China To Sri Lanka: We Want Our Money Not Your Empty Airport
Posted on July 31st, 2016

Courtesy Forbes

Sri Lanka has a debt problem. After more than a decade of taking out huge loans to build large-scale infrastructure — most of which hasn’t yet produced adequate returns — the country is now struggling to make payments, and is looking for another way out.

A potential exit strategy was to offer China debt for equity swaps, which Sri Lanka’s Prime Minister Ranil Wickremesinghe recently proposed to China’s Ambassador Yi Xianliang. China was offered varying degrees of control over some of Sri Lanka’s biggest infrastructure projects, including Mattala International Airport and portions of the Hambantota deep sea port, and Sri Lanka would receive some debt relief.

China’s response to this offer was publicized earlier today in Colombo’s Sunday Times: We’re not interested. The Chinese ambassador replied that it was not possible according to China’s laws.”

However, China was clear that it extends its fullest cooperation” and that such deals should be conducted via investors on proper commercial terms.

This point is key: while China’s government will not swap debt for equity they will help clear the road for Chinese companies to take over key projects in Sri Lanka. IZP, a Chinese informational technology company, has been put forward as a potential purchaser of Mattala International Airport, while COSCO is looking intoexpanding operations at the Hambantota deep sea port.

IMG_20160218_111424_DCE

Not a passenger in sight. It is still the morning and no more flights are to arrive or depart. Mattala International Airport may just be the world’s emptiest. Image: Wade Shepard.

The problem, both for Sri Lanka and for any would-be investor, is that many of the large projects in question are losing money fast, and may ultimately prove to be economically unsustainable — at least without a massive amount of additional investment, more infrastructure, and a miracle or two. With just two flights per day, Mattala International is more than likely the most underused international airport on the planet and the Hambantota port is also running at severe under-capacity, while the brand new and fully modern highways that run through this region are mostly devoid of vehicles.

However, not all hope is lost for these projects — yet. Although China declined a debt for equity swap, their participation in Sri Lanka’s infrastructure development is more than likely just getting started. Colombo Port City has been green-lighted once again and just last week China requested 15,000 acres of land in Hambantotafor the building of a massive, million worker special economic zone. The latter seems to run flush with the original Hambantota idea:

If you’re going to have a bulk port you need to have industry around the bulk port to take advantage of it,” said Deshal de Mel, a senior economist at Hayleys Plc in Colombo. That is where the whole idea comes from; that we’ll have industry coming in to kind of match up to the port. So the shipping port can still be made to work if they can get the right industries to invest in it.”

3 Responses to “China To Sri Lanka: We Want Our Money Not Your Empty Airport”

  1. dhane Says:

    I think more than anything all investors will study the political stability of Sri Lanka. No investor will dump their money after election when next Government going to “Stop” all previous Govt: projects investigating unwantedly and harassing
    people. Also investors with consider availability of infrastructure, Electricity, water, man power etc. I do not know why any Govt: wants free trade agreements with any country. Do China need its products to sell all over the word any free trade agreement?. Do Germany have FTA to sell their cars & machinery? Do Switzerland have any FTA to sell their watchers? No its only Quality, Price and service need to promote.

  2. Dilrook Says:

    Government should grant China the 15,000 acres of land it requested. Otherwise there is no way out of this debt crisis.

    From 1948 to 2009 Sri Lanka accumulated $18 billion of foreign debt. The war was won, Mahaweli was built, the country changed from an agricultural exporter to a low grade industrial exporter and a strong service industry was build.

    From 2010 to 2014 Sri Lanka accumulated $36 billion of foreign debt. Nothing useful was done with it.

    (From 2015 to 2016 close to $8 billion was accumulated with nothing useful done with it.)

    Obviously China will not buy our blunders in return for their money. The best chance would be to allow China to build a military camp in the island for debt to be forgiven and for an ongoing lease.

    But China is not our largest foreign creditor. Bond holders are the largest creditors and the highest interest rate is payable on these. No escaping from their commitments.

  3. Ananda-USA Says:

    Sri Lanka POISED to become a TRANSPORTATION HUB announces Ranil on whom ENLIGHTENMENT has FINALLY DAWNED!

    When the Yamapalanaya agitators were trying to OUST the MR/UPFA government, and during the 1st year of their mis-governance, they MOCKED the INFRASTRUCTURE DEVELOPMENTS, like the Hambantota Port and the Mattala International airport as vertable White Elephants!

    Having DESTROYED the momentum behind those ventures, and having REALIZED that the Western Powers who EGGED them onto REGIME CHANGE are not going to GIVE THEM A DIME for National Development, they are NOW TOUTING the SAME VISION of the MR/UPFA GoSL they DEMONIZED without batting an eyelid or ADMISSION of their STUPIDITY. SHAMELESS!

    These TRAITORS have DESTROYED and/or DELAYED Sri Lanka’s EMERGENCE as an ECONOMIC POWER like Singapore, all to HOIST themselves into POWER!

    HOW SHALL WE PUNISH these SHAMELESS CORRUPT TRAITORS; Draw, Quarter & Hang them in the Independence Square perhaps?</i?

    ……………………
    Sri Lanka will be made a sea-air hub, Prime Minister says
    Mon, Aug 1, 2016, 11:28 pm SL Time, ColomboPage News Desk, Sri Lanka.

    Aug 01, Colombo: Sri Lanka’s Prime Minister Ranil Wickremesinghe says the government aims to make the island a sea-air hub as the government has realized that its main focus has to be a hub not only for aviation but also for sea cargo to ensure the maximum amount of transshipment of cargo and of persons takes place when transferring from airport to port or vice versa.

    Speaking at the 53rd Conference of Directors General of Civil Aviation of Asia and Pacific States in Colombo today Prime Minister Wickremesinghe said there is a crucial role the Aviation Sector has to play in the development of the country.

    Commenting on the fate of the national carrier the Premier said the government hopes to make the national carrier more efficient and will call for public-private partnerships to efficiently make the carrier profitable again.

    He said the government’s policy at present is to protect and expand the country’s national carrier, despite it affecting the development of the airport. The colossal debt incurred as a result of losses at SriLankan Airlines would have contributed towards the construction of three technology institutes to the standards of MIT.

    The Prime Minister said that first priority is to improve the Katunayake Airport. Discussions are being held with the Japanese Government and the Japanese funding agency JICA to enable Sri Lanka to do a feasibility study on a Colombo air sea hub.

    Second goal is to revamp the Mattala Airport in order to make it a profit venturing entity. The government will give priority to any person who can bring up the capacity to one million passengers in five years’ time he said adding that it will be a part of the larger development of Hambantota.

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