The fertilizer fiasco that triggered a near Sino-Sri Lankan diplomatic flashpoint

Sino-Sri Lanka relations were at their best for decades following the rubber-rice pact in the 1950s, which gave breathing space to both Sri Lanka and China when the world was going through unprecedented turmoil.

In recent times, it was further strengthened during the tenure of Prime Minister Mrs. Sirmavo Bandaranaike. However, latterly China has taken a hardline as far as Sri Lanka is concerned, owing to their geopolitical apprehensions to coerce smaller nations.

In its latest diplomatic spat, China exerted pressure on Sri Lanka to pay US$6.9 million for a consignment of rejected bio fertiliser that failed to meet Sri Lankan standards. In the event of a diplomatic standoff, Sri Lanka agreed to pay the amount demanded by the Chinese company, but under compulsion. The transaction had taken place during the Gotabaya Rajapaksa regime, who quit office halfway through his tenure owing to a popular public uprising.

The new government in power following Gotabaya Rajapaksa’s departure has adopted a new stance to retrieve the payment that was made for a contaminated fertiliser consignment that never reached the shores of Sri Lanka. However, despite repeated attempts, Sri Lanka failed to secure the 6.9 million dollars paid to the Chinese bio-fertiliser manufacturer under compulsion for the shipload of contaminated bio fertiliser, which was rejected by Sri Lanka.

The Chinese firm Qingdao Seawin Biotech Group Ltd. has bluntly refused to refund the sum paid by the government of Sri Lanka. The company in question has refused to pay on the grounds that it would harm the goodwill and business profile of the Biotech Group.
 
Sri Lanka paid this sum after several rounds of negotiations following a diplomatic standoff between the two countries. In fact, Sri Lanka paid for a rejected consignment under compulsion. This is not accepted as good diplomatic practise by a country that wields a lot of power in the global arena. This is because it sets a precedent that smaller countries can be taken advantage of by larger countries, and it creates a culture of fear in which smaller countries are afraid to challenge the decisions of larger countries due to fear of retribution.
 
The Diplomat magazine of November 26th, 2021 stated:
 
A Sino-Sri Lankan spat over fertiliser ended in China’s favour. Sri Lanka has reportedly agreed to pay 70 percent of the claim made by a Chinese organic fertiliser company. This is for a shipment that Colombo rejected as contaminated.

According to Agriculture Minister Mahindananda Aluthgamage, Sri Lanka will pay $6.7 million to Qingdao Seawin Biotech Group for the shipment of 20,000 tonnes of fertiliser. In addition, Sri Lanka has agreed to buy fresh stocks from the company, the Sri Lankan media reported.

Only a month ago, Aluthgamage stated that the Chinese organic fertiliser shipment would not be accepted, nor would Sri Lanka pay for this shipment. Since then, Sri Lanka has shifted from its acknowledged position owing to diplomatic pressure exerted by China.
Nevertheless, in recent times, Sri Lanka, which is reeling under economic pressure, has made several requests to the Chinese company to refund the amount paid for a rejected shipment.

This was because it was contaminated according to Sri Lankan standards. However, it was not to any avail. The Chinese company has apparently told Sri Lanka that it could send a shipload of organic fertiliser in lieu of the money. However, Sri Lanka is reluctant to get any more biofertilizer from China, which is of no use at this point in time.

Since bio-fertiliser was a thing of the past during President Gotabaya Rajapaksa's tenure. A number of problems may arise from the use of bio-fertilisers from China, which may have toxic contaminants and would not agree with the condition of the Sri Lankan virgin soil. Hence, Sri Lanka has asked for chemical fertiliser instead of bio-fertiliser, which was turned down, saying that they specialise in only bio-fertiliser.

The government says that negotiations are still afoot to secure the money paid for a consignment not received by Sri Lanka. This was due to the nature of the fertiliser, which allegedly contained toxic pathogens. It has also been revealed that Sri Lankan authorities are also at fault for dereliction of duty when they failed to keep records of the letters of credit and performance bonds related to the transaction valid. There is a dereliction of duties on the part of the Ministry of Agriculture, the State Ministry of Agriculture, Colombo Commercial Fertiliser, and Ceylon Fertiliser, according to a report compiled by the Auditor General.

Sri Lanka bought a batch of organic fertilisers from China’s Qingdao Seawin Biotech Group Ltd. in 2021 amid a crisis in the agricultural sector due to the Gotabaya Rajapaksa government’s overnight ban on chemical fertilisers for farming. However, the government has refused to accept organic fertiliser imported from China because samples were contaminated with harmful bacteria.
 
