Colombo, November 2 (Counterpoint): With the Sri Lankan economy slowly recovering from the dumps it has been in since defaulting on its international loans in April 2022, India and China are jostling to secure investment opportunities in the island nation.
On its part, the Ranil Wickremesinghe government is trying to accommodate both the regional powers through a delicate and challenging balancing act amidst opposition criticism over non-transparency in its dealings with India.
Earlier this week, the Lankan government said that it would shortly enter into an investment agreement with the Chinese oil major Sinopec, to build a US$ 3.85 billion refinery at the Chinese-built Hambantota port.
Earlier in 2019, the project was given to a Singapore-based Indian-family owned company, Silver Park International, but that company had failed to implement the contract, the Lankan Energy Minister Kanchana Wijeskekara said.
The government terminated the contract in August when Silver Park International failed to start construction. It also retrieved the 485 hectares of land allocated for the refinery.
It has now given the project to the Chinese state-owned Sinopec.
Among the various international and domestic bidders, Sinopec was the only one that had stayed in the field.
During his recent visit to China, Lankan President Wickremesinghe held talks with the Sinopec Group Chairman Ma Yongsheng. Sinopec has agreed to make an initial investment of USS$ 1.5 billion in the refinery.
Sinopec has already entered Sri Lanka’s retail fuel distribution market. The Lanka IOC and the Lankan State-owned CEYPETCO are the other players in this field.
The operations of two other foreign fuel distribution companies –the United States-based RM Parks and United Petroleum Australia—will be delayed. RM-Parks has deposited the performance bond.
“We have placed a condition that they cannot remit their profits from fuel trading technically for two years after the arrival of each shipment. Therefore, it becomes a huge initial investment for them. Therefore, they need time,” the media quoted an official as saying.
China owns 52% of Sri Lanka’s bilateral debt, and Beijing’s approval is crucial for any efforts by Colombo to restructure its outstanding loans.
India Not to Let Go
Meanwhile, India is trying hard to retain its foothold in Sri Lanka which it had gained substantially in 2022 when it extended US$ 4.5 billion to rescue Sri Lanka from the dire straits it was in after the default in April 2022.
Indian Finance Minister Nirmala Sitharaman arrived in Colombo on Wednesday for a three-day visit, during which, she will attend a grand ceremony to mark the 200th., year of the arrival of Indian plantation workers in Sri Lanka and also discuss with the Sri Lankan President the role India can play in the economic recovery of Sri Lanka.
Sitharaman is expected to discuss the resumption of talks to enhance the existing FTA to an Economic and Technology Cooperation Agreement (ECTA) after a five-year hiatus.
The two sides held the 12th round of negotiations on the ETCA in Sri Lanka from 30 October and 1 November but no agreement could be reached.
A Business Summit on the theme “Enhancing Connectivity: Partnering for Prosperity,” is a highlight of her current visit. A high-power Indian business delegation of 30 persons, cutting across several industries, is in Colombo to participate in the discussions. The delegation includes the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI).
India has reiterated on several occasions that it is committed to the economic recovery process in Sri Lanka and has highlighted the vital role of investments in this endeavour.
India is currently the largest source of investments in Sri Lanka and the largest source of tourists too. It is also Sri Lanka’s largest trading partner.
Separately, Finance Minister Sitharaman has informed the Chief Prelate of the premier Buddhist institution, the Asgiriya Chapter of the Maha Sangha, the Venerable Warakagoda Sri Gnanarthana Thera, that she will witness the exchange of MOU on solar electrification of religious places across Sri Lanka.
This is the first project under the USD 15 million grant announced by Prime Minister Narendra Modi for the promotion of Buddhist ties between the two countries.
The Sri Lankan media have acknowledged that Sitharaman was instrumental in fast-tracking the multi-pronged assistance of U$$ 4.5 billion to Sri Lanka in 2022. She had also advocated strongly for Sri Lanka at the IMF for a special package, during the economic and financial crisis.
India was also the first bilateral creditor to provide a written assurance of financial support which paved the way for the IMF package, the media said.
Opposition Objects to IOC Deal
However, the main Sri Lankan opposition party, the Samagi Jana Balawegaya (SJB) has opposed the government’s decision to extend the license given to the Lanka Indian Oil Corporation (LIOC) for another 20 years.
The LIOC has about 150 petrol sheds in the island nation.
On October 29, the SJB Deputy General Secretary Mujibur Rahman told the media that the 2001 agreement with Lanka IOC had granted the entity hefty tax concessions and a 20-year licence to operate in Sri Lanka in exchange for an investment of U$ 70 million.
“The agreement was struck without a competitive tender process and lacked transparency,” he charged.
According to Rahman, over the years, Lanka IOC has made a net profit of US$ 3 billion from its operations in Sri Lanka.
“Once again, there has been no competitive tender process or transparency. Are we obligated to grant this deal to the IOC? Was this agreement secretly negotiated between President Ranil Wickremesinghe and Indian Prime Minister Narendra Modi?” he asked.
He raised concerns about whether the cabinet had thoroughly examined Lanka IOC’s two-decade presence in Sri Lanka before consenting to the renewal.
Rahman also criticised the Energy Minister for not presenting a comprehensive review and the particulars of the deal in parliament.
He complained that LIOC did not address the fuel shortage during Sri Lanka’s most severe crisis nor did it provide better prices to the public.
“The public deserves to know the rationale behind this renewal. Instead, the government has secretly extended their licence once again,” he alleged.