News
The Expressway that’s going nowhere
View(s):By Namini Wijedasa
This year, the 37-kilometre stretch of road from Kadawatha to Mirigama—called Central Expressway Part I (CEP I)—was to have been ceremoniously opened.
But ten whole years after the Road Development Authority (RDA) signed its first project agreement with the Metallurgical Corporation of China (MCC), the progress of civil works stands at a mere 36.8 percent. The main hurdle is that China Exim—which in March 2019 had signed up to lend US$ 989.44mn for the project—has paid only US$ 51mn. And, since Sri Lanka’s economic crisis hit in 2022, it has disbursed nothing more.
Sri Lanka wants early resolution
The section of CEP I that MCC has built so far is overgrown with weeds and needs maintenance. Last year, a massive concrete beam collapsed, requiring a protective “diaphragm wall” to be urgently constructed to protect lives. Sri Lanka’s Cabinet approved Rs. 7.49bn to meet this cost and Rs. 4bn of this has already been paid.
The CEP I project was awarded to MCC in 2015 on an unsolicited proposal. There was no open tender process and the contract price was significantly higher when compared with CEP II, won two years later by local companies.
The Kadwatha interchange. Pic by Akila Jayawrdene
China Exim cleared a loan in 2019 to cover 85 percent of the cost. The remaining 15 percent—equivalent to US$ 174.6mn—was paid by the Sri Lanka government as a mobilization fee (typically to cover expenses related to the initial stages of project such as purchasing vehicles, hiring staff and setting up a project site).
The government now wants to restart work as early as possible, a senior Highways Ministry source said. The longer the delay, the higher the cost of keeping this project going without an actual road being built. And, citing the need to maintain good relations with the Chinese government, Sri Lanka has taken extraordinary measures to keep avenues open.
Going the extra mile
For instance, the advance payment guarantee (APG) and the performance bond issued by China Exim via Standard Chartered Bank (SCB) in favour of MCC recently expired. As is the usual practice, the RDA requested extensions but the contractor did not provide them. The RDA consequently sent letters of demand (LoDs) through Sri Lanka’s Ministry of Finance seeking to collect the sums assured under the APG and performance bond.
(An APG is issued by a bank or an insurance company on behalf of a contractor to the project owner—in this case, the RDA—to protect the buyer by ensuring the advance payment is returned if the contactor fails to meet contractual obligations. A performance bond is a guarantee provided by a financial institution or surety company that the contractor will fulfill their obligations under a contract. If the contractor defaults, the bond can be called upon to compensate the project owner).
But Sri Lanka’s Finance Ministry in February 2025 wrote to the Highways Ministry Secretary saying it was “not in a position” to forward these LoDs to China Exim as they have “created serious confusion in the China EXIM Bank adversely affecting the relationship between the Bank and the Government of Sri Lanka”.
The Finance Ministry requested the Highways Ministry to withdraw the LoDs “enabling the confusion created in EXIM Bank to be cleared”. The letters were accordingly taken back and bank guarantees were extended–after their expiry—not through SCB but through another institution named Bank of Communication Co. Ltd.
An extension of time has also reportedly been granted till 2027 for completion of a project that was once due to have been closed 30 months after its commencement.
At what cost?
The government’s strategy is to “put a full stop to just wasting Sri Lankan public money for nothing”, said the senior Highways Ministry source earlier quoted. The project must be finished and it would be “foolish” to abandon it.
“We want to end the accumulation of unnecessary interest and it has to be very, very diplomatically done,” he continued. “We cannot damage the government-to-government relationship. At the same time, we must somehow fulfill the aspirations of the people who voted for this government. We must somehow start and finish this (CEP I). That is a top priority.”
But at what cost? This week, a Cabinet memorandum was presented seeking approval to pay MCC using funds allocated for local civil works in the 2025 budget. Permission is asked to settle an estimated US$ 189.51 (in rupee equivalent) as “outstanding payments” to the Chinese contractor through the government budget. A Cabinet Appointed Negotiating Committee (CANC) is to be appointed in this regard.
The Cabinet paper was not approved, having been sent back “for corrections”. Authoritative industry sources said that, given some of the payments already disbursed, such an amount would result in MCC being “overpaid” and ensure that the contractor and interested parties “would be at a significant advantage when negotiating claims, extensions of time and the continuation of contract, effectively preventing contract termination”.
Sources on behalf of MCC counter that the company has, in good faith, disbursed US$ 241mn of its own funds to implement the project (to tide over disbursement delays).
Will China Exim come through?
According to the minutes of the government’s Public Investment Monitoring and Evaluation Committee (PIMEC) meeting on March 25, 2025, China Exim—which visited Sri Lanka earlier this year—offered three options to change the existing funding models for CEP I.
One is to change the debt instrument to a modality called “loans for overseas contracted projects (Chinese borrower)”, the details of which were not immediately clear. Another was to consider continue to current preferential buyer’s credit instrument but to change the loan currency from US dollars to renmimbi. Or to find co-financing from other sources such as multilateral development partners or domestic financiers in order to reduce the percentage financed by China Exim.
These options, it is learnt, are also under negotiation. But there is overwhelming concern about the delay by China Exim to make its position with regards to CEP I more widely known.
“As you are aware, restructuring of debt borrowed from the EXIM Bank of China fnialised in June 2024,” states a letter sent on March 18, 2025, by the Director General of the Finance Ministry’s External Resources Department to the Director General of the Public Debt Management Office. “However, the bank has not restarted disbursements of the aforementioned two projects yet.” (The other is the Kandy North-Pathadumbara Integrated Water Supply Project).
“In response to several communications this department had with the bank, it was informed that they are conducting an internal analysis of the matter and will inform their decision once the analysis is complete,” it adds.
Meanwhile, the amortization of Exim’s loan starts this year.
The local lobby
There is also heavy interest by a group of local contractors in the project. The “Lanka Infrastructure Development Consortium” has been lobbying everywhere—including within the government—to call tenders for the remaining work on CEP 1 on a competitive basis, “engaging qualified local contactors through funding allocated by the Government of Sri Lanka”.
They propose a PPP model that would require tenderers to provide equity, with debt components financed through a consortium of local banks. The Finance Ministry could then negotiate a package where annuity payments, interest and returns are standardized for both equity and debt providers.
And they urge the government to thoroughly evaluate the MCC’s contractual claims based on actual costs which they say may be significantly lower than the amounts claimed.
Those who support MCC continuing, however, point out that the Exim loan is provided on “extremely concessional” terms, unlike other loans, foreign or local (except Japanese) which are at commercial rates.
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