Moody’s concerns: Do politicians and advisors realise the critical situation?: Part 1

Sri Lanka is in a serious situation, with major foreign powers expecting to enforce their wishes on the country. How can it escape from the pathetic situation? – Pic by Shehan Gunasekara

 

Wednesday, 28 October 2020 

Moody’s, the world’s economic watch-dog, in late September downgraded Sri Lanka’s long-term foreign currency ratings from B2 to Caa1, just one step above being bankrupt, raising concerns on the country’s debt payment affordability, high budget deficits and limited room for reforms.

Within two weeks of Moody rating, a high level seven-member Chinese delegation led by Yang Jiechi, arrived in Sri Lanka for discussions and promised a $ 500 m concessionary loan.

Hot on the heels of Chinese visit, United States Secretary of State Mike Pompeo is expected during the latter part of October. The events indicate the serious situation faced by Sri Lanka and reactions of major foreign powers expecting to enforce their wishes on the country. How can the country escape from the pathetic situation?

Moody’s concerns

The rating agency Moody highlights persistent debt repayment challenges:

a. Budget deficits estimated to be 8%-9% for 2020

b. Debt as a percentage of GDP would reach 100%

c. Warns of shrinking reserves, slow growth and high debt repayments with little space for genuine reforms.

d. Increased Government borrowings could crowd out private sector

e. Central Bank to be challenged by currency depreciation and high inflation

f. Slow reforms of weak Government institutions

Despite efforts by Government to secure bilateral relief, warns of market instability and absence of IMF help.

Sri Lanka’s debt situation

On 2 October, the Government settled $ 1 billion maturing International Sovereign Bond from existing reserves which stood at $ 7 billion at August end, but a further debt of $ 2.8 billion needs to be settled before year end.

The country’s foreign debt stands at $ 56 billion or about 86% of GDP, with further payments of $ 4.5 billion due each year until 2023. Until these debts are settled, the country would be in a crucial period.

With foreign exchange earnings less than expenses, repayment of loans would require further foreign borrowing, an unending increasing situation. With the Moody’s new rankings interest rates for future loans would be higher. 

Response

Despite the existing facts, downgrading of the economy by Moody was challenged by the Treasury and the Central Bank. Ajith Nivard Cabral argued that the country’s downgrading is “unwarranted” as the economy is on a path of recovery.

They overlooked that trade deficit narrowed due to reduction of imports. Current foreign reserves of $ 6.4 billion are mostly borrowed rather than earned. Although exports have recovered to some extent since May-June, revival of tourism would be far away. Also workers remittances have reduced and the year’s deficit would be around $ 2 billion. Thus foreign reserves could only be supported by foreign borrowings, leading to further downwards.

Additional borrowings

The Government is hopeful of borrowing from friendly countries. Country received $ 1.2 billion syndicated loan from China Development Bank, from which $ 500 million reached in March 2020. The Government expects a SWAP agreement of $ 1 billion with India. But when PM Mahinda Rajapaksa visited India in February, his request received poor response. 

The recent telephone conversation between MR and Indian PM Modi too failed to bring positive results. The Government is expecting funds from Japanese Samurai bonds, but relations between the countries have reached a low-level.

Past governments overlooked the fact that assistance from friendly countries would only be possible with good relationships. The country got closer to China while neglecting relations with India and Japan.

Loans from IMF

The country’s request for $ 700 billion from International Monetary Fund (IMF) received poor response probably due to the noncompliance of IMF conditions. IMF assistance given at low interest with long repayment would boost international confidence in Sri Lanka.

With additional loans at higher interest to settle current loans, how far can the country continue? Thus it is extremely important our foreign exchange earnings should exceed expenditure, only possible with improving exports, tourist earnings and remittances from abroad. The Budget for 2021 must reduce the fiscal deficit and prioritise expenditure targeting enhancing exports and reduce imports.

