Hambantota Fiasco and Implications

for Future

There is no question that tripartite agreements or a Bay of

Bengal Trade Zone could benefit Sri Lanka in theory. But it is farfar away from the current reality. As the Hambantota fiasco has
shown, Sri Lanka or the present government is not ready for that.
If Sri Lanka cannot manage the Hambantota port, as the major
partner of the so-called PPP, how can it benefit from other deals?

by Laksiri Fernando- Dec 23, 2016

( December 23, 2016, Sydney, Sri Lanka Guardian ) Fiasco
might be a strong word, but it is fitting at least considering the
Navy handling of the Journalist. For a while, because of this
fiasco, the bigger issue or the bigger Fiasco got blurred. The
leasing of the Hambantota Port for 99 years at this stage of Sri
Lankas economic development for just US$ 1.12 billion to a
Chinese company (China Merchants Ports Holding Company) will
have great repercussions for the country for a long period.
The most alarming is the causal way that the Prime Minister, Ranil
Wickremesinghe, has talked about this deal. He told The Hindu
newspaper (15 December 2016) that We have negotiated debtto-equity swap and industrialization. Here we are talking about a
debt trap that Mahinda Rajapaksa has noosed around the
country and Wickremesinghe enjoying it believing that he
managed to swap it for equity and industrialization.
The Debt Trap
The debt on the account of building the harbour was around 1.5
billion and this swap does not obviously cover the full amount.
According to the most conservative estimates, at least 38,000
million must be paid back with its interest. The government is not
revealing the full details. The full amount of debt to China is
reported to be around 8 billion. All these figures are in US$. If we
go by the same logic of swap of debt to equity, then how many
enterprises that Sri Lanka must be leased to cover the Chinese
debt?
However unplanned, the purpose of building the Hambantota
harbour was to make it a profit making enterprise for the country.
There is no point in taking loans to build an enterprise if it were to
give back to the lender for their own profit making for 99 years.

Therefore, both the present government and the last government

are responsible for this fiasco.
It is true that the government effort is to make the Hambantota
port ostensibly a joint venture. It is also named as a public private
partnership (PPP). But this is a strangest ever public private
partnership. Only 20 percent to the public, and 80 percent to the
private partner! In this particular case, the private partner is not a
local company, but a foreign enterprise. Even for a proper local
PPP, the public sector should at least keep 55 percent of shares.
This should be more so, when it comes to a foreign company as
the private partner.
Although this is called a PPP, it is not actually the case. It is simply
a distortion of a popular notion. This is a 99-year lease agreement
keeping the lease holder to give 20 shares to the Ports Authority.
This may give some income to the government. But that also
depends on the profit making of the enterprise. This might not be
in doubt since the Chinese company will make sure that it
generates necessary profits. China can make use of the port for
its own ships trading with Africa and the Middle East.
China has been extremely smart in the whole deal with the
present and the last government. You cannot blame for their
smartness. They got the MR government to get a loan and it was
spent for their own entrepreneurs (China Harbour and Sinohydro
Corporation) to the build the port. Of course, there were some Sri
Lankan workers and engineers working for them. China Exim Bank
gave the loan. Now it is given back to the China Merchants Ports.
What a nice debt trap! Only pleasure was for Mahinda Rajapaksa
as it was called Mahinda Rajapaksa Port for a while. That is also
gone now. There was also a big Tamasha opening with some
artists also benefitting handsomely.

Worker Issues
The recent fiasco proved how desperate the workers became
when they came to know the port is going to be leased. They
were casual employees who were recruited haphazardly by the
last government. They however had every right to secure their
employment which was neglected. If they needed further training,
they should have been given.
No one can condone the way the workers held up the Japanese
vessel, Hyperion Highway, for four days, risking their own lives.
Whether it is an act of piracy or not, that should not be the way
for trade union struggles in my opinion. The Navy intervention
nevertheless was excessive, without allowing industrial
negotiations to take place. In Sri Lanka, many issues and relations
are becoming increasingly chaotic. On the other hand, if not for
their drastic action, the workers demands would not have got the
government attention.
The Navy intervention also heralds the way the security at the
Hambantota port would be handled in the future. The Chinese
government has already expressed concerns about the increasing
political instability in Sri Lanka. This could also be a bargaining
chip. Although communist by name, the Chinese partners
(including the government) are tuff negotiators when it comes to
money and profits. This is what has been lacking on the Sri
Lankan side. The China Merchants Holding Company would ask for
full security from the Navy in the future. The government may
have to bear the major costs if not the full. People like Ravindra
Wijegunaratne (Navy Commander) would be delighted to do so,
perhaps nothing else to do in the horizon.
Parallel of Darwin Port
Leasing a port for a foreign company is not unusual in the ongoing
trends in the world trade today. China excels in these ventures.

