Hambantota damage limitation
COMMENT: China is getting touchy that its signature Belt and Road Initiative, via which it is expanding its global footprint in the maritime ports sector, is being increasingly criticised for having a strong geo-political dimension to it.
And particularly that its funding of port developments can lead to a corrosive debt trap, one where the failure of host nations to keep up financing payments will see the port concerned transition to full control by China.
It has particularly refuted such a contention recently, via sympathetic media outlets, in conjunction with Hambantota port in Sri Lanka, a port widely cited as having been built without any solid economic rationale to it and more based upon the close relationship between China and Mahinda Rajapaksa, who served as President of Sri Lanka from 2005 to 2015 and who since 2018 has held the post of Sri Lanka’s leader of the opposition party.
In effect it is suggested that China brought this project to life, scaling it up in the planning stages and the associated debt, capitalising on extensive political and military support previously delivered to Rajapaksa as well as his aspiration to do something big for his home town of Hambantota, a sparsely populated area on Sri Lanka’s southeast coast.
Hambantota port formally opened in November 2010, on the occasion of Rajapaksa’s 65th birthday. It never gained traction with only 34 ships calling in 2012 compared to over 3500 ships in Sri Lanka’s main port of Colombo. Despite this Rajapaksa authorised further expansion with more funding from China with a racked up interest rate which also applied to earlier funding – 6.3 per cent.
Still no meaningful business arrived at Hambantota port and with Rajapaksa being voted out of office in 2015 the new administration considered the only viable course of action was to strike a deal with China which eventually resulted, at the end of 2017, in the port passing to Chinese control.
This, in turn, has raised concerns about a possible Chinese military presence materialising in Hambantota, despite the fact that the agreement governing the 99-year lease of the port to China, under which China Merchants has an 85 per cent equity stake and Sri Lanka 15 per cent, currently prohibits the port from playing a military role.
As informed observers put it: “governments can change and they can change agreements.” An observation potentially given more relevance by the fact that Mr Rajapaksa is now, with some success, presiding over a political comeback, although it may be his brother, Gotabaya Rajapaksa, who takes up the figure head role of president.
The current Sri Lankan government has, however, recently taken action which can be seen to be designed to counter Chinese influence in its ports sector – the signing of a ‘memorandum of cooperation with Japan and India to jointly develop the East Container Terminal in Colombo Port.
It is envisaged that Sri Lanka will hold a 51 per cent stake and the other joint venture partners 49 per cent in the project which will include operating the terminal. Whether there is a business case for such a terminal of course remains to be proven!
Twist in the tale?
The story of the Chinese presence in Hambantota port is, however, is in effect just beginning and China Merchants as a commercial entity with substantial container handling experience and links to Chinese Ocean carriers as well as the France-based CMA CGM group as the major shareholder in the port must be considering its options.
Hambantota Port has been designed to be able to handle high capacity container vessels and as such while there is little in the way of local cargo to attract carriers to it there is the possibility of commencing transhipment operations especially with the China Inc.’ style approach that has underpinned China port developments elsewhere for example
Piraeus in Greece.
But if this is the goal then where will this cargo come from, what will the impact be on Colombo port, a major transhipment hub, and will it prove to be yet another damaging episode prompted by the presence of a port widely judged to be not necessary in the first place?
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