Bilateral relations at a new high:

China - Sri Lanka’s top lender in 2009

by Our Special Correspondent in Beijing

This article attempts to highlight the political and economic vision of President Mahinda Rajapaksa, to achieve new heights in development assistance to Sri Lanka.

Since the establishment of diplomatic relations in January 1957, bilateral relations between China and Sri Lanka have seen smooth and upward development. The exchanges and co-operation in the political, economic and social fields have been frequent and fruitful. China and Sri Lanka share common views and support each other on major international issues, with Sri Lanka adhering to the ‘One China’ policy, which recognises Taiwan as part of China. All past and present presidents of Sri Lanka have visited China, and there are frequent visits of State leaders and high-ranking officials between the two nations.

As of December 2006, Sri Lanka has been the recipient of grants to the value of RMB 63.9 million, credit lines totaling RMB 64.5 million and preferential loans of RMB 96 million from China for development and infrastructure projects. The most visible symbol of Chinese assistance remains the BMICH which is an enduring testimonial to Sri Lanka - China friendship.

Prior to the Rajapaksa period, China had funded several projects including the Supreme Court Complex, the Central Mailing Exchange, Gin Ganga Flood Protection Scheme and the redevelopment of the Lady Ridgeway Children’s Hospital. In the aftermath of the tsunami disaster China helped Sri Lanka build three fisheries harbours for those affected by the event and extended US$ 300 million worth of support.

The Rajapaksa era has taken this silky relationship to an unparalleled height during the past four years as China emerged as the island’s biggest financial donor in 2009.

The Treasury Department of the Ministry of Finance said China became the biggest donor to Sri Lanka in 2009, with US$ 1.2 billion (Dh 4.4bn) worth of assistance in the form of grants, loans and credit representing 54 percent of the total $ 2.2billion committed by foreign countries and multilateral agencies. The next highest contributors were the Asian Development Bank with $ 423 million and the World Bank with $241 million.

The Mahinda Chinthana policy document embodies a more gradual approach to reform, combining the positive attributes of market economic policies, including encouragement of foreign direct investment (FDI) with support for domestic enterprises. The core of the Mahinda Chinthana is to achieve high growth rates through investment in large scale infrastructure and the knowledge economy, and focus on rural development to help lagging regions. The Mahinda Chinthana is completely homegrown and has a high degree of country ownership.

The significance of the policy is to make sure that economic benefits are equally distributed among the public. Since independence everyone was questioning the economic independence of Sri Lanka and now under the Mahinda Chinthana, there is a clear strategy to achieve it. Sri Lanka is expected to achieve an eight percent growth in the coming years by developing the country as a shipping, aviation, commercial and knowledge hub.

As many economists believe, under this strategy the country’s economy is not being pushed from the back, but is being pulled from the front. The strategy is seen with the commencement of the infrastructure development of Sri Lanka in the fields of ports, roads and highways, power, public utilities, arts and culture. It is in this context that the Government embarked on a more rational and exciting journey aligned with China to create better infrastructure conveniences to the nation that would bring enormous economic gains in its 10-year development strategy.

The key factors that attract Foreign Direct Investments and progress to any country are peace, a sound investment climate and most importantly, political stability coupled with proper infrastructure such as aviation and shipping facilities, electricity, telecommunication and transportation. With the end of the war, the country is embarking on an exceptional development in these sectors. Soon, Sri Lanka would be one of the first countries in the region with the ability to give its investors a written guarantee on these facilities and Sri Lanka would be in an even better position to encourage more FDIs.

Sri Lanka as a transshipment hub

The development of a port in Southern Sri Lanka to reap the benefits of busy international shipping lanes closer to Sri Lanka had been in the air for over three decades with successive governments taking no serious interest in it.

President Rajapaksa, who already knew the importance of the project, presented this study and several other proposals on the construction of the port to the then leaders of the country. Various explanations were trotted out and the project never got off the ground.

The proposal embodied the construction of a deep water harbour in Hambantota, demonstrating its potential of being developed as the deepest and largest harbour in the world, with a location just half an hour off the world’s busiest sea-lane which is used by 100 - 200 ships a day. President Rajapaksa’s Government came forward to give political muscle to a project that would not only modernise the Southern and the Uva Provinces, but also lead the country as a whole towards a future of affluence and prosperity. The construction of the Hambantota port, the dream of President Rajapaksa, will bring in its wake not only a revival of the past glory of Ruhuna, but an economic, social, cultural and political resurgence of the country as a whole.

