China – Lanka deal a worry for India

China – Lanka deal a worry for India

SAM Report,
A group of Sri Lankan visitors at the new deep-water shipping port watch Chinese dredging ships work in Hambantota, 240km (149 miles) southeast of Colombo, March 24, 2010. Credit: Reuters/Andrew Caballero-Reynolds/File Photo

The amended concession agreement signed between Sri Lanka and the Hong Kong-based China Merchant Port Holdings Limited (CMP) last Saturday has India apprehensive, Indian based reports show. Following are excerpts of the report from The Wire published from India.

India apprehensive

In New Delhi, the signing of the concession agreement is not a welcome development. But with Colombo having no good options other than approaching the Chinese to escape its debt burden, India has no choice but to accept that Hambantota will be operated by Chinese firms.

There were also some questions about the hurry shown by the Sri Lankan government to sign the deal without the agreement being debated in parliament.

Sources confirmed that India had definitely been in the loop during the negotiations for the agreement and had insisted – along with the US – on the inclusion of specific clauses on security.

As per the July 25 cabinet note, the concession agreement has “strict prohibitions” to prevent “any form of military related activities” by the two companies. It stressed that the “sole responsibility and authority for such activity and for National Security of the port of Hambantota with the Government of Sri Lanka”.

“GOSL will have the right and authority to grant permission, clearance and approval to berth naval vessels in the port, on mutual agreed payment terms,” said the cabinet note.

Further, the SLPA will convene an oversight committee to manage security within and outside the port, with officials from the Sri Lanka navy, the Sri Lanka police and a representative of the secretary to the Ministry of Defence.

“All personnel involved in security services and related matters by the two companies shall be Sri Lankan nationals,” it said.

A bad precedent

“Chinese financed-projects in Sri Lanka are a cautionary tale for all developing countries who wish to access Chinese funding under OBOR,” said Ashok Kantha, who was Indian high commissioner to Sri Lanka from 2009 to 2013.

He asserted that the “common feature” of China-funded projects in Sri Lanka, like Hambantota port and airport, and Norochcholai coal power plant is that “all of them were done without any economic due diligence”.

From India’s perspective, Chinese funding of the project is purely for strategic reasons. “If you are getting just 14 ships a year, it is not viable commercially. Chinese investments are for reasons other than commercial considerations,” he added.

He felt that Hambantota has implications as a “bad precedent” for other similar projects which have availed Chinese loans.

Kantha suggested that there should more “public domain assurances” from Sri Lanka that Indian concerns “will be taken on board”.

The former diplomat, who retired as Indian ambassador to China last year, pointed out that given the location of Sri Lanka, India’s security was “inter-linked” with its southern ocean. “We have that kind of relationship that we are mindful of each other’s sensitivities,” said Kantha.

He hoped that India had got some “clarity” on the security assurances, but Kantha was sceptical about their sustainability and believed that India should remain “watchful”. “Even with assurances, usage can change over a period of time. If you look at Gwadar, it was meant to be a commercial port to be run by Singapore PSA. Then PSA was pushed out and Chinese moved in. Now talk is there of it being put in use as a naval facility for China,” he said.

According to P. Sahadevan, a professor of south asian studies at Jawaharlal Nehru University, the presence of security clauses in the agreement was not the main worry. Sahadevan was troubled by the “economic dependency” that China has fostered in smaller countries through big projects funded with Chinese loans.

“The Chinese are not going to engage in military diplomacy. You don’t have to send nuclear submarines to demonstrate that they have influence,” he said.

Observer Research Foundation’s N. Sathiyamoorthy felt that the removal of Arjuna Ranatunga as ports minister during the cabinet reshuffle earlier this year raised eyebrows, as he had been a strong votary of Sri Lanka’s security concerns. He had been rather vocal in saying that the SLPA should run the port and had strongly lobbied for the reduction of the stake of the Chinese firm to below 80%.

“If the present government leadership is straight and sincere, they could have gone ahead with the negotiations with Ranatunga as ports minister,” he said.

The veteran Sri Lanka watcher added that Indian concerns had been addressed by Colombo “to an extent”.

“If China’s real intentions on the Hambantota stakes deal was geo-strategic and the encirclement of India, there would be safety valves provided in the agreement itself,” he said.

He pointed out that the issue of Chinese ships at Sri Lankan ports was another matter, noting that the Chinese submarines visited the Colombo port in 2014, despite the Hambantota port being ready.

“The present government having renewed Rajapaksa’s ten-year ACSA pact with the US, there may be real issues if China were to seek such facilities, with or without long-term agreements of the kind,” he said. Sathiyamoorthy was referring to the fact that not just India, the US is also not too keen to see Chinese vessels in the strategic waters of the Indian ocean.

