By Rajan Philips –

Rajan Philips

The Millennium Challenge Compact is the title of the agreement that has been provisionally signed between the Government of the United States and the Government of Sri Lanka under which Sri Lanka will receive a grant of $480 M for undertaking two projects, Transport Project and Land Project, over a period of five years. The agreement has stirred much controversy and is now the subject of a legal challenge before the Supreme Court along with two other purported agreements between the two governments, namely, the Status of Forces Agreement (SOFA) and the Acquisition and Cross Servicing Agreement (ACSA).

When one reads the text of the Millennium Challenge Compact (MCC) and the background documents, which are all available online for public review, one notices the extent of innocent ignorance and deliberate misinformation that would appear to be the basis for the controversy over the MCC and the opposition to it. Given the widespread media publicity given to the opposition to the agreement, which has far exceeded the publicity given to the agreement itself, it is both fair and necessary that the essential facts of the agreement are brought to light along with their corresponding falsifications, for the benefit of the interested reading public. 

To be clear, and based on the text of the MCC agreement and the respective signing agencies of the two governments, the Millennium Challenge Compact is totally different in its goals and objectives from the other two agreements. There is no reference in the MCC to either the SOFA or the ACS agreements. What follows, therefore, is limited only to a review of MCC as it textually stands and the criticisms that have been levelled against it. I will first point out what the MCC is not, and then briefly outline what it is.

What MCC is not

1. The MCC is not about a loan, with or without interest, from the US government to its Sri Lankan counterpart. It is all about a grant, totaling $480M, with mutual conditions and responsibilities as with any government to government grant and agreement.

2. It is not an agreement forced by the US on Sri Lanka. The Agreement will not come into force until and unless the agreement is ratified by the Sri Lankan parliament. Either party can terminate or suspend the agreement at any time after giving  thirty (30) days’ prior written notice. Conformance with the internal laws and regulations of either party is a fundamental precondition for agreements, as is to be expected in such agreements.  

3. MCC is not incompatible with international law. In fact, its Governing Law is international law. Section 6.4 of the MCC cannot be clearer: “This Compact is an international agreement and as such shall be governed by international law”.

4. MCC is not a national security agreement. Section 2.7 (a) stipulates one of the “Limitations on the use of MCC Funding”, barring the use of the funds “for assistance to, or training of, the military, police, militia, national guard, or other quasi-military organization or unit.” Section 5.1 (b) (v) stipulates the grounds for termination or suspension of the agreement, one of which is any action by the “Government (of Sri Lanka) or any other person receiving MCC Funding or Using Program Assets is engaged in activities that are contrary to the national security interests of the United States.”  

5. MCC is not based on the National Physical Plan initiative in Sri Lanka, old or new. MCC does not involve the development of “growth corridors”, including the alleged “carving out an economic corridor from Colombo to Trincomalee, which is reported to cover 1.2 Million acres in a manner that physically divides the territory of Sri Lanka into two distinct parts”. This is a gross misrepresentation of MCC that conflates two separate initiatives of the Sri Lankan government. One is the National Physical Plan (NPP) initiative, which has its own genealogy. The identification of a Colombo-Trinco Economic Corridor (CTEC) is part of the NPP and has been in policy discussions from the 1980s. The funding for CTEC is expected to come from Korea’s Eximbank and ADB collaboration. There is no US collaboration in the CTEC initiative. MCC is a new US-Sri Lanka initiative and MCC’s Transport Project does not include or relate to the Colombo-Trinco corridor. There is no reference to or mention of the National Physical Plan or the Colombo-Trincomalee Economic Corridor anywhere in the text of the MCC Agreement or Annexures. The person who first wrote about this non-existent connection, created a lie of fallopian proportions.   

6. MCC is not a new incarnation of the old British land laws on waste lands and crown lands. This is another irresponsible misrepresentation. MCC’s Land Project is intended to build on ongoing government initiatives to establish a comprehensive land data base and electronic land registry.  

