Sri Lanka to lose millions of USDs as well as fertilizer to Chinese Company

In January this year, Sri Lanka paid an exorbitant amount of 6.9 million in US Dollars to a Chinese fertilizer company as compensation for cancelling an order to purchase a shipment of organic fertilizer. Today, Sri Lanka has not only lost dollars in millions but it may as well not receive any new fertilizer shipment from the said company.

The Sri Lankan Government banned a shipment of 20,000 tons of organic fertilizer worth USD 6.9 million from China’s Qingdao Seawin Biotech Group Company in September 2021 alleging that the fertilizer consignment contained harmful bacteria. 

The samples were obtained from the "Hippo Spirit" vessel, which spent more than three months in Sri Lankan waters until December 2021.

Mandatory tests conducted by a number of regional testing organisations, including the National Plant Quarantine Service (NPQS) on samples of organic fertilizer found that the fertilizer stock contained pathogens, diseases, and harmful microorganisms that were harmful for the soil, plants, as well as people.

Subsequently, more samples were tested by the Sri Lanka Standards Institute (SLSI), the NPQS and the Sri Lanka Atomic Energy Authority. These tests also confirmed that the consignment contained harmful bacteria in them.

Both sides went to court after Sri Lanka accused the Chinese company of providing substandard fertilizer. However, they later reached a settlement in the Sri Lankan Commercial High court and the Chinese company withdrew the lawsuit filed in China.

In early January, the People’s Bank of Sri Lanka paid USD 6.9 million to the China-based fertilizer company as compensation. The payment was made following the Commercial High Court’s decision to dissolve an enjoining order previously issued preventing payment on a Letter of Credit to Qingdao Seawin Biotech. New order was issued as all parties had agreed to settle the dispute by shipping a new stock of standardized fertilizer.

However, Sri Lanka’s Agricultural Minister Mahinda Amaraweera on August 24 said the company “Seawin Biotech”  has refused to refund the money paid for the controversial organic fertilizer shipment or provide a shipment of chemical fertilizer instead.  

The Chinese Company was insisting that Sri Lanka should procure the organic fertilizer as ordered, the minister said.

He said a team headed by an additional secretary to the Agricultural Ministry was continuing discussions with the Chinese Company with regard to the fertilizer shipment.  

“I looked into the possibility of reclaiming the USD 6.9 million paid to the Chinese Company or obtaining chemical fertilizer to allow for the paid amount. However, the Company objected to both requests. They insist that we should obtain organic fertilizer as originally ordered. We risk losing both money and fertilizer,’ he said.  

Meanwhile, the minister admitted that Sri Lanka has no standards for organic fertilizer and therefore, he instructed the SLSI to prepare standards required for organic fertilizer.  

“The Chinese Company said they could not provide organic fertilizer on par with the standards set by Sri Lanka’s National Plant Quarantine Services,” he said.  

Meanwhile, Qingdao Seawin Biotech Group had demanded that Sri Lanka respect the agreement reached between both parties by reminding the Sri Lankan authorities of a supplementary agreement reached in February 2022.

“According to the supplementary agreement reached between our company and Sri Lankan side in February 2022, both sides shall continue with the organic fertilizer project,” Qingdao Seawin Biotech Group Director Song Hai Mei said.

“It is reported that our company took the Performance Bond back according to the ruling of the Chinese court, which is inconsistent with the fact. The Performance Bond is automatically invalid after expiration because the relevant parties of Sri Lanka failed to fulfill the commitment of L / C renewal, resulting in the expiry of the L / C,” Song Hai Mei said.

The company maintains that its organic fertilizer products fully comply with the contract, and the project is fully qualified to continue.

“Since the beginning of 2022, our company has been constantly urging relevant parties in Sri Lanka to promote the implementation of the project as soon as possible according to the supplementary agreement reached in February 2022. Unfortunately, up to now, we have not obtained any substantial response or positive action from Sri Lanka,” it said.

Qingdao Seawin Biotech Group said that the project has caused great losses to the company and the inaction by Sri Lanka has led to a shortage of fertilizer in Sri Lanka and has also damaged the interests of Sri Lankan farmers.

“It is reported that our company has rejected the proposal of providing chemical fertilizer instead of organic fertilizer put forward by the relevant parties of Sri Lanka. We hereby reiterate and explain that our company has indeed rejected the proposal because the bidding project and the subject matter agreed in the contract are organic fertilizers instead of chemical fertilizers, and we are not obliged to provide chemical fertilizers. Our company is a professional manufacturer of organic fertilizers and seaweed fertilizers, not a chemical fertilizers manufacturer, and does not have the conditions to produce chemical fertilizers. According to China's current export policy, chemical fertilizers cannot be exported,” the company added.