Sri Lanka’s Harbour Politics

Hambantota is not the only debt burden for Sri Lanka from China and estimates of the debt to China vary from $3 billion to $5 billion – out of a total national debt of just under $45 billion and annual debt payment of about $4.5 billion.

by Rajan Philips-Jul 1, 2018

( July 1, 2018, Colombo, Sri Lanka Guardian) We might as well call them harbour cock-ups in true British slang. “How China Got Sri Lanka to cough up a Port” is the title of a long New York Times feature article that first appeared online, in English and Chinese, on Monday, June 25 (a printed version followed on Tuesday, entitled: In Hock to China, Sri Lanka Gave Up Territory). Written by Maria Abi-Habib, NYT’s South Asia correspondent based in Delhi (with reporting contributions by Keith Bradsher and Sui-Lee Wee from Beijing, and Mujib Mashal, Dharisha Bastians and Arthur Wamanan from Sri Lanka), the article is by all appearances a well-researched and well-sourced piece of journalism. The article acknowledges as its multiple sources, “months of interviews with Sri Lankan, Indian, Chinese and Western officials and analysis of documents and agreements stemming from the port project.”

While much of the article’s contents have long been public knowledge, it provides a useful geo-local context to the transactions between Colombo and Beijing both before and after 2015. What comes across as new and reasonably detailed information is about direct Chinese financial assistance to Mahinda Rajapaksa to help him during the 2015 January presidential election. The article notes that “Mr. Rajapaksa and his aides did not respond to multiple requests for comment, made over several months, for this article” and that “officials for China Harbor also would not comment”. However, according to the article, the election campaign “payments were confirmed by documents and cash checks detailed in a government investigation seen by The New York Times.” This is interesting not only because of NYT’s seemingly open access to government records, but also, and more so, because it raises the question as to why the government itself did not make this information public through formal statements in parliament. Put another way, has the ‘Wickremesinghe government’ outsourced the exposure of Rajapaksa misdemeanours to the New York Times?

For whatever reason, Ranil Wickremesinghe has avoided making a full disclosure of everything that happened under the Rajapaksas. We are not taking about police investigations or bringing charges in a court of law against members of the Rajapaksa family, or the Rajapaksa government, assuming there was a difference between the two. We are talking about the Rajapaksa irregularities. There were plenty of them under the previous government even if every one of them may not rise to the level of being proven as a criminal act in a competent court. There were irregularities in decision making, in the selection of projects, allocations of funding, and in the award of contracts. When the government changed in January 2015, with not only a new President but also a new Prime Minister, it was the duty of the new President and/or the new Prime Minister to make a full disclosure to the people through their parliament of all the irregularities that had been accumulating for ten full years under the Rajapaksas. There was enough to disclose solely on the Rajapaksa government’s dealings with China. What is now being reported in the New York Times based on government records could and should have been externalized by the Prime Minister two years earlier.

The Hambantota Port Saga

The Hambantota Port Saga is not about ordinary government irregularities. It is about extraordinary incompetence and ignorance at the highest level in a government. Both attributes were evident in former President Rajapaksa’s decisionto launch the port project, brushing aside every advice and every note of caution by government officials. It was not merely abuse of power, but an instance where the abuse was predicated not on arrogance but ignorance. Mahinda Rajapaksa was also reckless and irresponsible in borrowing huge amounts of money for the port without any prospect for generating revenue to repay the debt. The start-up debt in 2007 was $307 million at a variable interest rate that settled between 1-2% (loans from Japan were apparently at 0.5%). The catch was in the requirement that the port builder should be a Chinese firm, who in this case was “China Harbour.” This is the old game of western neo-colonialism, now coming from the east, somewhat coarser and a lot harsher.

Even so, the Sri Lankan Ports Authority officials devised a careful plan to proceed slowly with a limited opening of the port by 2010 and avoiding major expansions until a steady revenue stream was established. This too was brushed aside by Rajapaksa who wanted a grand opening in November 2010, to mark his 65th birthday, and wanted to launch a major expansion immediately, ten years sooner than officials would have preferred. So, the grand opening went ahead even though a huge boulder was left in the port entrance preventing large ships from coming in. China Harbour blasted the boulder after the Rajapaksa birthday bash, for a tidy sum of $40m! Then the President ‘negotiated’ the second loan amounting to $757 million, with the Chinese getting their way to alter the terms of even the first loan from the variable interest of 1-2% to a whopping fixed interest rate of 6.3%. Sri Lanka’s debt to China over the Hambantota port soared to $1.1 billion and there was no revenue stream to pay for it. The paucity of a revenue stream is underscored by the fact that in 2012 only 36 ships berthed in Hambantota while 3,667 ships called on Colombo.

