Chinese Companies Continue Major Development Activity at Sri Lanka’s Hambantota Port

On August 21, the state-owned China Export and Credit Insur­ance Cor­po­ra­tion (Sinosure) signed an agree­ment to provide the first pri­vate sec­tor financ­ing facil­ity for a 30,000 MT (likely expanded to 45,000MT) liq­ue­fied petro­leum gas (LPG) import and export ter­mi­nal at Ham­ban­tota Port in coop­er­a­tion with Sri Lanka’s gas com­pany, LAUGFS Hold­ings.

Per the agree­ment, Sinosure is pro­vid­ing over 50% of the financ­ing for the $80 mil­lion project and con­struc­tion is being under­taken by Chi­nese con­trac­tor, China Huan­qiu Con­tract­ing & Engi­neer­ing Cor­po­ra­tion (HQC).  Slated to be com­pleted by 2018, the facil­ity is expected to become one of the largest and most strate­gi­cally sig­nif­i­cant LPG import/export ter­mi­nals in South Asia and, ulti­mately, a lead­ing con­trib­u­tor to Sri Lanka’s GDP and eco­nomic growth.

It is note­wor­thy that this announce­ment, seem­ingly in line with over­all state pol­icy and “One Belt, One Road”-related aspi­ra­tions, coin­cides with the new reg­u­la­tions put out by China’s State Coun­cil pro­vid­ing guid­ance on Chi­nese for­eign invest­ment.

Last month, China Har­bour Engi­neer­ing and China Mer­chant Hold­ings secured a $1.1 bil­lion agree­ment for the sup­ply, oper­a­tion, and trans­fer of Ham­ban­tota Port.  The con­tract effec­tively grants the Chi­nese state-owned enti­ties a major­ity 70% con­trol over a 99-year lease period.  Sri Lanka’s sub­stan­tial indebt­ed­ness to Chi­nese insti­tu­tions con­tin­ues to raise con­cerns about the degree of lever­age and influ­ence China will exert over the strate­gi­cally sig­nif­i­cant port in the Indian Ocean, despite recent con­trac­tual com­mit­ments by Bei­jing not to use the facil­ity for mil­i­tary pur­poses with­out the country’s approval.