Rising US influence 

in SL neighbourhood 

India-US relationship: India considers China as a direct military threat, particularly with two countries’ border disputes. Meanwhile anti-China policies of United States has brought India and US closer. For India US is the only power stronger than China and share a common interest in balancing Beijing.

In February 2020, US President Trump visited India for discussions with PM Narendra Modi resulting expanding defence cooperation agreements. They also concluded deals worth over $ 3 billion for purchase of helicopters from US for the Indian Navy and attack helicopters for the Army. By October end US Defence Secretary Mike Pompeo, is expected in Delhi to sign a military cooperation agreement between the two countries.

Meanwhile, an anti-China Alliance already exists between India, Japan and Australia encouraged and supported by US.

Maldives-US defence cooperation: US signed a framework for defence cooperation with Maldives in September, supposed to maintain peace and security in the strategic Indian Ocean. The agreement signed in Philadelphia between Deputy Assistant Secretary of Defence for South and Southeast Asia, Reed Werner and Maldivian Minister of Defence Mariya Didi. But there has been no information as how Maldives would benefit from the cooperation agreement.

Chinese visit: In the middle of corona epidemic, seven member Chinese delegation led by Yang Jiechi, former Foreign Minister of China and a member of the Chinese Communist Party Politburo, made a sudden visit and held discussions with President Gotabaya Rajapaksa and the Prime Minister. Among the discussed items are Port City law expected to be passed before November end and implementation of Hambantota Industrial Scheme. Also President Gotabaya is expected to visit China later this year.

The President wished China to purchase more Sri Lankan goods to reduce trade deficit with China. In addition more Chinese investments, Chinese participation in domestic tea auctions, also Chinese tourists to Sri Lanka. Chinese promised a $ 500 concessionary loan, the agreement to be signed when President visits China.

Yang Jiechi had separate talks with PM Mahinda Rajapaksa. An official statement informed that, in addition to completing current large-scale projects, future areas of bilateral cooperation was discussed. Early commencing of Hambantota Industrial Scheme and the China-Sri Lanka Free Trade Agreement was discussed.

Chinese delegates confirmed that China will firmly stand with Sri Lanka to protect the country’s independence, sovereignty and territorial integrity at international fora, including United Nations Human Rights Council.

On the sidelines of Yang’s visit an agreement was signed to provide Yuan 600 million (Rs. 16.5 billion) as a grant, between the Chairman of China International Development Cooperation Agency and the Treasury Secretary.

Yang’s visit to Sri Lanka came days after the top diplomats of four Indo-Pacific nations US, Japan, India and Australia, met in Tokyo to increase their involvement in a regional initiative called ‘Free and Open Indo-Pacific’ aimed at countering China’s growing influence in the region.

Pompeo to visit Lanka: Almost immediately after Chinese visit to Sri Lanka, the US Embassy informed that the United States Secretary of State Mike Pompeo would visit Sri Lanka on 27 October. The US Secretary is visiting India to sign a military corporation agreement, now diverting himself to SL for discussions, the highest ranking US official to visit SL since John Kerry’s visit in 2015.

He is expected to discuss half-stopped negotiations on $ 480 million Millennium Challenge Corporation (MCC) with President and the Prime Minister. Indian newspapers report Pompeo’s visit to Sri Lanka would be followed by a visit from Indian Foreign Secretary J. Sankar who wishes to discuss the abolition of the 13th Amendment.

MCC agreement: The MCC grant is expected to be used to develop a traffic management system, modernise the archaic land deed system originally started by the British and to build key roads to improve remote farmer’s links to urban and export markets.

But ‘Bimsaviya’ started over a decade ago with a huge expenditure stopped half-way, but completing most field work. Early this year President called ‘Bimsaviya’ officials and instructed early completion. Thus modernising the land deed system would be a duplication and a waste of funds. Which could be informed to Mike Pompeo.

