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China tightens rules for loans and funding of projects in Lanka
A Chinese loan of more than US$ 69 million or about Rs 8.9 billion for a hydro power project is on hold until Sri Lanka pays up a fee of more than Rs. 627 million to China’s state owned insurance company.
The demand for this fee is notwithstanding sovereign guarantees the Sri Lanka Government has offered. The move highlights how Chinese state agencies are exercising what appeared to be great caution and adopting maximum security for funding projects in Sri Lanka.
The state-owned China National Electric Equipment Corporation (CNEEC) had offered Sri Lanka US$ 69,723,605.35 through the Industrial and Commercial Bank of China (ICBC). This constitutes 85 per cent of the Broadlands Power Project. According to the Ceylon Electricity Board (CEB), the hydropower Project is a “run-of-river type project planned on the Kelani Ganga to harness the hydro potential down- stream of the existing Polpitiya power station.
For the release of the loan, the Chinese state firm has said that seven per cent of the loan of over US$ 48 million or over Rs. 627 million should be paid to another state venture Sinosure. This company has been described as the Chinese government’s insurance agency. It is only thereafter that the loan would be released.
Power and Energy Minister Patali Champika Ranawaka told Cabinet in a memorandum that the payment was required to be made by the CEB. He was seeking approval from his ministerial colleagues to make the CEB the “borrower” for the power project where ICBC will be the “lender.” He noted that the “insurer” Sinosure would be placed with “the rights and obligations” under the loan agreement” in order for it to be covered by the government guarantee.
In July this year the Cabinet approved a proposal by President Mahinda Rajapaksa, as Minister of Finance and Planning, to authorise the Treasury to issue two guarantees. One was in favour of ICBC. The second, which has been accepted, was in favour of Hatton National Bank (PLC) which is funding 15 per cent of the hydropower project. This amounts to US$ 12,304,166 or more than Rs 15.9 billion.
The Broadlands hydro power project will have an installed capacity of 35 MW and the CEB expects to generate 126 GWh of electrical energy annually. The main work sites of the project are located near Kithulgala, about 90km northeast of Colombo.
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