Courtesy The Island

December 17, 2016, 7:12 pm
The sale of the Hambantota Port. The previous government had also signed agreements in 2013 or thereabouts to hand over a part of the Hambantota harbour to a Chinese company on a 40 year lease but on very different terms. There are four first major privatisation of the present government is set to take place in the first week of January with the  terminals in the Hambantota harbour – the general terminal, the terminal for cars, the terminal for bunkering and the one for containers. The agreement signed by the Rajapaksa government  was just for the container terminal and interestingly it was to be taken on lease jointly by two Chinese companies China Merchant Co and China Harbour Engineering Co – the same companies that had put in bids for the whole harbour under the present government.

The Rajapaksa government had signed a Supply, Operate and Transfer agreement with the two companies who would provide all the equipment for the container terminal and operate it for 40 years with 65% for the company and 35% for the government while a royalty of 2.50 USD per container (Which would increase by 1% per year) would be paid to the Ports Authority as well as a rental per hectare. There were also charges for warferage of 30 USD per container which would go to the Ports Authority.  Under this agreement the Chinese company would have 150 hectares outside the harbour on the payment of a yearly rental. The 2000 hectares within the harbour would remain with the Ports Authority. At the time the Rajapaksa government fell, the Ports Authority had negotiated deals with 11 Chinese firms to set up various operations such as cement, fertiliser, warehousing etc on this 2000 hectares with guaranteed royalties.

All these arrangements were halted after the new government came into power. The two Chinese companies that were to jointly take the container terminal on lease have now put in rival bids to take over the whole harbour lock stock and barrel and one of them, China Merchant Co, has won the lease.  The public, however, has not been informed as to what criteria were applied in selecting the present awardee. The minister in charge of the subject went on record saying that he preferred the bid that was put in by the other bidder China Harbour Engineering Co., which was on a 35%-65% basis. Furthermore, this writer learns that a 110 hectare islet that was formed has been just tossed into the deal and will be leased out with everything in the harbour to China Merchant Co for just over one billion USD. During the Rajapaksa regime a Malaysian company had offered 500 million USD for a 99 year lease on this islet alone.

The government may have to reveal details of the previous deals signed by the Rajapaksa government with much the same companies, and the present agreements and explain how the present agreements are more favourable than the ones entered into by the previous government. As of now, the government seems to be in the mood to bulldoze the agreement through.

The year 2017 promises to be an eventful year from day one, as a result of all this. Even the JVP which has largely been quiescent in the midst of all the upheavals that we saw over the past several weeks and months has already warned that demonstrations will bring the country to boiling point come January. They have in fact already started following through with that warning. Nihal Galappaththy the JVP parliamentarian from Hambantota was seen at a well attended demonstration against the alienation of 15,000 acres of land from the Hambantota district to a Chinese company.

Lack of transparency in H’tota deal

There is unease spreading throughout the public sector because the government’s sweeping privatisation plan includes not just the Hambantota Harbour and the Mattala Airport but literally everything that can be sold including the Norochcholai power plant. All this while, the government’s privatisation plans were largely restricted to paper but now with the agreement signed to sell the Hambantota harbour such sales have become a reality which the public sector will have to confront.

There is an entrenched anti-privatisation ideology in this country. One of the main political platforms that held the old left and the SLFP together within the UPFA was Mahinda Rajapaksa’s steadfast stand against privatisation. There is the distinct possibility that the privatisation of the Hambantota harbour may become the rallying point for all those opposed to privatisation to try and stop the programme from going any further. Signs of this were already manifest last week with Dullas Alahapperuma saying at the press briefing of the Joint Opposition that if things go on like this,  by 2020, the only government owned institutions left will be the police department, the prisons department and the judiciary with everything else having been privatised!

There is of course no question about the fact that the Chinese were always a major part of the plan to develop the Hambantota harbour. Sri Lanka does not have enough exports or imports to be able to sustain another harbour. Hambantota was supposed to be a hub servicing the shipping route across the Indian ocean and one of the main nations serviced by those shipping routes is China. It was inevitable from the beginning that the construction of the Hambantota barbour would mean greater Chinese involvement in that part of Sri Lanka which is why the Indians were so unhappy about it. The problem however is in the manner in which the Chinese will get involved and the net benefit for Sri Lanka through that involvement. How a Hong Kong style 99 year lease of the harbour to the Chinese will benefit Sri Lanka will be a moot point.

The UNP has time and again proved abysmally incompetent in negotiating anything whether it be a ceasefire agreement, a joint resolution in the UNHRC or the ETCA with India. This deal with a Chinese company looks very much like another true-to-form blunder.