Disputes in South China Sea: China, claiming almost all of South China Sea, is building military bases on artificial islands in the area. The region hotly contested by Japan, Vietnam, Philippines, Malaysia, Brunei and Taiwan have overlapping claims on the waterway. Two island chains in the area, although largely uninhabited, with natural resources around them, major fishing grounds and a major shipping route.

In August 2020, the United States blacklisted 24 Chinese companies and targeted individuals involved in construction and military efforts in the South China Sea. The sanctions would prevent them from doing business with US companies.

A company affected by US sanctions is China Communications Construction Company (CCCC), the parent Company of China Harbour Construction Company, developer of Colombo Port City. Although CHEC informed that sanctions have no effect on Port City, effects are yet to be seen.

Relationship with India

In the early 1970s when crude oil prices shot up from $ 25 to $ 60 a barrel, causing serious economic problems, Sirimavo Bandaranaike Government was forced to enforce strict import controls. But hardworking Tamil population in the north-cultivated chillies, red onions and others making them prosperous.

J.R. Jayewardene came into power in 1977 opened the economy, Sri Lanka becoming the first South-Asian country to adopt liberal open economy. The move resulted massive amount of grants from West to complete Mahaweli development project.

With Tamils getting disgusted with change of import policies, LTTE increased their war against the South. When Sri Lankan forces were about to defeat LTTE, in June 1987 Indian Air Force dropped food and medicine parcels. Negotiations held thereafter with India led to Indo-Sri Lanka Peace Accord, and the 13th Amendment to the Constitution.

With change of Indian Government, new Prime Minister ordered the withdrawal of IPKF in 1990. But with the assassination of ex-Prime Minister Rajiv Gandhi in 1991 by a LTTE woman cadre, Indian support to LTTE dropped. 

In 2002, PM Ranil Wickremesinghe handed over 99 unused oil storage tanks in Trincomalee built by British during the Second World War, to India on a 99-year lease. When Rajapaksas declared was against LTTE annihilating them, India kept silent, possibly due to assassination of Rajiv Gandhi, also receipt of oil tanks. Showing the importance of trade relations in political decisions.

After the war Mahinda Rajapaksa developed expressways, Mattala Airport, Hambantota Harbour and multiple other projects around Hambantota, almost all with Chinese commercial loans. Throughout the period India was overlooked.

Japan-Sri Lanka relationship

The cordial relationship between Japan and Sri Lanka goes back to a happening 70 years ago. After ending of Second World War, at the San Francisco conference in 1952, some allied nations including Soviet Union wanted Japan to be carved into separate occupation zones. However J.R. Jayewardene, then Finance Minister of Ceylon opposed the proposal quoting the message of Buddha that “hatred ceases not by hatred, but by love”. The speech resulted Japan being admitted back into the international community.

The relationship continued even when the world boycotted Sri Lanka after 1983 civil riots, the only country continued to support Sri Lanka.

Mahinda Rajapaksa Government in 2012 requested assistance from Japan for a solution to Colombo’s transport problem, resulting the Colombo Metropolitan Transport Master Plan presented in November 2014, prepared under JICA Technical Cooperation.

Urban Transport Master Plan

The report highlighted the critical nature of current road system in and around Colombo and warns of possible transport deadlock, if no timely action be taken. As a solution to envisaged traffic problems the report proposed 20 development projects, among them are:

1. A four-lane Port Access Road, elevated over port premises 5 km long, also a two-lane connection to Fort Station.

2. A mono-rail system (an elevated railway) from Malabe-Fort 15.7 km long.

Construction of 5.3 km long elevated Port Access Road from Kelani Bridge to Galle Face commenced in September 2019 with JICA financing the New Kelani Bridge costing $ 342 million. Asian Development Bank is supporting the road section with $ 300 million. The completion of Port Access Road in three years will reduce the travel time from Galle-Face to Peliyagoda to mere four minutes.

Light Rail Project

On 11 March 2019 JICA signed the loan agreement with SL Government for JPY 30.08 b ($ 270 m) for the establishment of Light Rail Transit System. The loan carry interest rates of 0.1% per annum with a 40-year repayment including a 12-year grace period.