Bringing economic development to the neglected southern corner of the island was a cornerstone of President Rajapaksa’s election manifesto. A region devoid of investment and infrastructure is, according to the Government, going to be transformed into the economic and industrial heart of the country. An international port, airport, highways and a railway were visualised to the southern part of Sri Lanka to achieve this mission.

Under the Ruhuna Re-awakening Program, the Mahinda Chinthana promised the construction of the Hambantota Port, expediting work on the Southern Highway and converting Hambantota to a commercial town. As soon as President Rajapaksa was elected, he got the Hambantota project moving, and most importantly, through direct talks with Chinese leaders. By visiting the People’s Republic of China three times during the past three years, he persuaded and obtained the necessary funds from the Chinese government to kickstart the project.

The total cost of the project is US $ 360 million for phase one. Thereafter, phase two and three will be constructed with another US$ 600 million.

The project is financed through the EXIM Bank of China and the construction is being undertaken by the China Harbour Engineering Corporation (CHEC) and the Sino Hydro Corporation. China Harbour Corporation is one of the world’s largest companies in this field and bears the national qualification under the Ministry of Construction of the People’s Republic of China for Harbour, Road, Building, Environmental, EPC and other engineering projects. The Sino Hydro Corporation is also the largest and most successful Chinese construction company in the field of hydraulic and hydropower engineering.

The CHEC has completed numerous technically advanced roads, bridges and tunnels all over the world and has a unique experience in the construction of sea-crossing bridges. The world’s No.1 and No.2 longest sea-crossing bridges were constructed by the CHEC. Further the company has undertaken projects such as the construction of the Macau International Airport and the Hong Kong International Airport, the Port of Sudan, Design, Construction and Completion of the Second Penang Bridge Off Shore Approach Light Structure, the new Doha International Airport and Pakistan Deep Water Container Port to name a few of a long list of projects presently undertaken to the value of US$ 19 billion in 95 countries.

The people of Sri Lanka have suddenly realised that the Hambantota project is now a reality, a dream of more than three decades which has now become a certainty. When the Hambantota Port is completed, ships could save nearly three days sailing time, fuel and enjoy numerous benefits by anchoring at Hambantota. It is expected that at least 20 percent of the shipping traffic, mainly oil tankers, would call over at the Hambantota Port, while many of the 4,500 oil tankers passing this sea route annually would anchor in Hambantota for bunkering, ship repairing, and to purchase food, water and medical supplies and logistics. The Hambantota Port Development Project will be constructed to handle 100,000 DWT vessels. It will have an approach channel 210 metres wide.

To support logistics and bunkering simultaneously with the port commencing its operations, the Hambantota Port Tank Farm Project has also commenced under Exim Bank funding. This bunkering facility will comprise 14 tanks. Eight tanks will provide oil for ships while three will be used to store LP gas. The rest will be used to provide oil for aircraft. The total cost of the project is US$ 76 million; the China Huanqiu Contracting and Engineering Corporation which has ranked among the top 225 international contractors and top 200 international design firms released by the Engineering News Record in six successive years and remains the only Chinese company to enjoy both honours simultaneously, has undertaken this project. To date, this company has undertaken more than 36 tank farm projects around the World. They are expected to work on this project before 2012.

The Port of Hambantota is planned as a service and industrial port and subsequently, it could be developed as a transshipment port depending on increasing cargo volumes.

Energy supply

Norochcholai coal power plant - An objective of the Mahinda Chinthana was to relieve the country from the impact of increasing energy prices in the world market and raising energy supply to the increasing demand of the economy.

This project was delayed for decades despite all plans being prepared and donor funding made available. The social issues were resolved and construction work on the project was launched. Although the construction of the Norochcholai electricity generation plant was proposed in 1988, the construction commenced in 2007. The first phase of the project will be completed in 2010.

This power plant, constructed in Norochcholai, a coastal fishing village 120 km north of Colombo along the west coast, will have an ultimate capacity of 900 megawatts of electricity when it is completely developed. The first stage at a cost of US$ 455 million generates 300 Megawatts to the national grid while the second and third phase will generate 600 Megawatts. The cost for the second and third phase is estimated at US $ 891 million. The construction of the first phase of the Norochcholai Coal Power Plant was inaugurated by President Rajapaksa on May 11, 2006. The construction of the second stage will simultaneously progress with the work on the third stage expected to begin in 2012. The completion date is set for 2013. It is expected to deliver a steady and low cost energy output of 1658 Giga Watt hours annually to the consumers, when completed.

