Editorial Courtesy The Island

January 7, 2017, 5:08 pm

In March last year the Fortune magazine ran an article simply titled “Hoaxwagen” illustrated with a photo of a spanking new Volkswagen car spewing a cloud of noxious black smoke from its tailpipe. No explanation of what that article was all about was necessary. The whole world by then knew all about how a renowned automaker, whose legendary ‘Beetle’ held the world in thrall for several decades, had in the words of one writer “incinerated” its reputation by a massive emission fraud. Here in Sri Lanka we were awaiting the construction of a Volkswagen assembly plant at Kuliyapitiya under an agreement signed between the local project partner and the Board of Investment. Given the power of the VW brand, it was no surprise that our political leadership massively touted the coming project for which there was a ceremonial groundbreaking early in the New Year with no less that the president and prime minister in attendance.

But the people of Sri Lanka did not know until the smelly stuff hit the fan last week, with a television station quoting a spokesperson for VW saying there was no plan at present to bring their brand here, that there was going to be no Volkswagen assembly at Kuliyapitiya in the foreseeable future. It was only on Jan. 2, 2017, that an amended agreement between the local partner and the BOI was signed removing all references to Volkswagen in the original agreement reached in August 2015. In September of that year, the emissions scandal broke hitting the iconic German automaker with all kinds of trouble both over the scale of the offence and the huge penalties running into billions of dollars it would attract. It is amazing that the concerned authorities here did not follow-up whether intentions inherent in an existing agreement could be realized under the changed circumstances. Since the story broke the prime minister went on record saying that Newsfirst need not have gone to Volkswagen in Germany to find out whether they were coming here. If he had been asked, he would have said that they were not, given the circumstances they were placed in. The fact that neither the German ambassador nor a representative of VW was at the groundbreaking was an obvious pointer that there will be no VW involvement in the project that was being launched.

The opposition would undoubtedly seize the propaganda potential of this mess. We do not know whether somebody pulled the wool over somebody else’s eyes and for long pretended that nothing was amiss with the proposal that had been presented and the agreement that had been signed. If not, it behooves on those who made much of VW assembling vehicles here to have gone public with the real picture before a television station chose to rub egg on the face of the entire government. But why people who should know better did not make their own checks on the real picture in the context of the scandal that hit VW and apprise the political leadership of the existing situation is what defies comprehension. Was our mission in Berlin unaware that the much touted project was not going forward? Was Colombo not so advised? These are matters that bear examination. The local partner of the project is believed to be exploring the possible assembly of other European brands at Kuliyapitiya. Whether he would succeed or not and whether such brand owners would invest remains to be seen. The site was allocated on a basis that is no longer valid. So would possession remain?

There has been a lot of flak, rising to a crescendo last week, about government plans to rescue the Hambantota harbor ‘sinking’ under a load of debt. This port was built on borrowed capital with little or no thought given on how the massive debts incurred were going to be repaid. It has already incurred huge losses and will continue to do so unless some plan to make it economically viable is devised. The incumbent government is seeking to do so through a joint venture with a Chinese partner who will take the majority 80 percent equity in the JV with the Sri Lanka Ports Authority taking the balance. This is obviously not the best arrangement. The government would normally have liked to keep control and limit the foreign partner to at best a 49 percent minority. But this would not have been possible if the rationale for the deal – enabling Sri Lanka to meet its debt obligation over the construction cost – was to be realized.

There is also the question of the period of the lease of the harbor. Ports and Shipping Minister Arjuna Ranatunga said last month that the Chinese originally wanted a 199-year lease and then came down to 99-years. He was thinking of a 50-year lease but that seems wishful. There has been a lot of airy fairy talk about Hambantota being close to major international shipping lanes along which hundreds of vessels sail every day. If a fraction of that number could be persuaded to take their bunkers there, the port could be very profitably operated, it ws said. But experts point out that ships will not make purely bunkering calls; they would want to load and discharge cargo and receive ancillary services like ship chandling and many more. The previous regime had to virtually force car carriers to do their business at Hambantota which was attracting the label of being a port at which no ships called. That port has various geographical advantages that would serve China’s strategic needs now and in the future. That is why China more than anyone else would be willing to invest there. Also, China has the will and capacity to invest in ancillary industries that would give the port business.

In this matter Sri Lanka is like somebody who is forced to make a distress sale. In such circumstances buyers will try to get the best bargain for themselves and China is no exception. But the former president who bears responsibility for landing Sri Lanka in the soup both with regard to the Hambantota port and the Mattala airport, both regarded as personal vanity projects in his home district, is the least qualified to fault his successors trying make the best of a bad situation. Rajapaksa has problems with the sale of family silver. What did he do with prime Galle Face land on which hotels are now rising? The Port City was also a deal in a hurry with no alternative proposals invited and all stops pulled off to sign the agreement while Chinese President Xi Jinping was here. What’s going on can be criticized – but not by Mahinda Rajapaksa.