Sri Lanka Opens First Phase of Chinese-Funded Port Expansion

* Sri Lanka opens new Chinese built port terminal

* Aims to increase capacity by 7.2 mln TUEs by 2020 in Colombo port

* China dominates Sri Lanka's port, infrastructure lending

Sri Lanka opened on Monday the first phase of a $500 million container terminal, part of a Chinese-funded expansion of the country's main port which is intended to double its capacity by 2020 and make shipping a key driver of economic growth.

The new terminal, one of three planned for Colombo Port, can handle 800,000 TUEs, or 20-foot equivalent units, a year, equivalent to around 18 percent of the total capacity.

China Merchants Holdings (International) Co. Ltd. built the terminal and will operate it under a 35-year build-operate-transfer agreement with the state-run Sri Lanka Ports Authority.

Chinese funds account for about 85 percent of the total $2.5 billion being spent on the port expansion project.

The port would mainly handle trans-shipments to and from the Indian sub-continent, said Priyath Wickrama, the chairman of Sri Lanka Ports Authority.

Since the end of a nearly three-decade war in May 2009, Sri Lanka has been spending heavily on infrastructure to attract foreign investments to its $59 billion economy.

China and India have both funded huge chunks of President Mahinda Rajapaksa's $6 billion post-war overhaul of roads, railways, ports and power plants as Sri Lanka's location astride an ancient and lucrative trade route in the Indian Ocean makes it of strategic commercial and military interest.

By Shihar Aneez and Ranga Sirilal; Editing by Miral Fahmy (C) Reuters 2013.