While the project designs were underway with multiple consultants, President Gotabaya in September abruptly and unilaterally cancelled the project. His Secretary claimed the project would be very costly and not the appropriate cost effective transport. Also large number of houses and buildings will have to be destroyed. The penalty payment on cancellation would be around $ 100 million.

Following the cancellation of the LRT project Japan withdrew financial support for a 220 kilo-volt underground cable project from Kerawalapitiya to the Colombo Port.

Tax changes for political advantage

At the first Cabinet meeting in November 2019, new President Gotabaya Rajapaksa announced the removal of PAYE tax and the reduction of VAT, NBT was completely removed. Also the tax threshold for VAT was raised from existing Rs. 1 million to Rs.25 million, effective from the first of December.

According to IRD revenue collected in 2018 Rs. 650 billion and in 2019 Rs. 785 billion. IRD estimated the tax loss would be around Rs.143 billion or around 20%. Can the country afford such a loss?

The tax reduction was aimed at the next General Election expected early 2020, but companies who benefited from tax reduction failed to pass over the benefits to customers. The deficit was filled with loans from local banks and Central Bank bonds. In addition coronavirus containment measures messed up revenue but expenses mounted, all leading to severe financial problems.

Causes of financial crash

Understanding the causes and reasons that resulted the current situation would enable finding solutions to address the issues.

Sinhala Only Act

The Sinhala Only Act introduced by S.W.R.D. Bandaranaike in 1956 caused a complete rundown of the country. Education standards crashed and resulted in conflicts among ethnic groups, leading to the 30-year war. The division between communities made India interfere with our internal affairs resulted introducing the 13th Amendment to the Constitution.

To be continued tomorrow

High cost administration system

Employees in Government and semi-Government organisations number around 1.7 million for a country with 21 million population or 8%, but most have no work. They are provided with expensive computers and offices are air-conditioned. Senior staff are provided with duty-free vehicles. On top the President offered jobs for 60,000 graduates and 100,000 without O/L, which was highlighted by Moody’s.

Corrupt politicians

During early years after independence our politicians were honest, but after J.R. Jayewardene offered politicians various perks, their demands went up, along with corruption. Now our Government has the most number of ministers in any country in the world, and the Ministers offered eight duty-free vehicles.

Oil hedging and bond scam

The Central Bank’s bond scandal in February 2015 caused losses exceeding $ 11 million and the oil hedging deal in 2008 caused a loss of 10.2 billion dollars.

War with LTTE

Fighting the 30-year war made security force numbers to increase, while providing them with modern arms and equipment, at a massive cost.

Messed-up development projects

In development projects our politicians and engineers made number of blunders making projects expensive, also resulting delays.

a. Kukuleganga Power project: The 70 MW power project located on a branch of Kaluganga receiving highest rainfall in the country was designed as a run-of-river type power plant, with practically no storage. The low dam created a pond extending water only 360m upstream. If a proper dam was constructed the project would have produced around 250MW with slight increase in costs. The blunder took place due to an agreement with environmentalists not to contest the design.

b. Opening Hambantota Port on MR’s B day: Hambantota Port construction commenced in January 2008 to be completed by May 2011, at a cost of $ 361 million. The harbour built over an old saltern, water emptied creating dry grounds making construction cheaper. But the harbour was opened six months ahead on 18 November 2010 coinciding with Mahinda Rajapaksa’s 65th birthday.

The early opening forced the contractor to carryout underwater rock blasting and the contractor was paid $ 40 million as additional expenses. Finally total cost of Stage I, including the 17-storeyed administration building, reached $ 650 million.

c. Hambantota development: President Mahinda Rajapaksa wished to improve his home region. In addition to Hambantota Port, Mattala International Airport built with a $ 209 million Chinese loan, a cricket stadium seating 35,000, the international convention centre funded by South Korea, botanical gardens were among the projects.

d. Expressway to Kandy: After the Southern Expressway, an expressway from Kadawatha to Kandy was planned, feasibility study completed and the route selected. The first 45 km traversing a flat terrain, the next 15 km a rolling terrain and the balance 38 km hilly terrain and the route was approved by the CEA in 2008.

