Ambitious Port City dragged into new controversies amid geopolitical cold war

Monday, 10 May 2021 00:00 -     - {{hitsCtrl.values.hits}}


The Port City with the proposed strong legislation is perceived to become a Chinese colony and is seen as a security threat to India and the Indian Ocean region. Top Government officials say both India and the US have raised concerns both directly and indirectly on this Chinese project


  • Ambitious Port City is expected to be the Dubai of South Asia 
  • The Economic Bill with separate legal system is to boost investor confidence 
  • US Ambassador warns the new laws could be misused for money laundering 
  • Debt-ridden Sri Lanka is facing risk of sovereign default 
  • Chinese influence in Sri Lanka irks India, US

The key Supreme Court decision to go ahead with the Port City Bill will be announced on 18 May, the day Sri Lanka will celebrate the 12th anniversary of the victory in a 26-year war. Once passed, possibly with a simple majority in the Parliament on the same day, many analysts expect the ruling party members to come up with slogans stating they ended another war on all opposition to the biggest foreign direct investment in the country that is expected to turnaround Sri Lanka’s economy. 

The important decision is likely to be the Chinese-built Port City is going ahead with no major legal barriers. This is crucial because investors need confidence in the legal system governing their investments and Sri Lanka’s failure to look into the investor concerns on tough and delayed legal procedures in the past have driven away many potential investors. Obviously Port City cannot afford it, if the $ 1.4 billion project needs to create South Asia’s Dubai in Colombo.  

The reality is that if Sri Lanka wants to attract long-term and serious investments as it had never before, then it has to do something it has never done in the past. This is what the optimists say about the proposed Port City Economic Commission Bill whose pros and cons have been already argued and counter argued in the Supreme Court. Opposition political parties, Bar Association of Sri Lanka, a civil society organisation, and some individuals sought Supreme Court ruling after filing fundamental rights cases against the proposed bill. 

Port City is perceived as a game changer or turning point for sovereign-default facing Sri Lanka and the present Government expects it could help reduce the dependency on foreign debts. However, the proposed bill has become a rallying point for the opposition after ruling party legislator Wijeyadasa Rajapakshe criticised the bill with some concerns he had raised in the previous Government as well. The arguments put forward by the petitioners in the Supreme Court were based on inconsistency with the country’s constitution and the bill in infringing the island nation’s sovereignty as well as for lacking Parliament oversight.

The Port City Economic Commission Bill is not something that came overnight. It has been drafted since the last Government though Opposition politicians say it would have been different from what is presented now in the Parliament. 

Though the original plan for such a reclaimed land and city was proposed by former prime minister Ranil Wickremesinghe in 2002, it was started under the presidency of current premier Mahinda Rajapaksa in 2014 with Chinese President Xi Jinping also arrived for the grand inaugural ceremony. What happened to the Port City under the previous Government led by Maithripala Sirisena including suspending the project for nearly two years is now history. 

To understand the Port City and the reasons behind the agitations, one should see the big picture with the backdrop of how Sri Lanka is caught into geopolitics and a Cold War between China and allies of the United States including India, the South Asian regional power which has raised concerns over this reclaimed land and regional security from 2014. Two senior Government officials under Mahinda Rajapaksa’s 2010-2015 Government said the project was initially offered to India and then to China, after the Sri Lankan neighbour’s lethargic interest. An Indian diplomat, however, said India was never offered such a project. 

Battle for strategic location 

There have always been interests by international powers like the US, China, and India on Sri Lankan ports. Trincomalee, one of the best natural harbours in the world is dominated by India since 2003 and Hambantota port is now controlled and majority owned by a Chinese state firm since 2017. Colombo port has been attractive for many international powers with a Chinese firm already controlling a key terminal. All these interests and battles for Sri Lanka’s coast show the importance of the island nation’s strategic location in the world map, especially the global trade. All these interests would have been wonderful if successive Sri Lankan governments had converted them into investments to earn foreign exchange through win-win deals. 