Hambantota is not the only debt burden for Sri Lanka from China and estimates of the debt to China vary from $3 billion to $5 billion – out of a total national debt of just under $45 billion and annual debt payment of about $4.5 billion. This was the debt status in 2015, when Mahinda Rajapaksa was voted out of power. In one of his more coherent utterances, former Finance Minister Ravi Karunanyake is quoted in the NYT article as saying: “We inherited a purposefully run-down economy — the revenues were insufficient to pay the interest charges, let alone capital repayment.” Mr. Karunanayake went on admit that “we did keep taking loans. A new government can’t just stop loans. It’s a relay; you need to take them until economic discipline is introduced.” To modify the relay metaphor, the new government has continued the same harbour race started by the Rajapaksas, carrying not only their old baton but also their can of worms.

In fairness to the new government, it did not quite break out of the new Chinese debt trap (perhaps more severe than the old ‘IMF Debt Trap’ that Cheryl Payer wrote about in the 1970s), but not for lack of trying. The NYT article suggests that the government’s efforts to get help from its western friends and neighbouring India did not go far because it was impossible for another country to takeover projects that had been started by the Chinese. The only new help was in easing terms of trade for promoting Sri Lankan exports. To rescue the hard infrastructure boondoggle created by the Rajapaksas, the new government had to go back to its sole funding source, China. And China played hard ball in renegotiating loan repayments. True to form and its modus operandi in other African and Asian countries, China traded debt repayment for equity, but with a new sting. Chinese officials were emphatic that the Rajapaksa harbour was not worth the $1.1 billion that China had lent to the project. To compensate for the shortfall 15,000 acres of adjacent land were added to a new agreement for an industrial zone.

True to their form and pre-occupations, Indian government officials have been harping on military-strategic reasons for China’s interest and involvement in Hambantota. For all intent and purpose, Hambantota is the new Trincomalee in Sri Lanka’s geo-political usefulness, or the lack of it. That it would be the latter is the opinion of Hu Shisheng, the director of South Asia studies at the China Institutes of Contemporary International Relations, who is quoted in the NYT article. According to Shisheng, China clearly recognized the strategic value of the Hambantota port, but “once China wants to exert its geostrategic value, the strategic value of the port will be gone. Big countries cannot fight in Sri Lanka — it would be wiped out.” That is a touch of reality. As usual Sri Lanka’s internal and external threats are overblown, while its debt obligations are real and serious.

On another note, the Chinese ‘investment’ in Hambantota actually preceded the grand announcement of its One Belt One Road (OBOR) Initiative. While Hambantota is now touted as an OBOR example, there is also a change in the Chinese approach to its overseas initiatives as an extension of its current anti-corruption drive within China. That did not quite prevent China Harbour, the port builder in Hambantota, from literally bankrolling the Rajapaksa presidential campaign in January 2015.

The NYT article details that at least US$7.6 million was released from China Harbour’s account at Standard Chartered Bank to affiliates of Mr. Rajapaksa’s campaign. Just ten days before the January 8 election, US$3.7 million was distributed in different cheques: “US$678,000 to print campaign T-shirts and other promotional material and US$297,000 to buy supporters gifts, including women’s saris. Another US$38,000 was paid to a popular Buddhist monk who was supporting Mr. Rajapaksa’s electoral bid, while two checks totalling US$1.7 million were delivered by volunteers to Temple Trees, his official residence.” The NYT article confirms that the Times has seen documents pertaining to these payments.

China Harbour’s direct involvement in the 2015 election, as now revealed in the NYT article based on Sri Lankan government investigation and documents, may have been prompted by the open attacks during the campaign, particularly by Ranil Wickremesinghe, targeting the corrupt deal making of the Rajapaksas in borrowing billions of dollars from China for mega infrastructure projects that were neither needed nor commercially viable. What the NYT article does not convey are the reasons, if any, why the new government went quiet after the elections – on the Rajapaksa-Chinese deals.

It may be the new government did not want to upset the Chinese while trying to renegotiate repayment terms left behind by the Rajapaksas. Surely, Prime Minister Wickremesinghe is experienced enough to have taken the Rajapaksas to task without upsetting the Chinese at all. Not only did he fail to do that, he even ended up assuming ownership of the Hambantota boondoggle. Come next election, it will be Ranil Wickremesinghe who will have to have answer for Hambantota, and not any of the Rajapaksas. What a turn of events, or cock-ups!