The project was to be awarded to two Chinese companies, China Merchant Holdings and China Merchant Huajin Investment Company on Built Own and Transfer (BOT) basis. A MoU was signed and the construction of 48 km first phase was expected to begin in August.

However, at the request of local politicians the route was diverted. The modified route became 34kms longer; passing over paddy fields and marshes requiring over 10kms of viaducts (elevated roads) massively increasing costs and the contractors were no longer interested. If the project was allowed to continue without interference, Kandy Highway would have been completed many years ago, without any cost to the country.

e. Moragahakanda: Original Moragahakanda project was proposed by Maithreepala Senanayake, the Minister for Irrigation in the Sirimavo Bandaranaike Government, to fulfil water requirements of farmers beyond Vauniya, the region getting lowest rainfall in the country. The project proposed a storage tank and 100 km long trans-basin canal (NCP Canal) northwards, terminating at Iranamadu Tank near Kilinochchi. The contract for the long-delayed Moragahakanda main dam was awarded in 2012. However, the scope was modified by various politicians diverting waters in various directions.

Moragahakanda dam was completed, but President Sirisena was interested only in supply of water to his area, Polonnaruwa, and further progress to deliver much-needed water to the north got delayed. Meanwhile, water collected in the dam constructed at a massive cost remained unused. But the country needs to pay for the loans obtained.

High cost of electricity power

Our electricity prices are among the highest in the world, making cost of production high and discouraging prospective investors to the country. Also CEB is running at a massive loss.

The country failed to implement even a single major electricity generating power plant since Norochcholai in 2014. Meanwhile with increasing demand, power gap is filled by thermal sources at a high cost.

In November 2016 CEB called tenders for a 300MW Liquefied Natural Gas (LNG) power plant, at Kerawalapitiya, on Build, Own, Operate and Transfer (BOOT) project for a 20-year period and Lakdhanavi submitted the lowest tender, the company already running a similar plant since December 2008.

After numerous delays the Cabinet decided in February to award the contract to Lakdhanavi, but the company complains the agreement with CEB is yet to be signed. Meanwhile CEB is getting ready to call tenders for another 300MW LNG power plant, possibly moving away from coal.

But the biggest issue is getting LNG. As CEB failed to supply LNG, first Kerawalapitiya plant is running on diesel since 2008 with heavy cost to CEB. To date there are no plans to bring and store LNG in the country. In 2017 Petronet, India's biggest importer of gas with its Japanese partners proposed to invest $ 300 million to set up a LNG terminal near Colombo, without progress.

Messed-up education

Transforming education in schools into Sinhala medium in 1956, also in Universities for Arts graduates. Under World University Rankings all our universities are beyond 2,000, showing their poor standards. Meanwhile poor English and IT graduates are unacceptable to private sector.

President Gotabaya promised jobs to 50,000 unemployed jobless graduates and has fulfilled the promise.

Sinhala and English education

The country’s education has two strict divisions, Sinhala/Tamil in State schools and English education in private schools. In addition some national schools offer an English stream. Those studying in private schools continue higher education in local private institutions and others go abroad, but some fail to come back.

Option of English to every student

To make every student employable, current education need to be revised to offer every student the option of studying in English medium from Grade 6, a target of achievable in four years. The problem of teacher shortage could be overcome with 60,000 graduates employed by the President. 

If they are given six months of paid leave to learn and become English or IT teachers, teaching classes will appear overnight. Although their English skills would be poor at the beginning they would improve. Same offer could be given to other graduates currently teaching.