The government managed to end the strike by the workers of the Hambantota Port by pledging that they would be absorbed by the Chinese company that is to take the port on a 99 year lease. The question of course is why it took so long. On all previous occasions when the privatisations took place from the early 1990s onwards, the government owned business undertakings were sold with the workers and we don’t recall any previous instance when workers in enterprises earmarked for privatisation went on strike due to fear of job losses. In fact that rarely happens even when companies change hands. If the Hambantota port was to be privatised, then the party buying it, would need workers and who better than the existing workforce? Furthermore, in any deal to sell a going concern, one of the main clauses of the agreement would be the employees and arrangements with regard to payment of gratuity and other such payments in respect of those employees.

However the government took its time in giving the workers the guarantees they sought and in the meantime they had suffered even more opprobrium over the manner in which the Navy had been deployed to get the two ships stuck at the port due to the strike released. For days, demonstrations have been held throughout the country over the manner in which the Navy Commander had manhandled a journalist. This was the first time that the country had seen a service commander doing crowd control work, shouting obscenities and aiming blows at people.  One of the reasons why the Navy Commander himself led this mission could be because he could not find another officer who could be trusted to do the job. The armed forces are not equipped to do crowd control work and the memory of Rathupaswela would have been too fresh in the minds of many officers for the Navy Commander to be able to have the confidence that the job would be done.

In fact the way the navy contingent arrived at the Hambantota Harbour showed how unprepared and ill-equipped they were to handle a situation like a strike or a lockdown or do any kind of crowd control. The naval ratings arrived carrying assault rifles and wearing body armour. It was quite obvious that they would not have had rubber bullets either and if the protestors turned violent and started hurling stones, sticks, bottles and other such missiles, the Navy would have had no option but to open fire because that was the only means of retaliation they had. It was a foolhardy risk that the government took In Hambantota. A major disaster was averted only because of the restraint shown by the workers. If there were agents provocateurs among them as in Rathupaswela, the story may have been different.

One of the reasons why the Rathupaswela incident did not have a noticeable impact on the voting pattern of the area despite three deaths and the manner in which the riot was put down was because the people of the area are only too well aware that the whole thing was hijacked by agents provacateurs. Recently, when former President Rajapaksa visited that area to address a public gathering some people tried to organise a protest against him but it failed with less than a dozen people turning up. Nevertheless sending the army to quell the disturbances in Rathupaswela was a bad mistake made by the Rajapaksa government. It was obvious that the Rajapaksa government was actually trying to use the prestige of the armed forces in the hope that crowd would disperse due to the regard they had for the army. But that just did not work. In the light of that unsavoury experience, it was the height of irresponsibility for the present government to send in the the navy armed with assault rifles to deal with the Hambantota protest.

PM’s interview with N.Ram

The interview that Prime Minister Ranil Wickremesinghe gave to N.Ram of The Hindu was doing the rounds in Colombo last week. The original article in The Hindu had the rather bland title  ‘We’re all patriots, we’re all nationalists’. But what caught the eye of the local press was the dismissive comments made by the Prime Minister about the Rajapaksas. However, the most important part of that interview for the Sri Lankan audiences is what the PM said about constitutional change. Asked bout the proposed new constitution, the PM explained to The Hindu, that  the debate on the six subcommittee reports will be held after the first week of January after which the report of the steering committee will be tabled and the real debate on the constitution will take place. Once again, the PM has stressed that a referendum will have to be held to ratify the constitution.

We have reported earlier how President Maithripala Sirisena has always said that he is opposed to a referendum and members of the Sirisena camp like Champika Ranawaka have echoed his views. However now the PM has made an unequivocal statement to the Hindu that a referendum should be held. People like Champika Ranawaka who opposed the abolition of the executive presidency and the holding of a referendum when the 19th Amendment was introduced, may not be able to oppose such moves in the future because he is now an elected UNP parliamentarian and is dependent on the UNP for his political future.

What the PM told The Hindu in relation to the executive presidency is even more significant.Asked whether  everyone had agreed on doing away with the executive presidency, the PM answered in the affirmative and said “We are giving three options for how the Prime Ministerial system should function. The first option is the pure Westminster system. The second is a system where the Prime Minister is elected directly. The third option would require political parties to declare their Prime Ministerial candidates before the elections. In all three options, the President would be a non-executive head of state.” I

It’s all about the Prime Minister and nothing about the President. Back in January this year when the PM introduced the resolution to set up the Constitutional Assembly, the SLFP (Sirisena group) acting through Nimal Siripala de Silva got its entire preamble deleted. It was the preamble which stated that the purpose of the new constitution would among other things seek to abolish the executive presidency. Despite president Sirisena’s resistance we have an unequivocal statement from the PM that the executive presidency will be abolished and a referendum held.

