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Sri Lanka Sells China Majority Stake in Strategic Indian Ocean Port

  • Anjana Pasricha

Sri Lanka's Minister of Ports & Shipping Mahinda Samarasinghe (C) exchanges souvenirs with Executive Vice President of China Merchants Port Holdings Dr. Hu Jianhua (3-R) during the Hambantota International Port Concession Agreement at a signing ceremony in Colombo, Sri Lanka, July 29, 2017.

Sri Lanka has signed a $ 1.1 billion deal with a Chinese company to sell a majority stake in a controversial deep port in a bid to slash debt and says it has addressed concerns that China could use the port for military purposes.

The deal was signed after months of renegotiation following strident opposition to the project. While critics at home warned that handing majority control to the Chinese threatens national security, neighboring India fretted about China gaining access to a strategic port in its immediate neighborhood in the Indian Ocean.

Built with a massive loan by China in 2010, the Hambantota port is seen as key to Beijing’s ambitious Belt and Road initiative that aims to connect roads and ports across Asia and Europe and to its efforts to shore up its presence in the Indian Ocean.

The Sri Lankan government says that under the terms of the deal, Sri Lanka’s navy will handle the security of Hambantota port and no foreign navy will be allowed to use it as a base.

“We are giving the country a better deal without any implications on security," Prime Minister Ranil Wickremesinghe told reporters.

The Chinese stake in the project has also been scaled back from 80 per cent to 70 per cent to blunt domestic opposition that Beijing should not get control of national assets.

Sri Lanka will have a majority stake in the firm dealing with security, ensuring that it controls what ships can dock there, while China will run the company in charge of business.

FILE - A photo taken Feb. 10, 2015, shows a general view of Sri Lanka's deep sea harbor port facilities at Hambantota.
FILE - A photo taken Feb. 10, 2015, shows a general view of Sri Lanka's deep sea harbor port facilities at Hambantota.

Unease about Chinese presence

In New Delhi, South Asia expert with the Institute of Defense Studies and Analyses, Sukh Deo Muni, said that while some of India’s concerns have been met, the Chinese presence in the port would remain a worry. “The project is dominated by the Chinese which may not be a very pleasant thing for India. To what extent Sri Lanka would be able to monitor them on some of the sensitive areas remains to be seen.”

Since Hambantota port was commissioned, it has failed to generate much business and piled up massive losses. Some analysts say the Chinese investment was prompted not so much by the project’s commercial lure as its strategic location on the busy sea lanes between Asia and Europe.

India was alarmed when a Chinese submarine docked at Colombo in 2014 and has since pressured Sri Lanka not to let Chinese naval ships use its ports.

India worries about China’s steadily expanding footprint in its neighborhood – Beijing has been pumping in billions of dollars to build infrastructure in South Asian countries like Bangladesh, Nepal and Sri Lanka.

The Sri Lankan government had promised to review the massive investments made by China during the tenure of the previous government led by Mahinda Rajapaksa, but it has been constrained by the massive debt it owes China.

The government said money from the Chinese firm's majority stake in Hambantota will be used to repay part of its foreign debt.

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