Additional universities

The Government wishes to expand the current 15 universities by introducing modern technological faculties, availing 12,000 additional student placements by 2024. In addition 10 new universities are to be established in 10 districts, to deliver engineering technological, information technological and bio-technological courses, adding 15,000 new placements.

Private higher education

The Education Minister has overlooked the Sri Lanka Technological Campus, Padukka, conducting programs in electronics, telecommunications and computing. SLTC is a subsidiary of Sri Lanka Telecom, coming under the Ministry of Telecommunication and Digital Infrastructure. Its degree programmes are accredited by the Ministry of Higher Education and recognised by the UGC. 

The University was founded in 2015, with the main campus located in the 36-acre former Satellite Station premises in Padukka, the first corporate-funded, fully-residential private higher education institute in Sri Lanka.

SLIIT, Malambe

Located on a 25-acre land allocated by Lalith Athulathmudali in the 1980s, originated Sri Lanka Institute of Information Technology funded by the Government. But in 1999 SLIIT obtained freedom, now registered under the Companies Act of 2007, as a non-profit company by guarantee to educate and train information technology professionals.

Presently, SLIIT has diversified courses into multiple fields, operates two campuses, the Colombo Metropolitan Campus at Kollupitiya and the Malabe Campus, with centres in Matara, Kandy, Jaffna and Kurunegala with an undergraduate student population of over 7,000. A further 1,000 students follow Master's Degree programmes, Postgraduate Diplomas and other professional development programmes in collaboration with number of foreign universities.

In addition, SLIIT has established the Colombo Academy of Hospitality Management, the first internationally-recognised school offering degree of Bachelor of Tourism and Hospitality Management in Sri Lanka.

In addition to above, there are 26 degree awarding institutions recognised by the State and for their graduates, employment is not a problem.

Revision of higher education policy

The above two organisations indicate the basis of future education policy. The Government, without expanding existing universities and new universities, needs to concentrate on improving education quality to international standards, taking SLIIT as an example. 

The intake to Arts faculties can be severely constrained by insisting on learning English and passing an exam prior to university entry, achievable during the time of over one year between the A/L exam and admission. Thereafter, education in universities would be mostly in English.

Expensive politicians

Our politicians are the most expensive in the world. Although their salaries look low, they are supplemented with number of allowances. All ministers are allowed to import eight duty-free vehicles for them and immediate staff, which are sold, making massive profits.

Currently the coronavirus has stopped vehicle imports and worldwide travels. Some politicians complain while seniors have received six to seven expensive vehicles, others got only a single old vehicle. Our ministries are sub-divided, giving rise to secretaries to each section, shooting up offices, transport vehicles and support staff.

President Gotabaya uses minimum security staff and facilities, the same needs to go down to other politicians, especially under the current economic conditions.

Developing the country

The country should take advantage of the location between the Suez Canal and Singapore by the shipping route, also natural resources as Trincomalee Harbour and plenty of sun for cheaper electric power generation. 

Investments in all major projects should be joint ventures between the Government and private/foreign parties. All future expressways too should be the same. Singapore adopted a similar policy half a century ago, reaching current status. 

In addition projects need be evaluated, accepted and implemented early. In the past most projects got dropped due to delays by Government agencies.

Relationship with India

After being appointed President, Gotabaya Rajapaksa made his first overseas visit to meet Indian counterpart Modi. Indian PM welcoming Gotabaya offered a $ 400 million line of credit, also a $ 100 million credit line for solar power projects.

During early February, PM Rajapaksa too visited India and met PM Modi, requesting a moratorium on loan repayments for three years, until revival of economy. But the Indian PM avoided the request, possibly due to Mahinda Rajapaksa’s favoured treatment to China over India, over the past decade.

Relationship with Japan

With the cancellation of the Japan-funded LRT project, Japan withdrew from providing financial support for the 220 kilo-volt underground cable project from Kerawalapitiya to the Colombo Port. This would be a warning if we expect getting financial assistance from Japanese Panda and Samurai bonds.