Thus 2017 promises to be quite a political roller coaster ride with the privatisation of the Port, the new Constitution and ETCA all coming within days weeks and months of one another with the very real likelihood of overlap. The sparring between the two partners in the government continued even last week with minister Faizer Mustapha replying to the three UNP backbenchers who the week before last told the SLFP ministers to leave the government if they were not happy with the UNP. What minister Mustapha said at the UPFA press conference was that Maithripala Sirisena had not been made the presidential candidate because of any love that interested parties had for him but because Sirisena was the only candidate who could win against Mahinda Rajapaksa. Therefore he claimed the SLFP were equal partners in the government.

The interesting fact is that this sparring comes in the context where the largely UNP influenced constitution making process which will take centre stage in January seeks to abolish the executive presidency as the PM had unequivocally told The Hindu last week. Everyone knows that the only way to sell the new constitution to the people would be to incorporate in it the two principle pledges given to the people at the last Presidential elections which is the abolition of the executive presidency and the reform of the electoral system. Any constitution that comes before the people without these two key pledges, will not be accepted as a constitution but as a plot to divide the country. This could be why the UNP included both pledges in their working committee resolution the week before last.

The president and prime minister have been playing a cat and mouse game since last year with regard to the abolition of the executive presidency. To give the PM due credit, he did try to bring this key promise into the agenda even before the 19th Amendment but Sirisena with help from the likes of Champika Ranawaka managed to dodge abolishing it. Now however the time of final reckoning has arrived. President Sirisena will have to yield his position if the constitution is ever to see the day.

US interest rates and oil prices

In addition to the above, there will be other perils confronting Sri Lanka in 2017.  The oil price went up to 57 USD a barrel last Monday with the announcement of OPEC production cuts and came down again, but still remains above the 50 USD mark. However with other producers outside OPEC like Russia also cutting production in tandem, all forecasters anticipate only an upward movement in oil prices over the first half of next year. This government took power in a situation where oil prices were in steady decline and at one point went even below 30 USD per barrel. But now, oil prices are higher than they have ever been during the tenure of this government and are set to rise even higher. This is one major threat that the government will have to watch out for. The previous government was able to buy oil at more than 100 USD per barrel and still survive but not this government.

Another looming threat is the increase in US interest rates. The extremely low interest rates in the US brought about a situation where American institutional investors would be scouring the world looking for investments that produced a decent return. American investors held more than half of the foreign currency denominated bonds sold by the government before 2015. With last week’s increase in the US interest rate by 25 basis points or a quarter of a percentage point, Moody’s the global credit rating agency said that the US Federal Reserve’s increase of the federal funds rate reflects a strengthening US economy. Moody’s expects the Fed to tighten at a very gradual pace, with two to three more rate increases pushing the fed funds rate to around 1.25% to 1.5% by the end of 2017.

Moody’s has said that this interest rate hike could adversely affect countries like Sri Lanka  which have large external funding needs, because there could be a capital outflow from such economies.  Sri Lanka’s large external financing needs and macro economic imbalances were exactly what the IMF was talking about in its report on Sri Lanka released on 09 December. In addition to everything else scheduled for 2017 such as the constitution, the commencement of the privatisation programme, ETCA and so on, there are other things that have been lined up by the IMF for the first half of next year which could prove to be just as contentious. A new Inland Revenue Act is due to be tabled in parliament in March. One of the reforms envisaged in the new legislation is to broaden the tax base – which leaves no doubt that this proposed Inland Revenue Act is going to be discussed quite vigorously.

Among the other reforms that the IMF expects to see implemented during the next year is the automatic pricing formulas for fuel and electricity which have been talked about since last year but never implemented. The IMF also wanted greater flexibility in the exchange rate. This combined with their advice that SL should accumulate official international reserves through direct purchases from the foreign market, eschewing reliance on foreign exchange swaps with commercial banks may mean further depreciation of the rupee during 2017 with everything that it entails. The IMF also warned that Sri Lanka’s debt to GDP ratio remains higher than the median for emerging economies (57 percent) and noted that the risks to debt servicing in sri Lanka stemed from inadequate reserve coverage and exchange rate depreciation. So we are entering an year of uncertainty.