Sri Lanka signs deal on Hambantota port with China

29 Jul 2017


Sri Lanka today signed a $1.1 billion deal to lease the southern deep-sea port of Hambantota to China for control and development for a 99-year period and also lease a surrounding 15,000 acre of land for development as an industrial zone.

Sri Lanka Ports Authority (SLPA) and the China Merchant Port Holdings signed the amended agreement at the ministry of ports and shipping in the presence of Prime Minister Ranil Wickremesinghe.

''We will sign the Hambantota agreement tomorrow (Saturday)...We are giving the country a better deal without debt,'' PM Wickremesinghe had told media on Friday.

Minister of ports and shipping Mahinda Samarasinghe and other ministers besides Chinese ambassador to Sri Lanka Yi  Xianliang and  executive vice president of china merchant group Hu Jianhua and consulate officials were also present at the function.

Under the 99-years lease deal, the state-run Chinese company, besides owning the port, will also get about 15,000 acres nearby for an industrial zone.

The plan envisages the eviction of thousands of villagers but the government says they will be given new land.

The deal was delayed by several months over concerns that the port could be used by the Chinese military and objections raised by countries like India, Japan and the US.

Sri Lanka has given assurances that China will run only commercial operations from the port, on the main shipping route between Asia and Europe.

Sri Lanka's government says money from the deal will help repay foreign loans.

China has pumped millions of dollars into Sri Lanka's infrastructure since the end of a 26-year civil war in 2009. Now Sri Lanka is struggling to repay Beijing. The money from the deal, officials say, will be used to repay part of the loan.

Hambantota port, overlooking the Indian Ocean, is expected to play a key role in China's "One Belt, One Road" initiative, otherwise known as the new Silk Road, which will link ports and roads between China and Europe.

The initiative is being keenly watched by regional trade rivals, including India and Japan.

Opponents of the project said they feared the area being turned into a Chinese colony. There were also concerns that the Chinese navy could use the port as a base.

Earlier reports had said that two separate companies would be formed to deal with administrative and commercial operations of the port. Under the deal, Chinese get majority equity of the company to be formed for commercial operations while Sri Lank gets majority in administrative operations.

The second firm, Hambantota International Port Group Services Co, with capital of $606 million, will oversee security operations, with the Sri Lankans holding a 50.7 per cent stake and the Chinese 49.3 per cent.

While the Chinese would manage port operations, ''no naval ship, including Chinese ones, can call at Hambantota without our permission,'' Samarasinghe had said earlier this week.

The Hambantota port was built with Chinese loans in 2010 during Rajapaksa's term. Unable to bear the cost the Maithripala Sirisena-Ranil Wickremesinghe government decided in late 2016 to sell 80 per cent stake in the port to the Chinese company in order to tackle the $8 billion debt Sri Lanka owes China.

The port, close to the world's busiest shipping lanes, has been mired in controversy ever since state-run CMHC, which built it for $1.5 billion, signed an agreement taking an 80 per cent stake.

In 2014, India was alarmed when a Chinese submarine docked in Colombo, where another Chinese firm is building a $1.4 billion port city on reclaimed land. India has long considered Sri Lanka, just off its southern coast, as within its sphere of influence and sought to push back against China's expanding maritime presence. In May, Sri Lanka turned down a Chinese request to dock a submarine.

Sri Lankans also demonstrated in the streets at the time against plans to lease extra land near the port, fearing loss of their land, while politicians said such large scale transfer of land to the Chinese impinged on the country's sovereignty.

China has been building ports in Pakistan, Sri Lanka and Bangladesh and smaller island nations in what military officials call a "String of Pearls" in the Indian Ocean, or a network of friendly ports where its warships can refuel.

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