Urgent projects

The Japan-funded LRT Project: The project was discussed earlier and needs immediate implementation.

East Container Terminal: The ECT was proposed as 1,200m long quay, 18m deep, berthing three mega ships. In 2012 SLPA commenced construction and by 2015 when the Government changed, the first phase of 400 m was almost complete with an investment of $ 80 million, allowing one berth and a container yard. SLPA had ordered container handling equipment, but the tender was cancelled by the new Minister.

In July 2019 under the Yahapalana Government, an agreement was signed between India, Japan and SLPA to develop and run the East Container Terminal. According to the agreement Sri Lanka will maintain a 51% of stake, while Japan and India holding 34% and 15%, respectively. Development to be financed through a 40-year soft loan from Japan between $ 500-800 million, at 0.1% interest with a grace period of 10 years. But no further progress.

Trincomalee oil tanks: In 2002, PM Ranil Wickremesinghe handed over to India the unused massive oil storage tanks in China Bay, Trincomalee, built by British during the Second World War. The facility has 99 usable tanks, each having a capacity of 12,100 tons, totalling over one million tons. But IOC has utilised only 14 tanks. During a visit in 2015, Indian PM Narendra Modi highlighted that developing the tank farm “would help the coastal town become a regional petroleum hub”.

Meanwhile, the 50-year-old Kolonnawa Petroleum Refinery refines only 30% of the country’s requirement with storage facilities for few weeks, needing frequent oil purchases, irrespective of prices. Thus the country needs an additional refinery.

Recently, Cabinet Spokesman Bandula Gunawardna informed the public of the wish to have talks with in India to withdraw unused oil tanks in Trincomalee. The possibility of joint development was not mentioned.

Thus negotiations should commence immediately with India, for whom oil tanks were leased for 99 years, to construct a petroleum refinery jointly using some of unused oil tanks. The balance oil tanks could be used as a regional petroleum hub as proposed by Indian PM.

Development of Hambantota Industrial Zone with Chinese: Adjacent to Hambantota Harbour exists nearly 2,000Ha reserved for an Industrial Estate. But Ranil Wickremesinghe refused to hand over the land to Chinese. The visiting Chinese Yang raised the issue.

When Hambantota lands are handed over, Chinese would transfer multiple industries from China as products could be exported as made in Sri Lanka, bypassing restrictions placed on China. Industries would provide employment to locals and bring foreign exchange. In addition the travels of Chinese and importing of urgent raw materials would make Mattala Airport functional.

LNG terminal and storage: A LNG-based power plant was in existence since 2008, in addition two 300MW LNG power plants are proposed, without a LNG terminal and storage. Thus the facility is urgent, but tender calling, evaluation and establishment would take many years.

In April 2018 Cabinet accepted two joint venture projects, to set up two 500MW LNG power plants in Kerawalapitiya. First with India’s National Thermal Power Corporation and second with Japan’s Sojitz Corporation, Mitsubishi Corporation and CEB. In addition a trilateral MOU was signed with Japan and India for the country’s first LNG terminal, to be built nearby with India’s Petronet LNG, Sojitz Corporation and Mitsubishi Corporation. But no further progress.

Concentrating all power generation plants in Kerawalapitiya area requires expensive transmission networks. If unused Galle Harbour is used for a LNG terminal and storage, with power plants established nearby, establishment would be much cheaper and faster.

If discussions and negotiations are carried out with India and Japan for above projects, government-to-government agreements would not require tender calling. The fastest and cheapest way of getting least expensive LNG power, eliminating expensive thermal power, with minimum Government funding.

Solar and wind power development: President Gotabaya Rajapaksa’s ‘Vistas of Prosperity and Splendour’ promised 80% power generation through renewable sources by 2030. But CEB claims coal power is the cheapest at Rs. 8.50 a unit, but conveniently dropped the capital cost of coal power plants paid by the Treasury, making real costs reaching Rs. 18, but how about environmental costs?

