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Anti-government protests force Colombo to seek Indian investment in Port City

Sri Lankans are worried about growing Chinese influence

Aiming high: Port City Colombo under construction.

HUGE CRANES AND dredges roll up and down the south end of Colombo's business district, disturbing the tranquillity of the serene oceanfront. The road leading to the construction site is closed with huge sheets of steel, although a signboard says “Welcome to Port City Colombo”. Sri Lanka’s upcoming shiny metropolis, located right across the president’s secretariat on Galle road, is being built to international standards, modelled on the financial centres in Dubai, Singapore and Hong Kong.

A vast expanse of sand reclaimed from the sea is being transformed into a modern metropolis, extending Colombo’s business district. “The Port City is envisioned to position Sri Lanka as a multi-services hub supported by an investor-friendly framework of law,” said Saliya Wickramasuriya, acting director general and member of the Colombo Port City Economic Commission.

Conceived during the second term of president Mahinda Rajapaksa, the project was put on hold during the Maithiripala Sirisena regime. A total of 269 hectares have been reclaimed for the project by the China Harbour Engineering Company (CHEC). Of this, 179 hectares are earmarked for city development, while the total built up area will be 6.3 million square metres.

A public-private partnership between the Sri Lankan government and the CHEC is executing the project. The CHEC has invested $1.4 billion for land reclamation alone. In return, the Chinese company has been given 43 per cent of the land on a 99-year lease. The CHEC can market their share of land to any investor. “Any piece of land in the Port City can be sold only with the consent of the government,” said Yamuna Jayaratne, the Port City’s director of sales and marketing.

It took over 30 months for land reclamation and the project is gaining momentum. Cranes and dredgers supervised by Chinese engineers are seen laying concrete slabs. The Marina, one of the five sections of the project, is half complete and showcases the long arm of Chinese investments in Sri Lanka. The path leading to the Marina has placards detailing the history of China-Sri Lanka relations, with photographs of key events and leaders of both countries. The first exhibit is the photo of the 1952 trade agreement and the last photos show Buddhist monks praying for China to come out of the pandemic, and the visit of President Xi Jinping to Colombo.

Digitally rendered image.

The first phase of the project is expected to be finished in the next five years, while the entire project will take a couple of decades more. “We are estimating to complete the project by 2045,” said Yamuna. The project, she said, was estimated to add 1.29 lakh direct jobs and would attract foreign direct investment worth $8.7 billion in real estate development. About 80,000 people are expected to live in the Port City, which will offer tax holidays for those who invest and do business there. All transactions in the special economic zone, including salaries, will be in US dollars.

But the project, even before land reclamation began, came under criticism by opposition parties, civil society groups and labour unions. At least 20 petitions were filed against the project in the supreme court, alleging that it violated the country’s sovereignty, the constitution and labour rights.

The Chinese involvement, too, has come under scrutiny. When asked whether the project was a key element of China’s ambitious Belt and Road Initiative (BRI), Wickramasuriya conceded that Sri Lanka was a signatory to the BRI. “But the Port City project was conceived many years before we signed the BRI,” he said. “This is our own project. A Chinese company is building the Port City and it has been given 43 per cent of the total reclaimed land for a 99-year lease. But the land is still owned by the Sri Lankan government.”

China’s influence started growing in Sri Lanka after the civil war came to an end in 2009 and Mahinda was elected president for a second term. Colombo wanted Chinese support to rebuild the country after three decades of war. China was more than willing to help, and the Hambantota port project in southern Sri Lanka was one of the key elements of Chinese involvement. But the unfavourable loan terms for the project made it unviable and was a key reason behind Mahinda’s loss to Sirisena in the 2015 presidential elections. The port was handed over to China in 2017 by the Sirisena government, as Sri Lanka could not repay its loans. The bitter experience with Hambantota has made many Sri Lankans wary about the Port City project.

“China is building the project. What can I say?,” asked Hamsa Perera, a 34-year-old small-time businessman who took part in an anti-government protest on March 15.

Wickramasuriya reiterated that the Port City was Sri Lanka’s sovereign asset. “The entire control of the project is with the Port City Commission, and is governed by a special act,” he said. But Sri Lanka’s external debt now stands at about $45 billion, of which it owes $8 billion to China.

The increasing debt and interest payments have pushed the country to the brink of bankruptcy. With protests spiralling out of control, the government and the Port City Commission are trying to bring in more investments into the prestigious project. And one major potential investor, according to the officials, is India, which has high stakes in the Indo-Pacific region. “Indian investors need not fear China. It is our own project and we are looking for investors from across the globe,” said Wickramasuriya.

Despite the assurances, India’s concerns still remain, especially because of China’s ‘String of Pearls’ strategy to encircle India. While Sri Lanka continues to seek financial help from India, it is also in negotiations with China to restructure its debt. The Indian strategy, for the time being, is to wait and watch before making any major investment in the Port City project.