ECONOMYNEXT – Getting China to operate Sri Lanka’s loss-making, debt-ridden Hambantota port is aimed not only at reviving the harbour’s fortunes but also managing foreign currency reserves to relieve pressure on the rupee, a central bank official said.
“The government is looking at a broader level, not just the port,” said Nihal Fonseka, a member of the governing board of Sri Lanka’s central bank. “It is looking at the country’s debt, foreign currency reserve management.”
Hambantota port on the island’s south coast, built by Chinese contractors with loans from Chinese banks in 2010, has been branded a ‘white elephant’ for not having enough business to repay debt of over US1 billion.
Fonseka, also a director of the John Keells Holdings conglomerate and former chief of DFCC Bank, said the government was trying to manage the macro-economic situation in the best possible way as it was caught in a debt trap.
“We need to bear in mind the exchange rate is under pressure,” he told a forum to discuss the port’s future held by the Ceylon Chamber of Commerce and Shippers’ Academy Colombo.
“We’ve seen short term investments in rupee securities being withdrawn by foreigners and our FDI (foreign direct investment) performance has been quite poor in the last couple of years.
“When you take all that together, the government wants to look at this transaction also to address all those issues,” said Fonseka.
China’s Exim Bank gave a loan of over US$1 billion for the port project which was build by China Communications Construction Co.
Sri Lanka has proposed selling an 80% stake in the port to state-owned CMPort, previously known as China Merchants Port Holdings, for US$1.12 billion on a 99 year lease. The Chinese have also promised some $5 billion in investments in industries at the port.
“May be you will not get the best deal for the port, but when you look at the broader economy, we must aim to get the best,” said Fonseka said.
“The idea is to maximise immediate inflows the country can get to stabilize some of these tensions we’re facing,” he added.
“In the final analysis, it (Hambantota port) is an asset that you can’t take away – it will remain in Sri Lanka.”
Fonseka said he does not believe any government will give up sovereign rights in such deals.
“Six billion dollars is not a big deal for China,” he said. “To me it is a positive thing but obviously must be done in a way the country’s interests are protected. You need to think big.
“We’re all paranoid about China. Let them come and run the port and bring the investment but the government must ensure to protect its interests.”
(COLOMBO, March 22, 2017)