China says Lanka Will Stick to “Existing Consensus”on Hambantota Port

COLOMBO: Sri Lankan President Gotabaya Rajapaksa’s wish to renegotiate the 2017 deal over the Hambantota port to assert Sri Lanka’s sovereignty vis-à-vis China and bring down the lease period from 99 years, appears to have run into opposition from the Chinese.

According to a press release from the Chinese embassy in Colombo, put out by Xinhua news agency on Monday, Sri Lanka has agreed to develop the Hambantota port (and other on-going China-assisted projects) as per the "existing consensus."

Earlier, a Chinese embassy spokesman had told Xinhua that all Chinese projects were negotiated on an “equal-footed basis” and the results had created a “win win” situation.

He thus implied that there is no need to go back on any of the agreements.

Other Chinese sources pointed out that cancellation or modification of agreements, already signed and sealed, would leave a bad impression in the minds of present and potential foreign investors who would be reluctant to invest in Sri Lanka. This would work against Gotabaya’s plans to attract FDI.

If the Chinese claim about an agreement on using the “existing consensus” is factual, it would amount to Sri Lanka’s opting out of its bid to renegotiate the controversial 2017 agreement after the Chinese presented their objections.

Monday’s Chinese embassy statement, as it appeared in Xinhua, said that during the visit to Colombo of Wu Jianghao, representative of the Chinese State Councilor and Foreign Minister Wang Yi on Sunday and Monday, China and Sri Lanka had agreed to speed up the implementation of cooperation on big economic projects, including the Colombo Port City and the Hambantota Port, "under the existing consensus".

The statement further said that, on the basis of the “existing consensus” the two countries will "draw up and promote a new blueprint for future cooperation."

Wu Jianghao and the Lankan leaders also agreed to "further strengthen robust political trust between the two countries and upgrade their pragmatic cooperation," the statement said.

It is significant that Foreign Minister Wang Yi sent Wu Jianghao as his representative because Wu was China's Ambassador in Sri Lanka during the earlier Rajapaksa regime between 2005 and 2014. Wu knew Gotabaya Rajapkasa and Mahinda Rajapaksa well. Mahinda Rajapaksa was then the Lankan President and Gotabaya Rajapaksa was Defense Secretary.

Gotabaya had told Nitin Gokhale editor-in-chief of the Indian defense journal Bharat Shakti prior to his departure for a meeting with the Indian Prime Minister Narendra Modi on November 29: “We should never have given control of the port to China. That was a mistake. Even though China is a good friend of ours and we need their assistance to develop, I’m not afraid to say, that was a mistake. I will request them to renegotiate and come with a better deal to assist us. Today, people are not happy about that deal. We can think of one year, two years, five years. We have to think of the future.”

“Giving a small piece of land for investment is a different thing. To develop a hotel or a commercial property is not a problem. That’s not an issue. The strategically important, economically important harbor, giving that is not acceptable. We should have control. We have to renegotiate.”

“Giving a terminal for an operation is a different thing, giving some location to build a hotel is different, not the control over a very important place. It is not acceptable. That is my position.”

A clue to the kind of settlement President Gotabaya Rajapaksa might have wanted is available in former Opposition Leader Mahinda Rajapaksa’s statement criticizing the 2017 deal.

In the statement Mahinda said that when he negotiated the Hambantota deal with China, the China Harbor Company had put in a much more favorable bid. It asked for a 65-35 equity sharing basis for 50 years with an upfront payment of 750 million USD plus the payment of all the charges they had earlier agreed to with regard to the container terminal management contract. But in 2017 the Wickremesinghe government had chosen the least favorable bid despite the Ports Authority having recommended the other bidder.

“The agreement that my government negotiated with both China Harbour Co and China Merchant Co to manage the Hambantota container terminal for 40 years was the best deal yet.”

“A 99 year lease impinges on Sri Lanka's sovereign rights because a foreign company will enjoy the rights of the landlord over the 2,000 hectare free port while operating the entire harbor as well,” Rajapaksa said.

President Gotabaya would probably have anticipated China’s opposition but he would also have taken into account the fact that China had renegotiated agreements in the past in many countries including Sri Lanka.

The Sirisena-Wickremesinghe government had kept the US$ 1.4 billion Colombo Port City project in abeyance for a year and half alleging corruption.

According to the Economist Intelligence Unit, Pakistan had requested the shelving of a US$2 billion coal power project and the reduction of the Chinese loan for a rail project from US$ 8.2 billion to US$ 6.2 billion. Myanmar had asked Beijing to bring down a loan for a deep water port from US$ 7.3 billion to US$ 3.5 billion level (for the port and economic zone). It also appears that ownership will be based on a 70-30 split, with Myanmar not having to provide sovereign backing for the fund.

Malaysia suspended Chinese projects worth US$ 22 billion pleading unaffordability. Bangladesh stopped a major highway project citing corruption. Tanzania re-opened negotiations on a US$ 10 billion port.

According to the RWR Advisory Group, at least 234 Belt and Road Initiative (BRI) projects had encountered problems by 2018 as a result of public protests, shifting political sensitivities, differences over financing and other issues. China's opaque approach in dealing with these projects has also engendered skepticism about the potential for local corruption, the RWR Advisory Group added.

The Hong Kong International Arbitration Centre (HKIAC) reported that the number of arbitrations involving parties from countries participating in the BRI rose to 124 in 2017 from 70 in 2016. Arbitrations between Chinese companies and parties to BRI projects rose to 38 in 2017 from 12 in 2016.

China itself has set up international commercial courts in Xian, capital of northwest China’s Shaanxi province, and Shenzhen, in the Guangdong province, to handle international business disputes arising from BRI projects.

The Rhodium Group, which studied 40 Chinese debt negotiations in 24 countries involving debts totaling US$ 50 billion, found that there were cases of deferment, forgiveness, and refinancing. According to “Forbes”, China has forgiven loans to the tune of US$ 10 billion. These examples show that China could view projects from a political angle and not go entirely by legalities.

However, it has taken a tough stand in Sri Lanka perhaps because Hambantota port is a very important part of President Xi Jinping’s Belt and Road Initiative (BRI), given the port’s strategic location in the Indian Ocean.

In his congratulatory message after Gotabaya got elected, Xi had reminded him that Sri Lanka is part of the Belt and Road Initiative and that Sino-Lankan relations should be based on mutual trust.

Secondly China knows that Sri Lanka is weak, being heavily dependent on it for the massive loans it needs to carry out critical infrastructure projects in the absence of matching offers from other countries.

Cover Photograph of Chinese special representative Wu Jianghao with Lankan President Gotabaya Rajapaksa.