Australias Darwin Port was leased for a half a billion Australian

dollars at the beginning of this year (2016) to the Landbridge
Corporation of China. It was also a 99-year lease. The Sri Lankan
dealers might be delighted to hear this. In comparison to Darwin,
the Hambantota deal may appear a good bargain, because it is
1.12 billion US dollars. But it is not the case.
Darwin is a small port without much traffic compared to the
potential of Hambantota. Therefore, the price of the Darwin lease
is considered beneficial to the country. In addition, Landbridge
Corporation has agreed legally to invest around .74 billion in the
project for the next 25 years. Do we have such an agreement for
Hambantota? This is questionable. The lease agreement is also
passed as legislation in the Northern Territory Parliament. Do we
have such a legislation covering the Hambantota deal? Most of
the terms except the overall figure are shrouded in secrecy. In the
case of the Darwin deal it is called the Prots Management Act (9
June 2016). https://legislation.nt.gov.au/Legislation/PORTSMANAGEMENT-ACT
Darwin deal also was done amidst controversy. This matter is still
debated in the country, particularly considering its impact on
national security. On the Darwin deal, the US expressed grave
concerns, even under Obama, but the US also have their longrange bombers placed at the top end of the port area. Unlike
Hambantota, what is leased in Darwin is a very small area totally
confined to the port.
International Concerns
Can there be national security risks in the Hambantota deal?
There can be. There are growing tensions between the US and
China particularly after Donald Trump became elected as the
President. Although overtly appear as trade issues, there are
political tensions which could escalate into military concerns.
Recently, China seized a US Navy underwater drone and Trump
tweeted even before officially becoming the President, we dont

want it. He wanted to emphasize the Chinese hostility towards

the US. There is an escalating Cold War between the two
countries. Does Sri Lanka need to take such a risk in this context?
A rational answer might be an emphatic No. In any future rift
between these two giants, Hambantota port might become a
controversial issue.
Leaving aside these international security issues for the future,
even as a trade deal, the Hambantota lease is a bad
arrangement. The payment of 1.12 billion debt to the Exim Bank
by the China Merchants can be celebrated only by charlatans. Of
course, the amount is huge on its face value. But the liabilities are
enormous considering the lease period, the shareholding (80
percent), potential income and the terms and conditions. It is
possible that the deal is a logical extent of what was agreed by
the previous government with the Chinese authorities in 2010.
There were some indications to this effect from the former Ports
Authority Chairman, Priyanth Bandu Wickrama, in 2014.
Why didnt Sri Lanka go for a 33-year lease instead of 99-years?
There is no magic about 99! Longer the period, uncertain is the
countrys future. Why couldnt Sri Lanka hold on to 55 percent of
equity, instead of keeping only 20 percent? There is no point in
saying the ownership is with the government. Under these
agreements, lessees are stronger than the owners. Ranil
Wickremesinghe has boasted about industrialization under the
lease agreement. For that purpose, he is giving 15,000 acres on
lease for the same amount of money in addition to the port.
Two Weaknesses
There are two major flaws revealed behind the intended lease
agreement. First is the weakness of the Sri Lankan leaders and
bureaucrats to negotiate better terms for trade and other
economic deals with external partners. This is the same whether
it is the IMF, the World Bank, China, India or USA. In respect of

ETCA (Economic and Technical Cooperation Agreement), India

wants to sign it in June 2017, but Wickremesinghe wants to sign it
also in January. His first preference was this year (2016). There
seems to be an unusual hurry for some reason.
The most flawed seems to be the economic thinking behind all
these initiatives. When the Prime Minister talked to The Hindu
newspaper, he has said the following.
We want the Indian agreement also quickly. Because, one, the
Indian agreement paves the way for a tripartite [arrangement for
trade and investment] by 2017 Sri Lanka, India, and Singapore.
The agreements we have between us mean that we are at the
crucial entry points of the Bay of Bengal and we can work further
on a closer economic union within the Bay of Bengal [region]. For
that to succeed also, we require the agreement with India,
because the five southern States [Tamil Nadu, Karnataka, Andhra
Pradesh, Telangana, and Kerala] and Sri Lanka the total GDP of
such an economy is over $500 billion with the possibility of
doubling to a trillion dollars within a decade or so. The potential is
enormous, so with our agreements with Singapore and with
China, on their One Belt, One Road initiative, it is imperative that
we sign the agreement with India as fast as possible.
There is no question that tripartite agreements or a Bay of
Bengal Trade Zone could benefit Sri Lanka in theory. But it is farfar away from the current reality. As the Hambantota fiasco has
shown, Sri Lanka or the present government is not ready for that.
If Sri Lanka cannot manage the Hambantota port, as the major
partner of the so-called PPP, how can it benefit from other deals?
Sri Lanka needs to strengthen and boost its own entrepreneur and
management capacities. There is no other way to go about
international deals.

Such agreements like the Hambantota lease might bring quick

money or benefits to the government. It is like obtaining quick
money from the Central Bank bond scams. However, the final
looser would be the country and the people. At least in the bond
scam, the benefits went to the local company the Perpetual
Treasuries. However, this time, the beneficiary would be the China
Merchants. Ranil Wickremesinghe has also outlined several other
deals that they intended to unleash. Just after the above quoted
statement, The Hindu interviewer, N. Ram, tried to bring some
home truths by turning attention to Brexit and Trump victory in
the USA. But unfortunately, our PM couldnt get it.
It is in this context that he boasted not only about the debt-toequity swap and industrialization in the Hambantota deal, but
also talked about leasing Trincomalee to Singapore (Surbana
Jurong), India or Japan!
None of these deals are transparent. As I have pointed out in the
case of Darwin, there is no such Ports Management Act for
Hambantota. At least the opposition and the people still have time
to stop or ask for a better deal for Hambantota. It is supposed to
sign in early January. As M. A. Sumanthiran (MP) has revealed,
even the deal with ArcelorMittal to build 65,000 houses in the
North is also shrouded in corruption. Wickremesighe government
is living in a pre-Brexit dream-world where every global or
regional economic conglomeration is considered hunky-dory. That
is not the case in reality. A strong national economy is important
before all international deals.
Posted by Thavam