Is China grabbing more investments before creditors’ talks?

Despite the ongoing delay in restructuring Chinese debt to Sri Lanka, the developer of the Port City, China Harbour Engineering Company (CHEC) Port City Colombo (Pvt) Ltd, has announced its intention to invest USD 1.2bn in the establishment of an "international financial center" within the Port City. President Ranil Wickremesinghe recently acknowledged that China has been present at debt restructuring meetings but has yet to reach a consensus.

Despite this, he remains optimistic and hopeful that China will eventually comply with debt restructuring, as it has the potential to pave the way for Sri Lanka to secure an IMF bailout package.

The USD 1.4 billion Port City project has sparked mixed reactions throughout, largely due to uncertainties surrounding its investments, particularly the absence of laws governing investors, such as the proposed Business of Strategic Importance (BSI) regulations that the Wickremesinghe government aims to enact.

 Even prior to the completion of the ground plan, several prominent businessmen and business tycoons visited the Port City. Obviously, they did not proceed further, likely due to incomplete or insufficient information regarding the infrastructure and regulations required for investors.

It is apparent that no prudent businessman would commit to an investment without a clear understanding of the governing laws of the port city. The execution of the Port City project was entrusted to CHEC Port City Colombo (Pvt) Ltd,  is part of China’s state-run Communications Construction Company Limited (CCCC).

The delays in implementing investor-friendly legislation have posed significant challenges for the developers of the Port City too.

They have been pressing the previous government to establish the essential frameworks necessary for investors to make informed decisions about their business plans. These delays have created substantial obstacles for the developers and have impeded the overall progress of The Port City land is comprised of different blocks, and the finalization of necessary regulations is currently underway. 

State Minister Amunugama told the local media that the Business of Strategic Importance (BSI) regulations, which define the incentives for operators within the Port City, have already been drafted and approved by the Cabinet. They are presently undergoing the finalization process with the Legal Draftsman. The implementation of these regulations is expected to address the concerns of potential investors and provide clarity regarding the benefits and incentives available to them.

Minister Amunugama emphasized that the BSI regulations will govern the incentives and financial operations within the Port City, taking into account the separate financial rules applicable to the area. The absence of these regulations has hindered the commencement of projects despite the leasing of several blocks of land in the Port City, he pointed out.  

According to him, currently, approximately 17 investors are eagerly awaiting the implementation of the BSI regulations. The Minister highlighted that China has gradually recognized the importance of intervening in Sri Lanka's financial crisis, as they play a crucial role in its resolution. the project.

Amidst ongoing concerns, the Port City project continues to spark widespread curiosity and raise questions regarding its transparency and potential geopolitical implications. Located in a high-security zone at the heart of Colombo, near the Colombo port, this reclaimed land has gained significant global attention, primarily due to China's ownership of a portion of the city through a 99-year lease. 

The project faced a temporary halt initiated by the current President, who previously served as Prime Minister in 2015, along with President Maithripala Sirisena, to conduct a comprehensive study before resuming its progress. This decision caused displeasure from the Chinese side. Although the project eventually resumed after a year, the government was held responsible for the delay, and China sought compensation. In a resolution, instead of financial compensation, it was agreed that a few additional acres of reclaimed land would be added to the portion leased to China for 99 years, effectively addressing the compensation issue. 

China, particularly the CHEC, leads the Port City project, with China Harbour serving as the contractor. Initially, the land distribution within the Port City was planned to be in proportions of 30:30. However, due to delays in the project's execution, the distribution changed to 40:30, with China Harbour receiving 113 hectares out of the 269 hectares reclaimed. This adjustment in proportions was influenced by the government's indebtedness to China resulting from the project delay.

Also, to this date, the contents of the tripartite agreement governing the Colombo Port City Development Project (CPCDP) remain undisclosed to the public despite it was signed in 2017, between the Ministry of Megapolis and Western Development, the UDA, and the CHEC Port City Colombo (Pvt) Ltd. What was said is that the specifics of the agreement were not told to the people of the country.  

