port City comes as a foreign direct investment from the Chinese company. It is a loan, and not a grant,” Jayaratne told ThePrint.

Out of the committed $1.4 billion, over $1.2 billion has already come in and the land reclamation, the ownership of which lies with the government of Sri Lanka, has almost been completed, Jayaratne said.

She said the PCC is the first special economic zone (SEZ) of Sri Lanka, adding that the Lankans are expecting Indian investors to invest in the reclaimed land as well as on building the residential complexes and hospitals, among others.

The PCC is not just a subject of protest by Sri Lankans who are suffering the brunt of the economic crisis, it is also facing massive backlash from the environment groups. About 20 petitions are pending in Sri Lanka’s Supreme Court

Sinking Sri Lankan economy

Under India’s ‘Neighbourhood First’ policy, New Delhi has been helping Sri Lanka to tide over the current economic crisis it is facing.

Earlier this month, New Delhi once again extended financial help when Sri Lankan Finance Minister Basil Rajapaksa visited New Delhi. He was given a $1 billion line of credit to help stabilise the economy.

Not just India, the Sri Lankan government, which is tackling fuel and gas shortages, leading to massive power cuts across the country, has also reached out to China seeking more help in order to address its foreign exchange crisis.

As the island nation also faces mounting debt, President Gotabaya Rajapaksa last week reached out to the International Monetary Fund (IMF) to seek assistance.

Sri Lanka has also decided to resume the negotiations for a free trade agreement with China. Last week, the Rajapaksa government moved to fast-track the discussions

‘Threats to Indian interests are real’

Nirupama Menon Rao, India’s former foreign secretary, believes that India’s investors have started to make “good beginnings” in terms of investing in standalone projects in the areas of renewable energy, power projects etc. She cited examples such as the investments made by Adani Ports and SEZ in the WCT, Adani Power in Mannar and Pooneryn (solar and wind), the NTPC in thermal power at Sampur near Trincomalee, and restoration of the Trincomalee oil tank farm.

However, for Indian firms to invest in the PCC will be “fraught with geopolitical risk”, given the amorphous and loosely defined nature of the project, which essentially promotes the Chinese interest, she said. “The threats to Indian interests are very real. There is no doubt about that,” Rao said.

Rao, author of The Fractured Himalaya: India, Tibet, China 1949-1962, also said, “Closer rail and sea connectivity with India is key. Northern Sri Lanka should have more connectivity with India, ferry services, shipping and ultimately a road and rail bridge connecting the two countries. But Sri Lanka should be prepared to go ahead with such connectivity. India is more than prepared to establish such links that respect sovereign jurisdiction.”

Disclosure: ThePrint reporter was in Sri Lanka as a guest of Port City Colombo. 

(Edited by Amit Upadhyaya)

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