Despite best efforts by SLFP-UNP government to renegotiate port deals and avoid debt trap, Sri Lanka’s sovereignty could still be challenged by Chinese enlargement

Chandima Damyanti, a housewife, has been really upset ever since she learned that the government wants her to leave her house and village and that it will settle her elsewhere to facilitate the process of transferring land to the Hambantota Port and Industrial Zone that has been leased to Chinese companies. Damyanti is not leaving her house without a fight.

Fisherman in Hambatota

When she heard a journalist was visiting her village, Damyanti stood on the road outside to navigate him to the porch of her spacious house surrounded by tall trees. There she had collected 10 angry farmers, teachers and elders who were waiting to vent their feelings about a government decision that was threatening their lives, livelihood and the kinship of village life. What compounded their misery was that they had been told to evacuate their village, Manjjawa, by September 15. Looking around their well-furnished house, it did not seem like Damyanti or her family was going anywhere. “We will fight until our deaths to save our ancestral property. Let’s see how the administration gives our land to the Chinese,” said Kusumsri, an English teacher in the village school, angrily.

The decision of the Sri Lanka Freedom Party (SLFP) and United National Party (UNP) coalition government to give the strategic Hambantota port, which juts out into the Indian Ocean, on a 99-year lease to Chinese companies has not just thrown the lives of these villagers into a vortex of uncertainty, it has also given momentum to the growing opposition to the government. Since the decision was taken by the government to lease Hambantota port to a Chinese company for $1.2 billion, Minister of Justice Wijaydesha Rajapakshe has been sacked for opposing the deal and another minister looking after ports, Arjuna Ranatunga, has been shifted to an innocuous job for committing a similar indiscretion — voicing his opposition to a deal that in his reckoning could undermine national sovereignty.

Through this unpopular decision, the government of President Maithripala Sirisena, which brought sanity and normalcy to a high-strung country after President Mahinda Rajapaksa was voted out in 2015, may also have introduced instability into a society that was promised yahapalayanaya or good governance. It is not just opportunist politicians who are latching on to this issue, the Buddhist Maha Nikayas, who have great influence in the island’s politics, are also opposing the grant of land to the Chinese. The Supreme Patriarch of the second-most important Maha Nikaya (Amarapura), 92-year-old Kotugoda Dhammawasa, who has millions of supporters and Bhikhus, told Hardnews, “We reject the deal.” In fact, when Prime Minister Ranil Wickramsinghe visited Hambantota to inaugurate an industrial port with the Chinese ambassador in January this year, Buddhist monks held a protest to register dissent.

After the SLFP-UNP alliance came to power, deals with the Chinese were put on hold as they were perceived to be symbols of corruption, authoritarianism and misplaced development.

The big question is why did the coalition government of the SLFP and UNP, which came to power on the promise of stopping corrupt deals allegedly transacted by the previous government in the Colombo Port City project and Hambantota, end up clearing the same deals with China on terms that hurt its credibility? There are many versions, primarily due to the opaque nature of the agreements that the previous government signed with China to bring in funds to develop the country. No other country wanted to invest money in Sri Lanka because of Rajapaksa who had become an international pariah after the manner in which the Tamil Tigers challenge was brutally extinguished. China, besides Pakistan, supplied arms and provided support to fight this ethnic conflict. Beijing also offered loans for reconstruction which the controversial President sought to leverage to consolidate support amongst the masses.

Rajapaksa got loans from China to build the road network and infrastructure in Hambantota, which happens to be in his neck of the woods. The total loans that he took to build these infrastructure projects, including Colombo Port city, was around $8 billion. At the time, there were fears that the government may find it difficult to service these expensive Chinese loans and they could be heading into a debt trap. On the flip side, the Chinese companies, too, did not really ask tough questions, like many lenders do, about Colombo’s ability to pay. This is the major reason why detractors of the deal like ousted minister Rajapakshe claim that the intentions of the Chinese were not honourable.

After the SLFP-UNP alliance came to power, deals with the Chinese were put on hold as they were perceived to be symbols of corruption, authoritarianism and misplaced development. These misgivings were expressed regarding Hambantota as well as Colombo Port city, that was described as a mirror image of Dubai’s Palm Springs replete with high-end apartments, malls and other facilities that only the rich can afford. The Hambantota project, like Colombo Port city, also promised ownership of the land to the Chinese which raised issues of sovereignty, with some of Rajapaksa’s critics claiming that he was turning the island into a Chinese colony. Those allegations, interestingly, have surfaced again after Sri Lanka was compelled to renegotiate the Hambantota port deal. As the Sirisena government stared at the ballooning debt which was a result of its predecessor’s profligacy, it was compelled to renegotiate the Hambantota port deal by turning debt into equity and giving it on a 99-year long lease. Colombo, it seems, did not have much of an option to ward off the Chinese when contractors of the southern port, China Communication and Construction Co. Ltd, demanded $143 million as compensation for stopping of work. The government of Rajapaksa was forced to walk the thin line between saving the country from default and pursuing development with little resources.

Sri Lanka, whose economic growth was faltering last year at 3.5%, was not in a position to repay the loans taken when its growth hovered at 6.4%. There were other issues also that prevented the Sri Lankans from going for open tendering or getting other investors.

President Sirisena, as pointed out by a senior editor of a national daily, in his speeches to his partymen had claimed that the real reason why Rajapaksa had called for early elections — two years before the scheduled dates — was that he knew that the repayment of the loans would start in 2017 and then he would not know how to manage the issue. As he was riding on the crest of his popularity after defeating the Tamil Tigers, he thought a fresh mandate would allow him to deal with any criticism that may be directed at him for taking harsh decisions. What this point of view suggested is the inevitability of the sale of land and turning of debt into equity and the subsequent institutional imprimatur on China’s enlargement of influence in Sri Lanka. To put it simply, China’s growing control over some key Sri Lanka assets were scripted in the decision that Mahinda Rajapaksa took a few years ago.

