Flying into Beijing, Sri Lanka’s President Maithripala Sirisena seemed to hold the key to an important part of China’s latest dream, the so-called Silk Road plan. China desperately wanted him to lift a suspension order that his government recently clamped on a $1.4-billion port-city project in Colombo, Sri Lanka's largest city.
The project is being financed and constructed by Chinese companies because it would give China access to the Indian Ocean, which is one end of the Silk Road project's route. Sirisena’s new government, installed in January after he defeated incumbent Mahinda Rajapska, suspended work on the project, which the Rajapska administration had negotiated.
The authorities in Colombo have three options: lift the suspension and allow the Chinese contractors to continue the work, renegotiate the contract, or scrap the agreement and reopen it for international bidding. The last option would be welcomed by Western construction firms that are looking for an opportunity to access the Sri Lankan market, as they have accessed Myanmar.
The government also plans to review another Chinese-funded project, a 350-meter-tall building, called the Lotus Tower, in Colombo. When completed, it will be the tallest building in South Asia, according to Sri Lanka’s Ports and Aviation Minister Arjuna Ranatunga. Clearly, if Chinese-backed projects are reviewed, China would face new competition, and contractors in other countries would eagerly embrace the opportunity.
“I think the contract will be renegotiated to take care of the government’s concerns. I don’t think it will be scrapped because it will be dismantling and undoing a lot of work that has already been done,” Kalegama Saman, executive director of the Institute of Policy Studies of Sri Lanka, told ENR in a telephone interview.
Saman said one-sixth of the work on the project has been completed. But an engineer working on the nearby Colombo project said most of the work done at the site involved land reclamation from the sea and that, for the most part, actual construction has yet to begin.
The contractor is not likely to give in if it is not satisfied by the government’s decision. CCCC expects to be protected under a Bilateral Investment Treaty between Sri Lanka and China which was signed in 1986.
“It is important to note that as the investor, we have protection under the Bilateral Investment Treaty,” a spokesperson for the company told the Sri Lanka’s Daily News. Any dispute would be settled through arbitration using International Arbitration standards, he said.
Eager to differentiate the company’s activities from the diplomatic relations involving the two countries, the spokesman said, “It is listed on the Hong Kong & Shanghai Stock Exchanges. The Chinese government has majority shares of CCCC, but doesn’t exercise management control over it”.
He also said the company has not been notified about a petition filed by a non-government organization demanding the scrapping of the project on the ground that it was degrading the environment.
Besides the legal aspect, the government has to consider its own pre-election promise about investigating deals that may have involved corrupt practices, and widely discussed concerns about environmental risks posed by the project.
Before leaving for China with President Sirisena, Sri Lankan Finance Minister Ravi Karunanayake said, “What we want to tell the [Chinese] president is that the government of China is clean, but Chinese companies [operating in Sri Lanka] are corrupt.'' He said Chinese contractors are quoting extremely high prices. “We are basically saying, 'Look at the costs these people have quoted and look at the internationally accepted rate,' '' he told local journalists in Colombo.
The Sri Lankan government suspended work on the project on March 5, claiming the contractor, state-owned China Communications Construction Co. Ltd. (CCCC), did not obtain environmental clearance and other approvals necessary to launch an operation of this kind. The government also launched an investigation into alleged corrupt practices in the awarding of the contract by the previous government.
Things got brighter for Chinese officials on March 26, as Sirisena told Chinese President Xi Jinping, “What is happening with the port city is temporary," according to China’s Assistant Foreign Minister Liu Jianchao. Minister Liu quoted Sirisena as saying, "The problem is not with Chinese side.”
But little has changed after the Beijing visit. Sri Lanka is going ahead with its investigations into the alleged corrupt practices and illegal procedures that preceded the signing of the port-city contract. Sri Lankan ministers last week said that, three weeks after the suspension order, CCCC had failed to show proof it has obtained the necessary approvals.