What MCC is

The agreement is not out of the ordinary and it comprises eight Articles written over 15 pages and five Annexes. The eight Articles cover: Goals and Objectives, Funding, Implementation, Communications, Termination & Suspension, Governing Law & Amendments, Entry into Force, and additional Government Covenants. The signing agencies are the Millennium Challenge Corporation, for the US Government, and the Ministry of Finance for SL Government. The Recitals, being recitals, affirm the commitment of the Parties to “the shared goals of promoting economic growth and the elimination of extreme poverty in Sri Lanka.” Flowing from this, the Compact Goal is to reduce poverty through economic growth in Sri Lanka, with MCC providing assistance in two selected areas towards the general goal. 

The Compact objectives are two projects which were identified through an extensive consultative process in which representatives of the Government of Sri Lanka and MCC participated over more than a two-year period. The consultative process and the identification of the two projects for MCC grant support is documented in the 2017 “Sri Lanka Constraints Analysis Report”, that is available on the MCC website. The report outlines the process methodology through which nine constraints to growth and development were identified and evaluated, namely, Land, Polict/Taxation Uncertainty, Transportation, Water, Electricity, Education, Labour Regulations, Finance and Health – for the purpose of prioritizing two areas as critical constraints to growth. Land and Transport were so prioritized as selected candidates for MCC grant.

From my reading of the Constraint Analysis Report, the focus in identifying the two priorities as “binding constraints” is based on the experience of the 13 Export Processing Zones (EPZ) and their linkages to Colombo. The 13 EPZs are: Katunayake (started in 1978), Biyagama (1986), Koggala (1991), Kandy (1994), Mirigama (1998), Malwatta (1998), Seethawaka (1999), Wathupitiwala (1999), Horona (1999), Mirijjawila (1999), Polgahawela (2000), Mawathagama (2000) and Wagawatta (2004). Transport to/from and within Colombo, and the efficient access to Land were identified as the “binding constraints” and the two projects were formulated to address them, as follows:

Transport Project: The project objective is to address the road capacity and bus system constraints within the Colombo Metropolitan Region (CMR), and to improve the road network connecting the central region of the country where the EPZs are located to the CMR. To this end, three Activities are included in this project. (1) The Advanced Traffic Management System (ATMS) Activity to achieve traffic operational improvements in the CMR by establishing a Traffic Management Centre (TMC), undertaking geometric and operational improvements to 132 junctions, and building 50 new pedestrian crossings, for a budgeted grant amount of $160M. (2) The Bus Transport Service Modernization (BTSM) Activity for the purpose of improving public transport in the CMR in conjunction with ATSM, for a budget of $50M. (3) Central Ring Road Network (CRRN) Activity to reduce transport cost and save time for people and goods by improving selected five roadways in the Central Ring Road network connecting Central, Sabragamuwa Uva, and the NCP/NWP to the Western Province, a total of 131 km and a budget of $140M.

Land Project: The objective here is to increase the availability of information on private land and under-utilized state lands to increase land market activity in SL. Seven districts are targeted: Anuradhapura, Kandy, Kegalle, Kurunegala, Matale, Polonnaruwa, and Trincomalee covering 28% of the land area. Areas outside the targeted Districts also will be brought in, ultimately covering up to 67% of the lands. The budget allocation for the Land Project is $67M. The balance amount of $63M (out of the total $480M) is earmarked for startup and administration activities.

The Annexes outlining the two projects clearly identify all the ongoing transport and land initiatives with which the new projects will have to be co-ordinated. The only concern we should have is about the identification of appropriate agencies within Sri Lanka, for the implementation of these projects, and ensuring co-ordination between them at the different jurisdictional levels. Otherwise, it would be monumentally stupid to walk away from an initiative that would potentially grant $160M to fix 132 of our bottle neck junctions, $50M to revamp public transport in Colombo, and another $140M to upgrade roads connecting the outer EPZ areas to the Colombo hub. Equally, undertaking an initiative to modernize land information is not going to end up in shipping our lands overseas.