China, India diplomatic spat looms over Holcim exit deal

A major diplomatic spat with India is in the offing over the possible takeover of Holcim Lanka Ltd. by China Resources Cement Holdings Ltd., a subsidiary of the China Resources Group, which in turn is a State-owned Chinese enterprise. 

Should the deal go through China, which already has a firm foothold in the Colombo and Hambantota harbours will also give that country a prominent presence in Galle and Trincomalee. Holcim currently has positions in two ports in Sri Lanka, the Ceylon Ambuja Terminal in Galle and the Lafarge Marine Terminal in Colombo, while there is also the yet to be commissioned packing plant in the port of Trincomalee.  

In 1993 the Sri Lanka Cement Corporation entered into an agreement with Holcim Lanka Ltd. to lease 5,141 acres of cement quarry land in Aruwakkalu, Puttalam for a period of 50 years. Accordingly, the Lessee is entitled to use the said premises exclusively for the purpose of extracting and removing raw materials for cement production.  

The Government has been contemplating re-negotiation of the agreement since Holcim, which invested $ 26 million and enjoyed a 12-year tax holiday, has reaped approximately Rs. 48 billion from the extraction of limestone alone while Sri Lanka gets only the rental and the royalty payment to the Geological Survey and Mines Bureau.

While Holcim is said to be in arrears with respect to rent owed the Cement Corporation, the Ministry of Industry and Trade recently warned Holcim that it “cannot transfer or sublet the premises without the consent of the Cement Corporation” as per Section 4(b) of the agreement. It is alleged that Holcim had not disclosed these pertinent riders to potential buyers. 

The sale has run into fresh controversy with the take-over bid by China Resources Cement Holdings Ltd.  This company is in fact a subsidiary of the China Resources Group, a State-owned Chinese enterprise.

The bid is said to be unusually high, raising speculation that business interest has taken a back seat to China’s overall strategic designed in the South Asian region, a long-standing bone of contention that has impacted Indo-Lanka relations.

It is no secret that the previous Government’s close ties with China considerably upset and even annoyed India. While the new Government initially distanced itself from China, developments in Europe, especially Brexit, has forced it to repair relations with China even as it seeks to placate India with the Economic and Technology Cooperation Agreement (ECTA) which itself has run into a lot of flak from opponents in Sri Lanka.

Since the Government is struggling to win over the two big regional powers without appearing to favor either, the Holcim deal has posed a severe headache. After Brexit, the Government clearly stated that it will look to Asia in the future. Help from the West which wasn’t forthcoming anyway, is now out of the question altogether, and therefore the cash-strapped Government that is desperately seeking boosts by way of foreign investment cannot afford to lose either India or China.  

Analysts claim that should this deal go through Sri Lanka may lose the support of its influential neighbour and this could be an overwhelming cost as Sri Lanka struggles to rebuild good offices with the international community following major diplomatic blunders by the previous regime regarding post-conflict issues such as transitional justice and reconciliation.