The construction of the three phases of the project is to cost US$ 1.35 billion, according to reports by the Ministry of Energy. Financial aid for the project is provided by the Exim Bank of China. Construction is carried out by China National Machinery and Equipment Import and Export Corporation. This company has been listed among the largest 225 contractors in the world by a famous magazine in the United States, Engineering News-Record for several consecutive years. The Chinese have agreed to carry out the project on a Design, Build and Transfer basis. The main objective of the project is to cater to the increasing demand for electricity while supplying steady and low cost electricity to the national grid. With the completion of the Norochcholai coal plant, the cost of a unit of electricity will be reduced to Rs 5 from Rs.11. The CMEC is using the best technology available in coal power generation in this technologically advanced coal power plant.

Compared to hydro and thermal power generating sources, coal is the most economical and feasible power supply. As hydro dependability is threatened by drought and silt, and thermal is an expensive source, coal is cheaper and more widely available. The successful completion of the project will benefit the populace.

Development of highways

Roads are a line of communication which will fortify communal harmony and act as a channel to bring people of all communities as well as goods and services together. With developed road networks, people of all ethnic groups will find it easy to move between the North and the South, the East and the West. It will bridge the cultural gap that had developed over the past few decades.

The Government understood the importance of roads for the superior development of the country. To accomplish the need, China came to our assistance in an admirable way.

Emerson Tenant, one time Colonial Governor of then Ceylon said, “Ceylon first needs roads, secondly roads and thirdly also roads. Give them roads and the country can be lifted to greater economic heights.” The Government understood the significance of a proper road network to uplift the economy.

Colombo - Katunayake expressway

The important roads in a country are the ones linking the international airport and the capital city.

Not only would this be the key link to the centre of business in the country, but also a major factor in the first impressions created among tourists. Currently, the trip from the Bandaranaike International Airport to Colombo takes about an hour and a half with medium traffic. Devoid of congestion, this could be a mere 15-minute drive. The new expressway could make this happen.

The proposed expressway will be 25 km long and 27.2 metres wide and will have four lanes, two on either side.

Developing the Colombo-Katunayake Expressway had been in the pipeline for decades with former Prime Minister Sirimavo Bandaranaike proposing one for the 1976 Non-Aligned Summit.

With the initiative taken by President Mahinda Rajapaksa, the Colombo-Katunayake highway project will soon be a reality.

The estimated cost of the highway is US$ 292 million of which 85 percent ($ 252 million) will be provided as a loan by the Government of the People’s Republic of China whereas the balance 15 percent ($ 40 million) has to be borne by the Government of Sri Lanka. The completion of the highway will enable vehicles to reach the Katunayake airport within 20 minutes; this now takes one and a half hours.

The construction of the highway was started in 2000. Work was later stopped and restarted in 2003 and was again stopped. Under the instructions of President Rajapaksa, the delayed expressway work began with Chinese assistance and the Metallurgical Group Corporation of China has taken the challenge to complete the highway in 39 months.

Southern Expressway- Pinnaduwa to Matara

A long-felt need is becoming a reality and once more the Chinese Government has come to the forefront to fund this section of the Southern Expressway with US$ 162 million. The Southern Expressway, which is largely funded by the ADB and JICA, consists of four sections - two funded by JICA, one by ADB, and the other by China Exim Bank. The bulk of the work is being carried out by China Harbour Engineering Corporation Ltd. (CHEC) which has been awarded the first bid section (34.5 km long), from Kottawa in the capital, Colombo, 20 km southward to connect the A4; the termination is in Dodamgoda where the second bid section starts.

Apart from the above, a number of road network projects in the reconstruction process of the North and the East is in the pipeline to be funded by the Exim Bank of China, including the reconstruction of the A9 expressway, to the value of US$ 520 million.

During President Rajapaksa’s State visit to China in 2007, the setting was created to make the existing plan a more productive and significant one. The MoU on Cultural Affairs which was then signed strengthened the relations between the two countries in the field of culture, resulting in the speeding up of the construction of the National Performing Arts Theatre.

The new building complex of 33,000 sq.ft is being constructed on a 217 hectare site. China bears the cost of the theatre complex amounting to US$ 23 million for which the agreement was signed on November 25, 2007, for the acceleration of the project work and award of contract. The Chinese authorities entrusted the construction of the theatre to Yanjian Group to complete the project within 26 months.

The main purpose of the National Performing Arts Theatre is to offer a theatre complex for artistes, local and foreign, equipped with modern facilities needed for the performance of music, dance and drama. In addition, the new theatre will be a centre of interest for the cultural tourists, and will support cultural tourism. This is the realisation of a long-felt need in the field of performing arts in Sri Lanka.