The matter sparked a commercial dispute between China and Sri Lanka, with the government eventually paying the Chinese company $6.9 million (Rs. 1,382 million) for a shipload of fertiliser that did not reach the port of Colombo. Despite all the complexities of the nature of the fertiliser deal, the current government is trying to recover the money paid under a new programme to cushion the loss.

The Secretary of the Ministry of Agriculture, Gunadasa Samarasinghe, has reportedly stated that Sri Lanka is in negotiations through diplomatic channels. The matter was entrusted to the Ministry of Foreign Affairs to reach a negotiated settlement with China.
The ministry secretary says diplomatic channels are being exploited to resolve this issue and recover the loss.

In addition, the government is keen to appoint a committee headed by a judge. This committee will investigate the charge of dereliction of duty by the Sri Lankan authorities in purchasing this organic fertiliser stock. The Chinese toxic fertiliser ship that caused a diplomatic flashpoint between Sri Lanka and China ended after Sri Lankan authorities buckled under pressure. They settled the Chinese company's dues.

Sri Lankan officials say they had to pay this money under compulsion and enormous pressure exerted by the Chinese supplier.
In the first place, Sri Lanka did not want a diplomatic spat over the matter. It was feared that China would backtrack on issues about Sri Lanka's debt restructuring, which is essential for the IMF's involvement in Sri Lanka. Given the clout they wield with the IMF, China could scuttle efforts or make things difficult for Sri Lanka.

In this vortex of confusion, India played a significant role in helping Sri Lanka. Indian Finance Minister Srimathie Nirmala Sitharaman was in Washington and met with the International Monetary Fund chief, Kristalina Georgieva, to present the Sri Lankan case. Sri Lanka was well aware of the Chinese influence on the IMF and was cautious in handling China. Be that as it may, when the matter relating to the shipload of toxic fertiliser surfaced in the public domain, whatever the stance taken by the government, it had hardly any influence on the steps taken by the Auditor General.

In other words, the Auditor General took exception to what was going on in the political theatre. He launched an investigation into the alleged payment, for which ultimate responsibility fell on the Sri Lankan public. In the meantime, the National Audit Office has also cracked open the lid of yet another massive fraud. This took place when the authorities planned the importation of organic fertiliser containing toxic pathogens. The consignment in question was to be brought to Sri Lanka from China, which led to an unprecedented controversy.

It has now come to light that the tender for the purchase of organic fertiliser from China, which was rejected due to harmful pathogens, was not evaluated appropriately by the technical evaluation committee. The reasons for this are unknown at this point. The relevant transaction was approved only by the Technical Evaluation Committee Chairman (TEC), raising eyebrows. The sole signatory to the transaction was the TEC Chairman.

Hence, the Audit Office detected flaws in the evaluation process. It has recommended legal action against all officials who were part and parcel of the decision to purchase this fertiliser consignment from the Chinese supplier. Nevertheless,the people in this country have already paid the costs incurred for the shipload of contaminated organic fertiliser from China. Agriculture Minister Mahinda Amaraweera said recently

The amount of US$6.9 paid for the Chinese toxic fertiliser ship has been recovered from the Sri Lankan population. Amaraweera said.
He said that his ministry explored the possibility of recovering at least US$6.5 million from the Chinese supplier, but that too failed.
The minister further explained that the government is dealing with the issue of the controversial Chinese fertiliser ship in a manner that does not harm relations between the two countries. It implies that Sri Lanka was under tremendous pressure from China to honour the deal.

This is despite the fact that the fertiliser consignment did not meet the stipulated specifications set by the authorities. Minister Amaraweera made these remarks after the Auditor General issued a special report requiring the government to sue the company involved in the toxic manure deal with Qingdao Seawin Biotech.

Amaraweera said that since he took over the Ministry of Agriculture, he has discussed matters relating to the controversial shipload of toxic manure. This happened on several occasions. This has put a lot of strain on the goodwill between the two countries. He said he tried his best to get chemical fertiliser instead of organic. However, the company concerned informed him that they do not produce other types of manure.

The minister said that under these circumstances, the government cannot retrieve the money paid for the organic fertiliser shipload. During Parliamentary debates, the question of who takes responsibility for the toxic manure ship cropped up on several occasions. However, there was no one to take the blame upon himself, creating a moral issue relating to the fertiliser consignment that never reached Sri Lanka’s shores.