By Laksiri Fernando –
Fiasco might be a strong word, but it is fitting at least considering the Navy handling of the Journalist. For a while, because of this ‘fiasco,’ the bigger issue or the bigger Fiasco got blurred. The leasing of the Hambantota Port for 99 years at this stage of Sri Lanka’s economic development for just US$ 1.12 billion to a Chinese company (China Merchants Ports Holding Company) will have great repercussions for the country for a long period.
The most alarming is the causal way that the Prime Minister, Ranil Wickremesinghe, has talked about this deal. He told The Hindu newspaper (15 December 2016) that “We have negotiated debt-to-equity swap and industrialization.” Here we are talking about a ‘debt trap’ that Mahinda Rajapaksa has noosed around the country and Wickremesinghe enjoying it believing that he managed to swap it for equity and industrialization.
The Debt Trap
The debt on the account of building the harbour was around 1.5 billion and this swap does not obviously cover the full amount. According to the most conservative estimates, at least 38,000 million must be paid back with its interest. The government is not revealing the full details. The full amount of debt to China is reported to be around 8 billion. All these figures are in US$. If we go by the same logic of swap of debt to equity, then how many enterprises that Sri Lanka must be leased to cover the Chinese debt?
However unplanned, the purpose of building the Hambantota harbour was to make it a profit making enterprise for the country. There is no point in taking loans to build an enterprise if it were to give back to the lender for their own profit making for 99 years. Therefore, both the present government and the last government are responsible for this fiasco.
It is true that the government effort is to make the Hambantota port ostensibly a joint venture. It is also named as a public private partnership (PPP). But this is a strangest ever public private partnership. Only 20 percent to the public, and 80 percent to the private partner! In this particular case, the private partner is not a local company, but a foreign enterprise. Even for a proper local PPP, the public sector should at least keep 55 percent of shares. This should be more so, when it comes to a foreign company as the private partner.
Although this is called a PPP, it is not actually the case. It is simply a distortion of a popular notion. This is a 99-year lease agreement keeping the lease holder to give 20 shares to the Ports Authority. This may give some income to the government. But that also depends on the profit making of the enterprise. This might not be in doubt since the Chinese company will make sure that it generates necessary profits. China can make use of the port for its own ships trading with Africa and the Middle East.
China has been extremely smart in the whole deal with the present and the last government. You cannot blame for their smartness. They got the MR government to get a loan and it was spent for their own entrepreneurs (China Harbour and Sinohydro Corporation) to the build the port. Of course, there were some Sri Lankan workers and engineers working for them. China Exim Bank gave the loan. Now it is given back to the China Merchants Ports. What a nice debt trap! Only pleasure was for Mahinda Rajapaksa as it was called Mahinda Rajapaksa Port for a while. That is also gone now. There was also a big Tamasha opening with some artists also benefitting handsomely.
The recent fiasco proved how desperate the workers became when they came to know the port is going to be leased. They were casual employees who were recruited haphazardly by the last government. They however had every right to secure their employment which was neglected. If they needed further training, they should have been given.
No one can condone the way the workers held up the Japanese vessel, Hyperion Highway, for four days, risking their own lives. Whether it is an ‘act of piracy’ or not, that should not be the way for trade union struggles in my opinion. The Navy intervention nevertheless was excessive, without allowing industrial negotiations to take place. In Sri Lanka, many issues and relations are becoming increasingly chaotic. On the other hand, if not for their drastic action, the workers’ demands would not have got the government attention.
The Navy intervention also heralds the way the security at the Hambantota port would be handled in the future. The Chinese government has already expressed concerns about the increasing political instability in Sri Lanka. This could also be a bargaining chip. Although ‘communist’ by name, the Chinese partners (including the government) are tuff negotiators when it comes to money and profits. This is what has been lacking on the Sri Lankan side. The China Merchants Holding Company would ask for full security from the Navy in the future. The government may have to bear the major costs if not the full. People like Ravindra Wijegunaratne (Navy Commander) would be delighted to do so, perhaps nothing else to do in the horizon.
Parallel of Darwin Port
Leasing a port for a foreign company is not unusual in the ongoing trends in the world trade today. China excels in these ventures. Australia’s Darwin Port was leased for a half a billion Australian dollars at the beginning of this year (2016) to the Landbridge Corporation of China. It was also a 99-year lease. The Sri Lankan dealers might be delighted to hear this. In comparison to Darwin, the Hambantota deal may appear a good bargain, because it is 1.12 billion US dollars. But it is not the case.
Darwin is a small port without much traffic compared to the potential of Hambantota. Therefore, the price of the Darwin lease is considered beneficial to the country. In addition, Landbridge Corporation has agreed legally to invest around .74 billion in the project for the next 25 years. Do we have such an agreement for Hambantota? This is questionable. The lease agreement is also passed as legislation in the Northern Territory Parliament. Do we have such a legislation covering the Hambantota deal? Most of the terms except the overall figure are shrouded in secrecy. In the case of the Darwin deal it is called the Prots Management Act (9 June 2016).