The broader picture based on global geopolitics, however, is completely different. The Port City with the proposed strong legislation is perceived to become a Chinese colony and is seen as a security threat to India and the Indian Ocean region. Top Government officials say both India and the US have raised concerns both directly and indirectly on this Chinese project. 

Port City in the reclaimed land will be a strong contributor in China’s Belt and Road Initiative (BRI), a global infrastructure drive by the world’s second biggest economy that has made China’s rivals nervous. The previous Sirisena Government allowed to resume the project after suspending it. However, the Government was able to remove a clause in the original agreement that could have given some of the reclaimed lands on outright basis to the Chinese investor. Instead, the land was given on a 99-year lease basis. But that was done at the expense of cordial diplomatic relations with China. During the latter part of the previous Government, Maithripala Sirisena administration’s request for nearly $ 1 billion loan from a Chinese bank never materialised with some lame excuses being given. 

The removal of the land ownership clause has hardly changed anything. A Chinese-controlled land in Sri Lanka is still a threat to Sri Lanka’s closest neighbour India for obvious security reasons. Government sources say India has never got settled since the arrival of two nuclear submarines in 2014 including one during Xi Xi Jinping’s official visit to Colombo. The arrival of the submarines to Colombo port later became one of the main reasons to oust then president Mahinda Rajapaksa in what is called by some most knowledgeable political analysts as an ‘internationally backed democratic coup’ through the presidential polls on 8 January 2015. 

The last Government’s decision to give the East Container Terminal (ECT), which is close to the Port City and Chinese-built Colombo International Container Terminal (CICT), was to counterbalance those concerns, two top officials in the last Government say. 

India along with Japan made its best bid to have control over ECT, the deepest terminal thus far in Colombo port. However, despite all the promises and commitment by the current Government leaders, Prime Minister Mahinda Rajapaksa went back on the promise, citing heavy pressure from the trade unions close to the ruling SLPP. However, two sources who are aware of the deal say Prime Minister Rajapaksa might revisit the decision if the state-owned Sri Lanka Ports Authority (SLPA) fails to start commercial activities at the ECT within six months from the decision. 

Cold War 

A perceived cold war between China and US-allies in Sri Lanka is not something new. Statements and counter statements by both the embassies of US and China in Colombo during the past year have proven this. The US, and its allies have raised security concerns as well as the genuineness of Chinese investments, while China has hit back against the US claims. 

The perceived cold war comes at a time when China’s ambitious BRI infrastructure project is taking shape in the global trade and gradually impacting the West. China’s possible future plan to draw resources from Africa to Middle East via its BRI also is a concern for many countries who have been on the largest economies list in the past. The prediction of China becoming the largest economy in the world also is a concern for many developed nations as well. The bottom line is if China successfully establishes the BRI, then it’s going to be the busiest economy in the world, pulling the US down. 

At this juncture, Sri Lanka’s strategic location is crucial for China’s BRI and for Sri Lanka, China is needed to borrow money as and when it wants amid piling foreign debts at higher cost. With the downgrading by all three global rating agencies, the island nation is unable to access the global capital market at a cheaper rate as in the past. This is why global financial analysts expect Sri Lanka to default sovereign loans in 2022. 

For some Sri Lankan leaders, the close relation with China is a golden opportunity given that the $ 81 billion economy is unable to borrow money from the US, India, Japan, or countries from the European Union. These countries demand for transparency, better governance, more private sector participation, prudent financial procedures, and accountability for any money they give. Unfortunately, the Government is not in a position to wait for a long time to ensure all these criteria as it needs millions of dollars quickly. 

China is different and it has now almost become Sri Lanka’s official credit card at any given time. A perfect match-making. However, as warned by many, Sri Lanka will soon find the threshold limit of its credit card when it will be forced give out lands and assets when it is unable to honour the loan repayments. 

What Sri Lankan leaders have forgotten is the cost it paid for siding with one international power during a past Cold War. When then president J.R. Jayewardene’s administration got close to the US in late 1970s, India feared that J.R. could give Sri Lanka’s strategically located natural port in Trincomalee to be used as a naval base for the US military. This was the time when India and US were at the cold war because of US’ alliance with China and Pakistan. 