The CHEC has recently announced its investment of USD 1.2 billion in the Colombo Port City, with the initial focus on developing the International Financial Centre. This announcement was made by CHEC President Bai Yinzhan at their headquarters in Beijing on June 26, 2023.

The event was attended by Sri Lankan Foreign Minister Ali Sabry and Sri Lankan Ambassador Dr. Palitha Kohona, who has been actively promoting bilateral relations with China.

However, the Port City project has faced criticisms throughout. In 2018, the Centre for Environmental Justice (CEJ) raised concerns that the project was launched without adequate public consultations and a comprehensive Environmental Impact Assessment (EIA) process. The CEJ requested a copy of the agreement from the Ministry of Megapolis and Western Development, but their request was denied citing the presence of confidential clauses.
Seeking transparency, the CEJ appealed to the Right to Information Commission (RTI) in November 2018 to release the agreement.

The RTI Commission accepted the appeal, leading to a lengthy hearing process that spanned four years, making it one of the longest hearings in the Commission's history. During this period, the responsible Public Authority underwent changes, first to the Ministry of Urban Development, Water Supply, and Housing Facilities, and later to the Ministry of Investment Promotion in 2022.

In the meantime, a new Act was established the Port City Economic Commission. On 20 July 2021, at the request of both the PA and the Office of the Presidential Secretariat, the Presidential Secretariat was added as an additional respondent to the appeal.

Alongside the CEJ, All-Country Fisheries Society also sought a copy of the Port City agreement through the RTI Act. Both cases were heard together. RTI Commissioner Kishali Pinto Jayawardena at the outset stated in the final order that the PA failed to determine which clauses should remain confidential. The Tripartite agreement signed in 2014 for the Colombo Port City development became public knowledge through the judicial process. Therefore, the Commission declared that there was no justification to withhold the document from the public. 

The hearing process was lengthy, and the government offered several excuses, such as changes in administrations and the need to consult higher officials, to deny access to this information. Eventually, following repeated requests by the Commission, the PA agreed to release some information from the agreement to the appellants on 29 September 2021. However, this information was insufficient to fully comprehend the project's impact. Consequently, the appellant (CEJ) requested the complete agreement.

It was Senior Advisor of the CEJ  Hemantha Withanage made an official statement on April 7, 2023 expressing  that although it was a protracted procedure, it sets a precedent for the government to disclose all information related to agreements between the Government of Sri Lanka and foreign parties unless they can effectively demonstrate the need for confidentiality." This achievement is significant for the Centre for Environmental Justice, representing the affected communities and the environment, he noted

On October 29, 2019, just before the Siresena-Ranil government was defeated, then President Maithripala Sirisena officially handed over the land deed of the CHEC Port City to the Chinese company. The event took place at the Presidential Secretariat, with the presence of former Chinese Ambassador Cheng Xueyuan.

In 2021, Speaker Mahinda Yapa Abeywardana certified the Colombo Port City Economic Commission Bill, which had been passed in Parliament on May 20 of the same year. This bill establishes a Commission with the authority to grant registrations, licenses, authorizations, and other approvals for conducting businesses and activities within the Special Economic Zone (SEZ) to be established within the Colombo Port City.

As of 2023, there is still a delay in implementing a drafted law that would facilitate investments in the Port City. State Minister of Trade and Promotion, Dilum Amunugama, has assured that the Business of Strategic Importance (BSI) regulations, which have been a key concern for potential investors, will soon be enacted. 

The CHEC's investment in the Port City project and its intentions to establish an international financial center are not surprising. It is evident that China is prioritizing its own benefits from additional development projects before agreeing to Sri Lanka's debt restructuring.

China is carefully considering alternative options and weighing its choices, as it is concerned that the IMF may impose limitations on its pursuit of other loan-based initiatives in Sri Lanka. This strategic approach could be seen as an attempt to exert control over Sri Lanka. Furthermore, the USD 1.2 billion CHEC "international financial center" at the port city will likely remain undisclosed, leading to speculation and uncertainty among the public.