China’s One Belt, One Road initiative is bursting with promise. But Beijing’s track record for “exporting” infrastructure projects has run into a few dead ends over the years, notably in Sri Lanka.
While China developed a port in southern Sri Lanka years before the current One Belt, One Road initiative was officially launched, that project provides a cautionary tale on the pitfalls of politically motivated infrastructure, made worse by ham-handed execution.
In early 2008, the state company China Harbour Engineering Co. began to construct a new container port in Hambantota, on Sri Lanka’s southeastern coast. The Sri Lankan government of then-President Mahinda Rajapaksa touted the creation of what it said would be South Asia’s largest port facility by 2014. A new international airport and export-processing zone were to follow.
It was part of what was being called China’s “string of pearls” strategy.
What emerged was a string of disasters. Critics called it “the port without ships.” What little traffic Hambantota attracted was cannibalized from the main port in the Sri Lankan capital of Colombo. Most of the revenue came from a new bunker facility, which lost millions of dollars on questionable transactions.
The project was pork-barrel politics at its worst. The new port is located near Rajapaksa’s home district and the facility was actually named for the ex-president, who was soundly defeated in stunning elections last year. Adding injury to insult, China Harbour Engineering built the first phase of the port using for the most part Chinese labor, many of who entered on tourist visas. Two other Chinese companies are constructing the second phase.
The current government of President Maithripala Sirisena is now investigating the project for corruption, opaque contracts and procurement deals and onerous lending terms, even as it asks China’s help in saving the facility. “We have $1.5 billion sunk in the project and no revenue,” complained deputy foreign minister Harsha de Silva, in an interview with The South China Morning Post. “We want Chinese investors to come and help turn it into a dockyard as well as invest in an industrial park there.”
The first phase of Hambantota Port opened in 2010, with a price tag that was revised upwards from $360 million to $501 million. The government has already spent more than $800 million on the second phase, which is scheduled to be completed by the end of this year and will include four new berths. China’s Export-Import Bank financed both at terms that are reported to be more than 6%. That’s far from concessional rates.
The government’s Sri Lankan Ports Authority is now struggling to service the debt and is diverting revenue from Colombo port operations to help pay off the loans.