China gets dragon’s share of post-war projects in Lanka

Billions in loans at commercial rates; jobs go to 25,000 Chinese workforce
By Our Economic Affairs Correspondent

China has bagged the largest chunk of post-war development projects in Sri Lanka’s North and South with ongoing and projects concluded estimated at more than US$ 6.1 billion or about Rs 6,973 million.
Contrary to popular belief that funds for all these projects are outright grants, all the money is being obtained at commercial rates from China’s Exim Bank. This means the loans will have to be re-paid with interest by successive Governments in the years to come.

The costing for these projects, carried out by the Government to obtain funding, the Sunday Times learnt, has raised a serious issue. That is whether project costs have been heavily inflated far beyond the real value.

An example is the Chinese loan of US$ 245 million (about Rs 27.9 billion) for a 56-kilometre railway track from Pallai (located on the northern edge of mainland Sri Lanka) to Kankesanthurai in the Jaffna peninsula. The cost works out to more than US$ 4 million (about Rs 456 million) a kilometre.

This is in marked contrast to a 92-kilometre stretch of rail track from Omanthai (the last point in Wanni held by troops before the end of the separatist war) to Pallai at a cost of US$ 185 million (about Rs 21 billion). This works out to about US$ 2 million a kilometre. The US$ 185 million for this part of the northern railway track is a soft loan from the Government of India. A soft loan is one with a below market interest rate.

In the North, the construction of all adjunct roads has been given to four different Chinese companies in 13 different packages. This followed a Cabinet decision on October 6 this year.

S.B. Divaratne, Secretary to the Presidential Task Force for Resettlement Development and Security in the Northern Province, has directed the Road Development Authority (RDA) to “enter into contracts urgently with the Chinese contractors and begin construction work as soon as possible to complete the work within 30 months.”

This Task Force is headed by Senior Presidential Advisor Basil Rajapaksa. The four Chinese companies which will share a staggering Rs 94.3 billion are China National Aero Technology Import and Export Corporation, China Harbour, China Railway No 5 Engineering Group Co. Ltd. and Synohydro Corporation.

No Sri Lankan labour will be employed in any of their projects. That means no employment opportunities will be available to Sri Lankans in the majority of the development projects since the defeat of Tiger guerrillas. These projects will see the induction of more Chinese labour. This in effect means that a part of the Exim Bank loans returns to China for the use of their labour.

In all projects undertaken by Chinese companies, their own labour is utilised. On the basis of the Chinese gifted Performing Arts Society now under construction in Colombo, costing over US$ 200 million (about Rs 22.8 billion), around 1,000 labourers are deployed. On the basis of this, officials estimate that when the current projects involving US$ 5.1 billion (about Rs 5,000 million) reaches US $ 6.1 billion (over Rs 6973 million); the Chinese work force could reach 25,000.

Besides the Cabinet approved projects of October 6, other agreements have also been concluded with China. Then Treasury Secretary, Sumith Abeysinghe, on a visit to Beijing signed an agreement with the Exim Bank of China on August 7 this year. This was for a “Priority List for preferential buyers credit of the Exim Bank of China and totalled US$ 646.8 million (or about Rs 73.9 billion).

Here are some of the many projects:


Phase II of Puttalam Coal Power Project

Hambantota Port Development Project – Phase II

Component (1) Hambantota AirportComponent (II) Hambantota Port Development

Matara-Kataragama Railway – Matara-Beliatta Section

Southern Expressway (Pinnaduwa-Matara Section


Palaly-KKS Railway

Medawachchiya-Talaimannar railway line

Jaffna Inner Circular Highway and Jaffna City links

All adjunct roads in the north, Mannar and Puttalam.

The agreements also covered the purchase of, among other items, two MA 60 transport aircraft. This is at a cost of US $ 18 million (or about Rs 2 billion) each. This is said to be for use by Mihin Air which has already suffered colossal losses. The MA 60 or Modern Ark 60 is a turboprop powered aircraft; a close copy of Russian built Antonov An 26.

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