Sri Lanka: Port Loans Contributed to "Debt Trap"

Port of Hambantota (file image)

Published Jan 26, 2017 8:31 PM by The Maritime Executive

On Thursday, the government of Sri Lanka admitted that it was stuck in a "gigantic debt trap" from the previous administration's construction loans, some of which were used to build deep sea terminals at the quiet port of Hambantota. Sri Lanka recently entered into a controversial deal to lease the port to state-controlled China Merchants Port Holdings Company.

Finance Minister Ravi Karunanayake said in a statement Thursday that the infrastructure push of the last several years has "not brought any returns on its investments." The lack of revenue has not helped the nation’s debt burden: Sri Lanka's foreign-held loans will reach a total of $2.4 billion this year, and the repayments will come to $4 billion within two years.

The port at Hambantota cost $1.4 billion to develop, and Prime Minister Ranil Wickremesinghe says that handing its management to China will help alleviate Sri Lanka's fiscal challenges. However, the lease and an accompanying agreement for a 15,000-acre industrial zone have run into stiff opposition – even violent protests. Opponents say that the lease amounts to a Chinese "colony" on Sri Lankan soil. 

"We are against leasing the lands where people live and do their farming, while there are identified lands for an industrial zone. When you give away such a vast area of land, you can't stop the area becoming a Chinese colony," local politician DV Chanaka told Al Jazeera. 

In a press briefing on Thursday, a reporter asked Chinese Foreign Ministry spokesperson Hua Chunying whether China forced Sri Lanka to offer concessions over the port project because Sri Lanka owes so much money.

"The Chinese enterprises always discuss the Hambantota Port project with the Sri Lankan side on a voluntary basis, in the spirit of equality and mutual benefit, and following market rules," Hua responded. She downplayed the scale and importance of Sri Lankan opposition to the lease: "It is learned that small-scale protests occurred mainly because the local people misconstrued relevant policies on the projects,” she said.

India rejects Trincomalee project

Sri Lanka's minister for regional development, Sarath Fonseka, told reporters last week that India and Sri Lanka are nearing an agreement for the development of Trincomalee, a deepwater harbor on the island's northeastern coast. 

“Talks are at present going on between India and Sri Lanka and we hope to offer the Trincomalee port, which is one of the best deep sea ports in the world, to India,” Fonseka told The Hindu. Sri Lankan Prime Minister Ranil Wickremesinghe confirmed the news in an interview on the sidelines of the Davos economic summit.

However, Indian government sources swiftly denied any plans to invest in the harbor. Indian officials told the New Indian Express that any development at Trincomalee would take too long to turn a profit, and would cannibalize the earnings of the port of Colombo – the main international transshipment port for India's containerized cargo. Instead, India's main interest is in making sure that Chinese developments in Sri Lanka do not create a security risk, the sources said. In 2014, a Chinese submarine called at Colombo, an alarming development for Indian defense officials and one that they do not want to see repeated.