China’s point of view

But China also has value for Colombo beyond the economic aspect.

“As long as the US-led West does not take a clear-cut, pro-government, pro-Sri Lankan armed forces position on war crimes and the like, and putting a permanent end to the human right hassles at Geneva, now or later, in the present form or otherwise, no government in Colombo would want to antagonise China with its UNSC veto vote so very completely,” he said.

This perception was apparently boosted by India’s vote in favour of the US-sponsored resolution against Sri Lanka in the UN human rights council in 2012. It was the first time that India had voted in favour of a country-specific resolution in a multilateral platform, after pressure from then UPA coalition partner, DMK.

“After the 2012 UNHRC resolution, on which India voted with the US and the rest of the West, even strong supporters of India in Sri Lanka otherwise feel that they cannot risk putting off China, now or possibly ever. Their reading then and now is that despite not being a veto power in the UNSC, India (alone) had the power to stall theUNHRC resolution or help defeat the same – but did not,” asserted Sathiyamoorthy.

India’s role in Sri Lanka

Even as Chinese projects were getting back on track, Wickremesinghe had pushed for India to take charge of the development of the northern port of Trincomalee. An umbrella MoU signed during his visit to India earlier in April listed over ten major projects, which included the development of an oil tank farm at Trincomalee.

“What Ranil Wickremsinghe is trying to do is to show that he is following an equidistant relationship. But considering that the neighbourhood was largely India’s sphere of dominance, the presence of China in a core sector of the Lankan economy will have certain worries,” said Sahadevan.

For now, India remains the biggest trading partner for Sri Lanka, with bilateral trade in 2016 amounting to $4.38 billion. In development assistance, India has committed over $2.6 billion in loans and grants.

Sahadevan is unconvinced that that the Trincomalee port proposals will come to fruition, as there is a rising resentment against foreign ‘acquisition’ in national ‘assets’ of Sri Lanka. “India is historically seen as a country that Lanka needs to be worried to be about… Resistance is going to be high,” he asserted.

The ‘joint opposition’, largely made up of Rajapaksa loyalists and Left parties, had protested the plans to “give” the Trincomalee port to India, but they have already gone on the streets against the opening of a special economic zone attached to the Hambantota port. In January, there were clashes as residents fought with the police against the acquisition of 15,000 acres of land for the industrial zone.

The main operator of Hambantota port has already entered into a cooperation framework agreement with the China harbour for joint development and operation of the industrial park. It could involve both companies buying shares in each other’s subsidiaries.

However, China Merchant Port Holdings disclosed to Hong Kong exchange that “detailed terms and conditions for such cooperation have not been agreed and no definitive documentation have been entered into” till last week.

At the same time, the Chinese firm asserted that “if such cooperation materialised, it will generate further synergies and growth for the Hambantota Port”.

There is consensus that the government will not find the implementation of the various projects “smooth sailing”, with the opposition clearly sharpening their knives in anticipation.

“Despite ideological proximity with China, and also the large-scale Chinese investments in Sri Lanka when Rajapaksa was in power, accompanied by political equations and relations, the Rajapaksa camp can be expected to make political capital of the Hambantota stakes transfer as being anti-national, a ‘sell-out’ of national interests, security and sovereignty,” said Sathiyamoorthy.

Incidentally, Modi met with Rajapaksa in May at the Indian high commissioner’s residence in Colombo, despite the joint opposition earlier threatening to show black flags during the Indian prime minister’s visit.

The former president had publicly blamed India for his defeat in the 2015 presidential elections, claiming that New Delhi had been swayed by his implied preference for China. He had even suggested that he had first offered the Hambantota port to India, but had gone to China after getting no response.

Refuting this claim, Kantha, who had been ambassador during Rajapaksa’s presidency, said no such offer had ever been made to India. “There is nothing on record to indicate that it was offered to us and we turned it down. That’s a red herring which has been planted in the public domain,” he told The Wire.

While politics plays out in Sri Lanka, China continues to remain its main development assistance partner and lender.

The Sri Lankan finance ministry’s mid-year fiscal position report show China accounts for 40% (or $170 million) of foreign disbursements in the first six months of 2017. India had released $10.5 million in the same period.

This scenario will not change drastically over the next few years. Over the next five years, the total undisbursed balance of foreign funds already committed as loans are over $8 billion. China has the biggest share at 28%, but the Asian Development Bank and Japan have also made substantial offers at 24% and 18% respectively. India’s share, as per the figures on April 30, is 3%.