Sri Lanka’s Hambantota Port Leased to China

Hambantota seaport, Sri Lanka | Report Syndication

Brief-Article | REPORT SYNDICATION

The Hambantota Port, officially called the ‘Magampura Mahinda Rajapaksa Port’, is a Sri Lankan seaport, construction of which was largely funded by China’s EXIM Bank.

However, since the start of its operation in 2010, the Chinese-built seaport, worth US $1.5 billion, was incurring losses because of a lack of commercial activity. The situation made it difficult to repay the Chinese debt.

in 2016 it was proposed to lease 80% of the port in a debt-for-equity swap to the China Merchants Ports holding company (CMPort), which will invest US$1.12 billion to revive the port under a public–private partnership.

Later, it was decided that under the agreement, CMPorts will divest 20% of its shares to a Sri Lankan company within ten years. CMPort will have to spend at least US$700–800 million or more to bring the port to operational level.

On July 29, 2017, Sri Lanka Ports Authority (SLPA) and CMPorts  signed an agreement on the Hambantota Port to lease the port to CMPorts for 99 years, leasing 70% of the Port to CMPort instead of the initially proposed 80%.

The deal gave the Sri Lankan government $1.4 billion, that they will be using to pay off the debt to China. This will stop the SLPA paying off debt of the Hambantota Port from the profit of the Colombo port.

The deal had been delayed by several months over concerns that the port could be used for military purposes and also government had to face huge opposition to this deal from trade unions and opposition political parties who called it a sellout of the country’s national assets to China.

The large Chinese loans, inability of the Sri Lankan government to service the loans, and subsequent 99-year Chinese lease on the port have led to the accusation that China was practicing Debt trap diplomacy.