News
Hambantota Port: Lanka risks losing US$ 146 million
A sum of US$ 146 million–part of the money China Merchants Port Holdings Company Ltd (CMPort) paid for the Hambantota port–is lying unused in an account and risks being repatriated by June this year, if the Sri Lanka Ports Authority (SLPA) does not float a proposal to spend it, authoritative sources told the Sunday Times.
Meanwhile, the US$ 974 million which was deposited by CMPort in exchange for shares of the facility at Hambantota is now “all gone”, official sources said. The bulk of it was used to meet debt obligations, they claimed, while the remainder went towards expenditure.
Under the Concession Agreement for Hambantota port, CMPort agreed to buy 85 percent of the shares of Hambantota International Port Group Company Ltd (HIPG) for a consideration of about US$ 974 milion. HIPG then acquired 58% of the total issued share capital of a second company called Hambantota International Port Services Company Ltd (HIPS).
“The Company also agreed to deposit US$146 million into a bank account under its name in Sri Lanka within one year which would be utilised for port and marine-related activities in Hambantota as may be agreed upon with the GOSL [Government of Sri Lanka],” the CMPort 2017 annual report said.
“The Company shall be entitled to repatriate any amounts in the bank account at the expiration of such one-year period if no agreement has been reached with GOSL for the use of such funds,” it stated.
Under the concession agreement, the money would come to Sri Lanka within “one year from the final payment of capital injection in HIPG”. This last tranche (US$ 584 million) was paid by CMPort in June 2018.
However, sources close to the SLPA, said the money was available for use from December 2017. This was when CMPort officially moved into Hambantota port. The deadline for repatriation was, therefore, December 2018.
But a Cabinet paper was put up to extend the deadline by a further six months and to also permit use of the funds for projects around the country, and not just Hambantota. That deadline is now June 2019.
“There’s another US$ 146 million parked in Sri Lanka and this has to be made use of by the SLPA. But it has still not come up with a project,” the sources said. “If nothing is proposed, they will take it and go.”
“Sri Lanka must come up with a project,” they said. “It can be in Hambantota, it can be in Colombo, it can be in Trincomalee, wherever. But it has to be a financially viable project to get CMPort to invest that money in Sri Lanka. Or we will lose it.”
The Government has always massaged its Hambantota port deal as a debt-to-equity swap. A debt/equity swap is an arrangement whereby the debts of a company are exchanged for stock or equity. In this instance, it would mean that CMPort agreed to take over the debt incurred for the building of the Hambantota port in exchange for shares.
This never happened. The debt was merely transferred out of the books of the SLPA and taken over by the Treasury. Since 2014, the Sri Lanka Government has been settling both the loan principal and the interest in addition to handing over Hambantota port to Chinese management.
“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 the Hambantota port.”