Hambantota JV deal with China triggers legal issue
Posted on December 19th, 2016

By Bandula Sirimanna Courtesy  Sunday Times

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The US$1.12 billion Hambantota port joint venture deal with a Chinese firm is set to trigger a legal issue as relevant legislation needs to be amended before handing over the port management to a private company, legal experts claimed.

Sri Lanka will enter into a joint venture agreement with China Merchants Port Holdings Company (CMPHC) Ltd to develop and manage the port by early next month.

The cabinet approved a plan under which Sri Lanka will lease 80 per cent of the Hambantota port to Hong Kong-based Chinese company for 99 years, a government document showed, with the balance 20 per cent to be held by the Sri Lanka Ports Authority (SLPA).

The main functions as port owner, operator, regulator and navigator as well as other services like berthing, tugging, loading, unloading and transporting ships now being handled by the SLPA are to be handed over to the CHMPC under the JV.

However these changes cannot be made without amending the SLPA Act, a senior official at the Attorney General’s Department said adding that before entering into the relevant JV agreement the Act should be amended with parliamentary approval after seeking the legal opinion of the AG.

Once a 99 lease agreement is signed and all conditions have been

fulfilled or waved it becomes a binding contract between the SLPA and CHMPC which cannot be amended unless both parties approve the changes, he disclosed.

It is unclear whether the amendments would include the role of who owns and manages the harbour. While ports are managed by private parties, harbours are generally under the control of a state as it involves national security,” one expert said.

CHMPC will make a $5 million payment as a security deposit after signing the agreement on January 7, 2017, officials said.

The move follows an offer made by Prime Minister Ranil Wickremesinghe during a visit to China in April, to swap equity in Sri Lankan infrastructure projects against some of the $8 billion in debt the country owes to China.

The PM has made several public statements in several occasions claiming that Hambantota Port deal and other infrastructure project agreements would be signed with Chinese companies to swap equity.

He also announced before parliament on October 27 that deals have been secured with China to run the Hambantota deep sea port and Mattala International Airport as public-private-partnerships (PPP) that will be driven by debt-for-equity swaps.

Central Bank Governor Dr. Indrajith Coomaraswamy told journalists on November 27 that Sri Lanka is expecting payments from China for the sale of Hambantota port to flow in from January 2017.

The first payment of US$ 108 million is expected in January, another $300 million in March and the balance around June, he said adding however that this money would be used for (general) debt servicing in the country.

Confirming this statement, Finance Minister Ravi Karunanayake told a media conference on Thursday that this money will be put into the consolidated fund and it will use to pay high interest debts amounting to $736 million.

He categorically stated that the Hambantota port joint venture deal was not a debt-for-equity swap.

Economic experts expressed surprise on the government’s 360 degree turn from the PM’s earlier stance, adding that the country would have been able to get a better deal if they went for international bids.

No doubt the Government would have got much more in the event if they had called worldwide bids. DP World Dubai would have been an ideal partner as they keep investing in the region. Further instead of wasting two years criticising the previous regime, the current administration should have got into business with a proper strategy in marketing and developing the port with the private sector. The strategic location itself has been undervalued,” a shipping logistics expert, said.

At least three local companies – John Keells Holdings, Aitken Spence and Hayleys – had earlier applied to operate the bunker and vehicle terminals at Hambantota Port after proposals were called by the Government. But all these have been given to the Chinese (lock, stock and barrel) without even an explanation to these parties, the expert said.

The Chinese debt trap over Sri Lanka’s economy has been tightened with its stranglehold over the country’s strategic assets. According to Treasury data, the total debt of Sri Lanka is about $70 billion, of which over $8 billion is owned to China.

Over 95 per cent of total government revenue goes for loan repayments with more than 1/3 used to service Chinese debt.

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