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.