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Two CBSL accounts for money received from lease or sale of public assets
Two new Central Bank accounts are to be opened in the name of the Deputy Secretary to the Treasury to receive foreign exchange and rupee proceeds from the lease or sale of public assets.
“The accounts will hold the proceeds earned from divesting these assets and that money will be used only for settlement of liabilities and management of external debt,” an authoritative CBSL source said. In other words, the monies will be used to repay the debts the Government has incurred, mainly for infrastructure projects.
The payments from China Merchants Port Holdings Company (CMPort) Ltd for the lease of Hambantota port will accordingly be deposited in the foreign exchange account. Sri Lanka Ports Authority (SLPA) is tipped to receive US$ 973.7mn from the transaction. However, the Government owes the Exim Bank of China more–in terms of loan capital and interest payments–for the construction of Hambantota port.
Neither the loans taken from China to build the facility, nor the interest due on them, has been waived, reduced or set off against the lease that was recently signed. Instead, the SLPA liabilities for the building of Hambantota port have been transferred to the Treasury which is now bound to settle them.
“There was no debt/equity swap,” a senior official said. “The Chinese always wanted the loan to be treated as separate and did not want it to be repaid with the lease of Hambantota port.”
The SLPA took four loans from Exim Bank of China to construct the port: US$ 306.7mn at 6.3 percent interest for phase I; US$ 130mn at two percent interest for ancillary work related to phase I; US$ 600mn at two percent interest for phase II; and US$ 65.1mn for the bunkering facility and the tank farm.
The Government has so far disbursed a total of US$ 304.1mn or Rs 40,813mn (at exchange rates calculated by the Ministry of Finance) on capital and interest repayments. The loans mature in 2024, 2025, 2032 and 2033. According to Ministry of Finance data, payment of interest started in 2010 when US$ 7.5mn (Rs 845mn) was settled. In 2011, a total of US$ 18.3mn (Rs 2,012mn) was disbursed as interest; in 2012, the figure was US$ 21.7mn (Rs 2,702mn); and in 2013, US$ 25.4mn (Rs 3,283mn) went towards interest.
From 2014 onwards, the Government has been settling both principal and interest. That year, US$ 31.3mn (Rs 4,088mn) was paid as interest and US$ 30.8mn (Rs 4,023) as principal; in 2015, US$ 34.7mn (Rs 4,630mn) went towards interest and US$ 33.8mn (Rs 4,487mn) towards the principal; and, in 2016, US$ 33.7mn (Rs 4,880) went towards interest and US$ 33.8mn (Rs 4,886) towards the principal. In the first six months of this year, US$ 16.2mn (Rs 2,440mn) has been paid as interest and US$ 16.9mn (Rs 2,537mn) as principal.
Under the concession agreement signed on July 29, CMPort will invest US$1.12bn in the port and marine-related activities. Of this, US$ 973.7mn will be for SLPA for the acquisition of 85% issued share capital of a new company called Hambantota International Port Group (HIPG). That entity will, in turn, use part of this sum to acquire a 58% stake in Hambantota International Port Services Company (HIPS).
Within this convoluted arrangement, the remaining US$ 146.3mn will be used for “such Hambantota port and marine-related activities as may be agreed with the Government within one year from the final payment of capital injection in HIPG”.
The agreement has airtight termination clauses weighted heavily in favour of CMPort. For instance, it states that if the contract is terminated any time before the expiry of the 99-year lease, in the event there is a major breach on the part of the Government of Sri Lanka or the SLPA at any time, the Ports Authority shall be obliged to buy all the shares the HIPG and CUF (common user facility) operator “at an amount equivalent to one hundred and twenty percent (120%) of the fair value” of the respective shares.