The new theatre will be a masterwork of architecture designed by the Chinese and festooned with the image of traditional Sri Lankan architecture. The National Performing Arts Theatre once completed will contribute to the development of performing arts in Sri Lanka and to the promotion of the distinction of artistes. It will remain a fitting monument to Sino-Sri Lanka friendship.

Railway transportation

Under the sustainable mobility vision of the Mahinda Chinthana, the intention was to provide an adequate and comfortable transport system to the people of the country.

To achieve this target during the period 2007-2008, China National Machinery Import and Export Corporation signed an agreement with the Sri Lankan Railways Department to provide 100 rail carriages. Accordingly, the railway authorities of Sri Lanka, for the first time in history, obtained a warranty from the manufacturers that they will compensate the Railways Department US$ 50 for each day, in case a carriage is taken out of operation within the warranty period.

At least 50 railway carriages should be added to the service annually, if Sri Lanka is to provide a satisfactory train service to the public. However, not one carriage has been added to the service since 1992. The Sri Lanka Railway, which caters to over 300,000 passengers daily, faced a severe shortage of passenger carriages due to the non-import of rail carriages for the past 15 years. With the deployment of these new carriages, the Sri Lanka Railway is now in a position to provide a better service to the rail commuters.

Sri Lanka added 15 power sets (S10 category) imported from China to the railway fleet under its 10-year Railway Development Strategy highlighted in the Mahinda Chinthana as a priority. After President Rajapaksa’s visit to China, the Chinese Government provided these power sets stipulating the lowest price per power set at US$ 2.46 million which was the market price in 2003. The power sets were provided by China South Locomotive and Rolling Stock Corporation Ltd, the sole domestic major equipment manufacturer, which is ranked among the Global 500 Most Valuable Brands.

Another US$ 100 million has been obtained from the EXIM Bank to boost the capacity of the Sri Lankan Railway to acquire two diesel multiple units AC, seven UC (up-country) and four DMU KV (Kelani Valley) from China South Locomotive and Rolling Stock Corporation Ltd.

The extension of the Matara-Kataragama Railway line (first stage) at a cost of US$ 60 million is also on the pipeline to be finalised in 2010.

Second international airport

The vision of the Government of Sri Lanka is to enhance the economy of the least developed regions of the island. Hambantota and Moneragala districts are identified as potential regions under the Greater Hambantota Development Program designed to uplift the economic activities of the region. The Government’s manifesto contained in the Mahinda Chinthana emphasises the establishment of a second international airport in Sri Lanka

Sri Lanka’s second international airport in Mattala, Hambantota will be commissioned in December 2011 with the first flight landing in the end of 2011.

The airport construction project is under way on a 2,000 hectare land at a cost of US$ 200 million and the EXIM Bank of China is financing the project under a concessional loan constructed by the CHEC. The project was launched by President Rajapaksa on November 27, 2009.

The new airport will be a boon to the local aviation industry while being a catalyst for the Southern Province economic development, generating international trade, tourism, vocational training and employment.

It is obvious that during the past four years, Sri Lanka-China relations have reached new heights and China has figured prominently in providing funding for socio-economic development projects in particular, during the concerned period reaching an extraordinary level of US$ 3.5 billion. China with its fast emerging status as a global lender had provided economic support in the form of loans worth US$ 22,375 million from 2002-07.

South East Asian nations have been able to attract loans from China to the tune of US$ 7,114 million for the same period. Comparatively, Sri Lanka as a single country has been able to attract over three billion US dollars.

It adds to a significant amount although only a fraction compared to China’s total lending package to other countries. All these mega infrastructure projects, some of which would be completed by the year 2011, will alter the infrastructure landscape of Sri Lanka, bringing in many positive direct development as well as trickle-down effects in the economic empowerment of the island’s people. It undoubtedly would mark a golden era in Sino-Sri Lanka friendship.

An unparalleled level of foreign assistance to Sri Lanka and a sizeable share in its history during the past years have been possible due to the far-sighted thinking and vision of President Rajapaksa, with a dedicated team of officials who had worked tirelessly in making this vision “Prosperous Sri Lanka for All” a reality.

As both countries are willing to further increase friendly exchanges between the Governments and people of different walks of life, and expand bilateral exchanges and cooperation in politics, economy, trade, culture and tourism the stage is set for both countries to accumulate even more benefits from this new-found dynamism.