Sri Lanka clears the decks for controversial Chinese project

• Stalled Port City project looks set to be back on track by around February

By Debasish Roy Chowdhury

South China Morning Post:

The Sri Lankan government has cleared the decks for the controversial Colombo Port City project to resume, the country’s finance minister told the South China Morning Post.

Executives at the related Chinese companies who cannot be identified separately told the Post that the project was expected to restart around February, after all the final details had been worked out.

“We have given all the necessary clearances. Now it is up to the investors to sort out the minor details,” said Minister of Finance Ravi Karunanayake. “On our part, the government is happy with the environmental impact assessment [EIA] report for the project. It is now under public consultation.”

The absence of a proper EIA was cited as a major reason for pulling the US$1.4 billion project – which will see a spanking new business district the size of Monaco rise from the ocean – that was cleared by former China-friendly president Mahinda Rajapaksa. Colombo Port City is among the several big-ticket Chinese-backed infrastructure ventures put on hold after Rajapaksa lost in January’s election.

Inaugurated by President Xi Jinping in September and financed by state-controlled and Hong Kong-listed China Communications Construction Co (CCCC) and executed by its subsidiary CHEC Port City Colombo, the project has driven a wedge between Beijing and Colombo, once one among China’s strongest allies in the region.

Karunanayake said the government had asked the Chinese project company to agree to a change in provision of freehold land into leasehold land to enable the project to resume.

“This is in accordance with the law of the land. Foreigners can’t own land in this country and everyone has to abide by it,” the minister said.

Under the original agreement, CCCC would reclaim 233 hectares off Colombo coast. It would keep 108 hectares, including 20 hectares on a freehold basis and the rest on a 99-year lease. Sri Lanka would own the rights to the other 125 hectares.

Apart from potential environmental damage ranging from coastal erosion to loss of marine life, this provision of giving freehold land to a Chinese state company became a political hot potato at home and abroad.

In March, Sri Lanka’s Civil Aviation Authority warned in an internal memorandum to the government that the airspace over the Chinese-held area in the development would be controlled by China, drawing heavy criticism from Beijing.

“India is pressuring the government not to give us freehold land,” a senior Chinese executive, who refused to be identified, told the Post, adding that negotiations on the leasehold condition would begin in two weeks.

India has been concerned about increasing Chinese presence in its relatively less guarded southern flank since two Chinese submarine calls in Colombo last year. The incident is understood to have been the final straw in India’s relations with Rajapaksa, whose pronounced China tilt had already strained his ties with New Delhi.

The public consultation on the environment report will end around the middle of January. Several high-level sources have told the Post that Colombo has been trying to put the project back on track with a sense of urgency.

In October, China rushed Vice-Minister of Foreign Affairs Liu Zhenmin as special envoy to Sri Lanka to meet the leadership and urge them to restart Chinese projects, especially Port City.

“Sri Lankan leaders have expressed commitment to moving forward the project. I am confident Colombo Port City will be completed in three to five years,” he said at the end of his trip, expressing hope that the government’s decision to restart the project would ease the mounting losses for the Chinese companies as a result of the delay.

Since the unity government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe put the brakes on Port City, China has been treating the fate of this project as an indicator of the new regime’s commitment to continue strong bilateral ties.

Inaugurated by Xi in September last year, Colombo Port City was a major election issue in the campaign against Rajapaksa. Like many other big-ticket infrastructure projects across the country, it was alleged to have been cleared without due diligence and by subverting procedural norms to favour Chinese companies.

Moving away from Rajapaksa’s China focus, the new government has vowed to follow an equidistant foreign policy.

Wickremesinghe on Wednesday announced that Sri Lanka would not sign the proposed Comprehensive Economic Partnership Agreement with India. Instead, a new agreement on economic and technological cooperation with its northern neighbour was being worked out.