‘Disappearance’ of Hambantota Port deal accounts cause for concern

The ‘disappearance’ of Hambantota Port deal accounts discovered by is cause for concern, especially given that the new Minister of Investment Promotion, Dhammika Perera, is to oversee many Chinese-funded investment projects such as the Lotus Tower, where the monthly payment for the loan obtained to construct its Rs. 200 million per month for ten years.

The Committee on Public Enterprises (COPE), a parliamentary committee established by the parliament on July 21, 1979, discovered how the leadership in power handled China’s strategic development projects obtaining loans in June 2022, which also contributed to the current crisis because some of the projects did not generate revenue.

Sri Lankan authorities received new loans from China for infrastructure projects in 2009, but did not have enough money to repay them, so the Hambantota port, located ten nautical miles from the global trade route, was awarded to China on a 99-year lease in 2017.

Initially, China offered to develop the port for USD 1.3 billion in 2008. The project was built by a partnership between China Harbor Engineering Company (CHEC) and the Sino Hydro Corporation and they were given an income tax holiday of up to 32 years as well.

Sri Lanka ended up having to repay nearly USD 1.7 bn to China as principal and interest for the loan it had taken to build the Port until about the year 2036. The debt repayment for this loan at that time was close to about USD 100 mn annually.

COPE discovered that no accounts supporting the Hamabantota port are with the government during an open inquiry that included live streamed conversations between COPE officials and the Sri Lanka Ports Authority (SLPA).

It was discovered that the loans taken for the construction of the Hambantota Port were not repaid with the lease money received in 2017 and were instead used for other purposes.

Tax payer’s questions

Taxpayers have many questions about the port deal because there are no records kept of it.

There is an underlying worry that it is not entirely an unintentional error.

Officials of the Ports Authority testifying before the COPE revealed that the Ports Authority gave the loan amount, as well as the amount received during the port’s 99-year lease, to the General Treasury in 2017, and that the loan taken for port construction had not been paid, and that the Treasury had instead used these funds for other government expenditures due to the low loan interest rate.

The inquiry also said that although the Treasury repaid the loan and interest in installments, it was not properly recorded as a loan repayment in the accounts.

The COPE Committee was chaired by Prof. Charitha Herath and his team who examined the 2019 and 2020 Auditor General’s Reports and the Sri Lanka Ports Authority’s current performance.

Without the approval of the Treasury or the Cabinet, the Ports Authority withdrew the financial statements showing a loan and interest balance of Rs.147,746 mn and a foreign exchange conversion loss of Rs.31,545mn as of November 30, 2017.

Between 2007 and 2014, Sri Lanka received five loans to help build the port. According to the COPE inquiry, while the total amount was around USD 1.37bn, only USD 357mn was obtained at a higher commercial interest rate of 6 percent, while the balance was disbursed at a concessionary rate of 2 % by the Exim Bank of China to finance various parts of the project.

According to a Treasury representative, the Treasury advised in April 2021 that this loan should be included in the SLPA books because the asset was mentioned as a non-current asset in the SLPA books, so the asset and relevant liability should be under the same accounting treatment.

COPE Chairman’s advice

The COPE Chairman advised the Secretary to the Ministry of Ports and Civil Aviation that the Ministry of Finance discuss this matter with the Ports Authority, take the necessary steps to include it in the accounts, and report back to the COPE Committee within a month.

Why are the accounts and transactions between China and Sri Lanka has not been documented in the first place is a serious offence. Such practices have also caused China’s Belt and Road Initiative to falter in many countries, and many countries that do business with China say the Sri Lanka crisis has opened their eyes.

Prior to the discovery of the missing Hambantota Port accounts, there was widespread corruption at the Hambantota Hospital, which was also built by the Chinese.

The ABC Media Network in Australia investigated an alleged money laundering case involving an Australian medical company called Aspen Medical Company in May 2002. Details of alleged corrupt dealings during the construction of Sri Lanka’s Hambantota General Hospital were revealed in the investigation.

The ABC Media Network detailed the investigation into allegations of corruption in a personal protective equipment contract with Canberra-based Aspen Medical Company.

The company reportedly received official support from the Australian government in the form of an insurance guarantee for AUD 18.8 million from the previous Export Finance and Insurance Corporation on the grounds that it was hired to “supply equipment and associated medical design and infrastructure for the hospital.”

When asked by the ABC’s Four Corners program whether the medical supplies were produced on behalf of the hospital, the company declined to comment. The trial is still ongoing.

In addition to the Hambantota port, China has been able to gain control over other projects like roads and port facilities in Sri Lanka. However, none of the Chinese businesses involved in these two ventures have yet responded.

What is apparent, though, is that powerful political family-connected like-minded individuals are actually conducting business in the Port of the Southern Coast.

So far, almost no development projects that have been proposed to China have been canceled.

Due to intense scrutiny, the majority of the projects offered to India, Japan, and the United States have been canceled.

The Millennium Challenge Corporation grant from the United States was canceled at the last minute, and Japan and India were also pushed aside at the last minute over the East Container Terminal development project. Only the hybrid solar power project in the Northern Province, which was supposed to go to the Chinese, was given to the Indians.

However, there is no tangible evidence as to whether or not it was offered to India.

With the International Monetary Fund (IMF) warning Sri Lanka of a severe financial crisis, the government has appointed Dhammika Perera as the new Minister of Investment Promotion. He has intervened to ‘speed up’ all investment processes.

A gazette notice was issued, bringing a number of institutions, including some Chinese-funded projects, under the jurisdiction of Minister of Investment Promotion Perera.

Businessman turned politician

President Gotabaya Rajapaksa appointed Minister Perera to the Sri Lanka Board of Investment, the Colombo Port City Economic Commission, Colombo Port City Projects, the Department of Immigration and Emigration, the Colombo Lotus Tower Management Company (Pvt.) Limited, the Techno Park Development Company (Pvt.) Limited, and Information Technology Parks.

Recently Minister Perera said, “Calling for tenders will take six months or more, so he would open the first Immigration and Emigration branch office in Jaffna using his own money,” which is unconventional thinking but a conflict of interest.

A businessman turned politician is not required to fund any public initiatives. He has no reason to. What he should do is to quicken up the tender process by all means and select the lowest bidder with credibility.

Meanwhile, on June 29, Minister Perera met with Chinese Ambassador Qi Zhenhong at their Colombo Embassy to discuss enhancing economic and trade cooperation, promoting Chinese- invested projects in Sri Lanka at a time when the IMF has warned the country not to embark on any new projects in the current crisis situation.

One of the key matters for IMF is not to go for more development projects and the lending countries including China to restructure its loans offered to Sri Lanka. China has not yet expressed its views about it.

The Chinese Ambassador recently told the BBC that Sri Lanka should tackle its own problems.

If China wants investment projects and Minister Perera fixes projects according to his own standards, China will undoubtedly use the country’s political and economic situation to make inroads.

The writer R R M Lilani is a researcher and can be contacted on lilani1963@gmail.com