Darwin deal also was done amidst controversy. This matter is still debated in the country, particularly considering its impact on national security. On the Darwin deal, the US expressed grave concerns, even under Obama, but the US also have their long-range bombers placed at the top end of the port area. Unlike Hambantota, what is leased in Darwin is a very small area totally confined to the port.
Can there be national security risks in the Hambantota deal? There can be. There are growing tensions between the US and China particularly after Donald Trump became elected as the President. Although overtly appear as trade issues, there are political tensions which could escalate into military concerns. Recently, China seized a US Navy underwater drone and Trump tweeted even before officially becoming the President, ‘we don’t want it.’ He wanted to emphasize the Chinese hostility towards the US. There is an escalating Cold War between the two countries. Does Sri Lanka need to take such a risk in this context? A rational answer might be an emphatic No. In any future rift between these two giants, Hambantota port might become a controversial issue.
Leaving aside these international security issues for the future, even as a trade deal, the Hambantota lease is a bad arrangement. The payment of 1.12 billion debt to the Exim Bank by the China Merchants can be celebrated only by charlatans. Of course, the amount is huge on its face value. But the liabilities are enormous considering the lease period, the shareholding (80 percent), potential income and the terms and conditions. It is possible that the deal is a logical extent of what was agreed by the previous government with the Chinese authorities in 2010. There were some indications to this effect from the former Ports Authority Chairman, Priyanth Bandu Wickrama, in 2014.
Why didn’t Sri Lanka go for a 33-year lease instead of 99-years? There is no magic about 99! Longer the period, uncertain is the country’s future. Why couldn’t Sri Lanka hold on to 55 percent of equity, instead of keeping only 20 percent? There is no point in saying the ownership is with the government. Under these agreements, lessees are stronger than the owners. Ranil Wickremesinghe has boasted about ‘industrialization’ under the lease agreement. For that purpose, he is giving 15,000 acres on lease for the same amount of money in addition to the port.
There are two major flaws revealed behind the intended lease agreement. First is the weakness of the Sri Lankan leaders and bureaucrats to negotiate better terms for trade and other economic deals with external partners. This is the same whether it is the IMF, the World Bank, China, India or USA. In respect of ETCA (Economic and Technical Cooperation Agreement), India wants to sign it in June 2017, but Wickremesinghe wants to sign it also in January. His first preference was this year (2016). There seems to be an unusual hurry for some reason.
The most flawed seems to be the economic thinking behind all these initiatives. When the Prime Minister talked to The Hindu newspaper, he has said the following.
“We want the Indian agreement also quickly. Because, one, the Indian agreement paves the way for a tripartite [arrangement for trade and investment] by 2017 — Sri Lanka, India, and Singapore. The agreements we have between us mean that we are at the crucial entry points of the Bay of Bengal and we can work further on a closer economic union within the Bay of Bengal [region]. For that to succeed also, we require the agreement with India, because the five southern States [Tamil Nadu, Karnataka, Andhra Pradesh, Telangana, and Kerala] and Sri Lanka — the total GDP of such an economy is over $500 billion with the possibility of doubling to a trillion dollars within a decade or so. The potential is enormous, so with our agreements with Singapore and with China, on their ‘One Belt, One Road’ initiative, it is imperative that we sign the agreement with India as fast as possible.”
There is no question that tripartite agreements or a ‘Bay of Bengal Trade Zone’ could benefit Sri Lanka in theory. But it is far-far away from the current reality. As the Hambantota fiasco has shown, Sri Lanka or the present government is not ready for that. If Sri Lanka cannot manage the Hambantota port, as the major partner of the so-called PPP, how can it benefit from other deals? Sri Lanka needs to strengthen and boost its own entrepreneur and management capacities. There is no other way to go about international deals.
Such agreements like the Hambantota lease might bring quick money or benefits to the government. It is like obtaining quick money from the Central Bank bond scams. However, the final looser would be the country and the people. At least in the bond scam, the benefits went to the local company the Perpetual Treasuries. However, this time, the beneficiary would be the China Merchants. Ranil Wickremesinghe has also outlined several other deals that they intended to unleash. Just after the above quoted statement, The Hindu interviewer, N. Ram, tried to bring some home truths by turning attention to Brexit and Trump victory in the USA. But unfortunately, our PM couldn’t get it.
It is in this context that he boasted not only about the ‘debt-to-equity swap and industrialization’ in the Hambantota deal, but also talked about leasing Trincomalee to Singapore (Surbana Jurong), India or Japan!
None of these deals are transparent. As I have pointed out in the case of Darwin, there is no such Ports Management Act for Hambantota. At least the opposition and the people still have time to stop or ask for a better deal for Hambantota. It is supposed to sign in early January. As M. A. Sumanthiran (MP) has revealed, even the deal with ArcelorMittal to build 65,000 houses in the North is also shrouded in corruption. Wickremesighe government is living in a pre-Brexit dream-world where every global or regional economic conglomeration is considered hunky-dory. That is not the case in reality. A strong national economy is important before all international deals.