Meanwhile, electricity from solar and wind power costs in the world have reduced to around Rs. 6. In local tenders below 10MW received quotations below Rs. 10, but CEB is delaying the award of contracts. CEB’s biggest issue is stabilising different power generations at the same time.

Large capacity solar and wind power plants of over 100MW could be established with local and foreign collaboration, without any Government investment, delivering electricity at around Rs. 6 per unit. As large solar projects require extensive areas, surfaces of reservoirs generating hydro-power could be used, producing power during daytime, using the same power lines.

India is among the major producers of wind and solar power with the world’s fourth largest installed capacity, with most power plants in Tamil Nadu. India has offered $ 100 million for solar power plants. CEB could easily get the required technical knowhow from India to stabilise power generation, improve renewable energy and move towards the President’s policy.

New Constitution

The Government intends a new Constitution, possibly without Provincial Councils. But India, which instituted the 13th Amendment wished for devolution of power to Provincial Councils and merging of the north and east, would object to a new Constitution. The only way to address Indian concerns would be by addressing problems of the Tamil population in the north.

If the Moragahakanda project intended to supply water beyond Vavuniya could be completed within four years, it would solve the water problem of northern farmers. The Governments need to award contracts for the remaining work on Moragahakanda simultaneously, as done by J.R. Jayewardene for Mahaweli development. For funding the project, countries as Norway, Sweden, India and others who fought for Tamil rights could contribute. 

Also in the 2021 Budget, the highest allocation of funds is for the road sector. When expressways are offered as joint ventures, the funds could be diverted to expediting Moragahakanda. 

Implementing English-based education for all would bring all communities on an equal footing. When northern farmers get used to water from the south for cultivation, they would not demand for separatism. Thus prior to a new Constitution, concrete steps to address Tamil issues is a must. Till then Indian fishermen in our waters would continue.

Discussion

Moody’s downgrading of Sri Lanka’s rankings is being challenged by economic advisors, but they will be forced to take note. The biggest challenge is the payment of around $ 4.5 billion a year until 2013, failure would result in the country being termed ‘bankrupt’. Meeting the challenge is only possible with further assistance from friendly countries, but we have already hurt the feelings of India and Japan and need immediate reconciliation.

The country could immediately award the East Container Terminal as per the agreement signed in 2019 with India and Japan. In addition discussions for efficient usage of Trincomalee oil tanks, construction of an oil refinery and a regional petroleum hub similar to Singapore. Other possibilities are LNG terminal and storage in Galle Harbour.

The President cancelled the Japan-funded LRT project based on the advice by a former University Professor, the decision has now been found to be misguided. The President needs to apologise to Japan and request recommencement of the project as well as other projects in the Urban Transport Master Plan, easing traffic congestion in and around Colombo, saving fuel and time of travellers.

The country needs to increase exports, while reducing imports with local productions. But the policies need to be consistent. The reduction of Bombay Onion prices to Rs. 100 after the harvesting season was a blunder. The ban of palm oil cultivation and ban of slaughter of cattle are other ridiculous policy decisions.

Prime Minister Mahinda Rajapaksa’s inclination towards China is well-known. The 20th Amendment, which will strengthen the President’s authority while reducing the PM’s powers, would be appreciated by India and Japan. When the Yahapalana Government realised that payment of loans taken for Hambantota Port were difficult, it handed over the Hambantota Port to China, which should not be forgotten. If India and Japan refuse further assistance, China would supply the needs and the country would be in a China trap.

If so, the US will place restrictions on Port City development and restricting export of garments to the biggest customer. Thus maintaining good relations with India and Japan is extremely important.

The world has changed, the US has built an anti-China Alliance with India, Japan and Australia. Sri Lanka needs to have a clear non-aligned policy by balancing relations with India, Japan, China and US. Thus our politicians and their advisors should understand the repercussions of neglecting relations with India and Japan.