Sri Lanka had earlier agreed to give the Trincomalee tank farm development project to India at that time because of India’s fear that the original bidders, a Singapore firm, had links to the United States. Jayewardene’s decision in 1981 to lift the nine-year-old ban on foreign warships in the Trincomalee harbour was seen as a major threat to India’s hegemony in the region, particularly because the United States was the first to send warships to the port for refuelling. India feared that the Trincomalee harbour would be covertly converted into a United States naval base if it did not put pressure on Sri Lanka to give up the Singapore firm’s offer. 

This along with the J.R. administration’s response to the 1983 ethnic clashes with attacks over minority Tamils and South Indian Tamil Nadu’s agitation led Indira Gandhi’s administration to train Sri Lankan Tamil youths in South India. This is how the Liberation Tigers of Tamil Eelam (LTTE) received foreign training in India. The rest is history now. 

Now the order has changed. India and US are allies, while Pakistan and China are in the rival group. But if Sri Lanka believes it could take advantage of this rivalry, as it did soon after the end of the war amid alleged war crimes, it would be a big mistake. The consequence would be unimaginable as was in Sri Lanka’s civil war. 

Concerns from Sri Lanka’s partners 

There is no question that the ambitious Port City project should go ahead and will help the Sri Lankan economy immensely both directly and indirectly. However, it is important to consider the concerns of Sri Lanka’s key trading partners, especially the United States and EU nations, which together account for more than half of our exports. Since these countries have pushed Sri Lanka to address the past human rights violations including alleged war crimes, the current administration’s diplomatic relations have not been up to the mark with them. 

The warning came from Alaina Teplitz US Ambassador to Sri Lanka and Maldives. Last month she warned the island nation of unintended consequences of ‘nefarious actors’ who may try to misuse the China-backed Colombo Port City’s easy business rules as a permissive money laundering haven amid concerns of tax leaks.

“Any legislation relating to the Port City has to be considered very carefully for its economic impact,” Teplitz told reporters in Colombo in an online discussion. “And of course, among those unintended consequences could be creating a haven for money launderers and other sorts of nefarious actors to take advantage of what was perceived as a permissive business environment for activities that would actually be illegal.”

India’s concerns on possible threats to regional security has yet to addressed. According to a 1987 Indo-Sri Lanka accord, Sri Lanka has to work with India on any action that could have a threat to regional security with a mutual understanding. Though China has repeatedly said Sri Lankan lands will not be used for military purpose, Western diplomats say they could hardly trust it. 

For a successful future, Port City investments engaging with Sri Lanka’s international partners, is vital before deciding the legislation. The Chinese investor for the project may not like this, but such discussion is important in the interest of Sri Lanka’s future unless China comes to rescue and buys all Sri Lankan exports. 

Outdated legal system 

Whether you like it or not, the foreign party has a greater say in the Port City at least as per the bill presented to the Parliament. It is remained to be seen if it is good. With the passage of the bill, the Chinese firm should be able to start commercial operations legally in the Port City. 

Sources who are aware of the investment interest in the Port City say there had been interest from Europe and Middle East for projects in the reclaimed land. However, they have asked for clear and liberal laws on the investments. 

“The main concern during the discussions was the delay in our legal system. Most investors during the discussion asked for a separate legal system that will cut down arbitration to one-week time. We also understand that it is a must as our outdated laws take years to resolve arbitrations,” a former minister in the last Government said asking not to be named. 

“But what former prime minister Ranil Wickremesinghe proposed was to incorporate the separate legal and court systems into the constitution and also to have Parliament oversight. Those aspects are missing in the new bill.” 

The new bill once passed will be used against the Government until people see economic benefits from the Port City. But that needs time. 

The new Port City Economic Bill has also explained Sri Lanka’s existing legal system in doing business. It has acknowledged that the existing laws have made lives of entrepreneurs and investors miserable. 

(The writer is former Reuters Economic Reporter for Sri Lanka and current Head of Training at Centre for Investigative Reporting Sri Lanka. He can be reached at [email protected].)


Recent columns