China Back to Work as Sri Lanka Unblocks $1.4 Billion Port City

  • Prime Minister Wickremesinghe set to visit China in April
  • Government sees fresh Chinese investments in ports, airports

A Chinese consortium plans to restart work on a $1.4 billion port city project in Colombo after Sri Lanka unblocked the project, a sign of thawing ties weeks before Prime Minister Ranil Wickremesinghe travels to Beijing.

President Maithripala Sirisena had suspended the project a year ago, shortly after he took office following a campaign in which he questioned China’s role in Sri Lanka. CHEC Port City Colombo (Pvt) Ltd. on Tuesday welcomed the “positive step" and “mutually beneficial solution."

CHEC Port City “regrets that the suspension and the lengthy process taken to resume work have resulted in significant losses" to the company and Sri Lanka, it said in a statement. The company will look to complete the project “in the expected timeframe," it said.

Sirisena, who shifted Sri Lanka closer to India, is now looking to rebuild relations with China as a ballooning fiscal deficit and depleted reserves force the government to seek external help. Sri Lanka is looking for a loan of as much as $1.5 billion from the International Monetary Fund, central bank Governor Arjuna Mahendran said on Tuesday.

Larger Than Monaco

In September 2014, Chinese President Xi Jinping inaugurated construction of the Colombo Port City, which was being built by a unit of state-controlled China Communications Construction Co. on an area slightly larger than Monaco. Sirisena had called for a review of Chinese investments in an election that ousted predecessor Mahinda Rajapaksa, who had strengthened ties with Beijing’s leaders during his 10 years in office.

CHEC Port City said that Sri Lanka’s government had conducted a supplementary environmental impact study during the past year. The company said it’s a “responsible corporate citizen" that “looks forward to contribute positively toward Sri Lanka’s economy."

Malik Samarawickrama, Sri Lanka’s international trade minister, said last week that the project can restart very soon, with few amendments to be finalized this month. These include converting the land to a 99-year lease instead of freehold, and ensuring that the Sri Lankan government has a stake in the venture managing the project.

Sri Lanka has resolved all outstanding matters with Beijing and is “all systems go” to bolster bilateral relations, Samarawickrama said on March 9. He said he expected fresh Chinese investments in ports, airports and industrial zones.

The Port City project aims to build offices, hotels and shopping centers on 233 hectares (576 acres) of reclaimed land. Under the original deal, Sri Lanka was to own rights to 125 hectares, with 20 hectares owned by China Communications and the rest leased to CHEC Colombo Port City Ltd. for 99 years.

Before it's here, it's on the Bloomberg Terminal.