The deal involves China paying $1.12 billion in a debt-equity swap in the ratio of 70:30. The China Merchant Port Holdings Company (CMPort) gets 69.55% of the shares and the Sri Lanka Port Authority (SLPA), a public sector organisation, holds 30.45%. After 10 years, SLPA has the option to buy another 20% of the shares, making the two companies equal partners. These are some of the clauses that have been introduced by the new government to make the deal more acceptable. Ranatunga told Hardnews that the original agreement prepared by the committee of secretaries, which was later changed, was loaded in favour of the Chinese. The deal cleared by the Sri Lanka government also takes into cognisance the security concerns of India and other countries. Now the Sri Lankan navy and police will handle the security of the port, which will be used for commercial purposes only. Does that satisfy Indians? In the words of a diplomat who spoke to Hardnews: To clear the deal, the Chinese may have agreed to these changes. But make no mistake that this will be the next Djibouti — which is now China’s military base in Africa.

They are convinced that the change at the top is not possible before President Sirisena’s term comes to an end. However, Colombo is full of rumours about the possible permutations and combinations that may play out when the elections finally take place

Smrutti Patnaik of the Institute of Defence and Strategic Analyses writes: “The agreement envisages the formation of two special vehicle companies — the Hambantota International Port Services Company (HIPS) to provide port services and security, and the Hambantota International Port Group Company (HIPG) to look after the commercial aspects. In HIPS, the SLPA will hold 50.7 per cent of the shares, and CMPort will get 49.3 per cent. And in HIPG, CMPort will own 85 per cent of the shares and SLPA 15 per cent. The agreement leases out the port to CMPort for 99 years.”

Basil Rajapakse

Questions have been raised not just by ministers in the government, but also by former President Rajapaksa and his powerful brother, Basil, on the decision to give land on a 99-year lease. Basil told Hardnewsthat their government had not bartered away the country’s sovereignty like this government has done. He claimed that the land belonged to the people of Sri Lanka and there was no way it could be acquired. If they came to power they will scrap the deal, he said. Coming from the Rajapaksas, the statement is quite rich, but what is visible is how political instability has resurfaced in the country due to the inability of the government of the day to ward off exertions from a regional power. Under the present regime, the control over the press has loosened and it enjoys more freedom but the government is still trying to find a way to grapple with the problems that it has inherited from its predecessor.

Rajapaksa, hoping that people would be amnesiac of his role in pushing his country into a debt trap, is keen to return to power. He is using resentment towards the Chinese deal to attract dissidents and those who think that they cannot win on the ticket of the ruling coalition are beginning to make new adjustments. “The difference between the winners and losers was only 4,00,000 votes in the parliamentary elections and going by the mood in the country, more than a million votes may have crossed over to Rajapaksa and his new party,” informed a power broker. Basil, who is busy putting the new party together to fight the elections — provincial to begin with — is confident that the wind is blowing in their direction.

Political commentators scoff at his exertions. They are convinced that the change at the top is not possible before President Sirisena’s term comes to an end. However, Colombo is full of rumours about the possible permutations and combinations that may play out when the elections finally take place. Rajapaksa cannot become President again as he has completed his two terms. However, there is nothing that can stop him from becoming the Prime Minister if his party is part of a ruling alliance. There are suggestions that the sacked minister, Wijeyadasa Rajapakse, who had built a strong support amongst Sinhala nationalists and the Buddhist clergy after opposing the Hambantota deal, could be backed as a candidate by Rajapaksa’s party (the two are not related). Basil thinks it is quite possible, especially going by the number of political parties who are supporting their fledgling party that literally has a bud as a symbol.

As the Hambantota deal redefines politics in Colombo, the villagers are bracing for the next move. They have learned informally that not just Manjjawa, but Medilla, Gajabapura, Dehemipura, Tsunami Gammanaya and a few more villages will be acquired soon.

Lazily reclining in his well-appointed residence, the deputy mayor of Hambantota, U.K. Dissanayake, pointed at the line drawn, which will be vacated for the Chinese company. “We want to know what kind of companies will come here. We do not want industries that cause pollution to come to the industrial zone that destroys our water and air,” he said. Dissanayake pointed out that the Chinese who are living in Hambantota have no respect for their culture. “The other day a Chinese man hugged a local girl in the market,” he informed. The enraged girl and her family had to be paid off. Similarly, there are lifestyle and food habits that are upsetting the local villagers too. According to them, the Chinese eat all kinds of meats and that bothers them. “Even reptiles are not spared,” chipped in a villager at Damyanti’s meeting.

Worryingly, the villagers are being told that their houses will not be demolished, but given away to the Chinese to stay. “How can foreigners be allowed to stay in our ancestral houses, while we are forced out?” Kusumsri asked.

The government agencies are still proceeding slowly on the land acquisition issue, but it is unlikely that the Chinese will wait endlessly. After declaring Hambantota part of the Belt and Road Initiative (BRI), the Chinese will no longer brook any opposition. A protesting villager was told by the minister of fisheries that the land had already been given to them and nothing could be done now. The government hopes that a good compensation and rehabilitation would take care of the grievances of the villagers, but what will they do about the Chinese ambitions?

Belt and Road InitiativeChinaChina Merchant Port Holdings CompanyCold WarColombo Port CityHambantotaHambantota International Port Services CompanyIndian OceanSri LankaSri Lanka Port Authority

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Despite best efforts by SLFP-UNP government to renegotiate port deals and avoid debt trap, Sri Lanka’s sovereignty could still be challenged by Chinese enlargement
Within the arc of Chinese influence