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Chinese projects in Sri Lanka and the Karadiyanaru explosion

Oct 24, 2010 8:44:34 PM- transcurrents.com

by Namini Wijedasa

It is no secret that the People’s Republic of China has granted — and continues to offer — massive amounts of loan aid to Sri Lanka.

It is also no secret that China is financing all of Sri Lanka’s largest infrastructure projects including the Hambantota port, the Puttalam coal power plant, the reconstruction of Northern roads, the Mattala airport and the Colombo-Katunayake expressway.

But try finding out from the government the terms and conditions under which those ventures are funded and you tumble into a sea of avoidance, buck-passing, apparent ignorance and, ultimately, plain refusal to disclose the facts.


The director general of the External Resources Department was consistently unavailable for two weeks. An External Affairs Ministry source said that, while they had basic facts about Chinese funded projects and their costs, they were not informed of the terms of repayment.

After chasing the information from pillar to post, LAKBIMAnEWS was finally advised to contact an official at the Central Bank’s economic research department. Accordingly, this newspaper asked the official what the repayment terms are on loans obtained from China; how long Sri Lanka had to repay the loans; and a breakdown of the assistance obtained from China.

The official said he could not release the information because it was “incomplete”. When asked to disclose what he had, he said the External Resources Department (ERD) has marked as “confidential” many of the China-Sri Lanka project agreements and that, consequently, the terms could not be revealed.

This information, which the government will not reveal, becomes important because of the overwhelming extent of Chinese involvement in Sri Lanka. The missing statistics are required to tabulate how much more indebted Sri Lankans would be once repayment of Chinese aid starts. The same figures are needed to evaluate whether the benefit from the projects the Chinese are implementing would outweigh the debt burden.

An examination of the agreements — puzzlingly deemed “confidential” by the ERD — would also help determine whether project costs have been inflated as is widely alleged. For instance, the estimated cost per kilometre of a railway line constructed by the Indians is 1.8 million USD while the Chinese are doing it for 4 million USD per kilometre.

The Chinese also quoted 42 million USD on signals for a 27 km stretch of rail from Matara to Beliatta raising the ire of trade unions who insisted that it was exorbitantly priced. When asked, railway authorities said the signalling component was dropped from the final project framework.

Good deal for China

In November 2009, Lanka Business Online reported the terms of just one China-funded project. LBO said China would provide 891 million USD in preferential buyer’s credit for the Puttalam coal power plant. It would be repayable in 20 years.

It remains unclear whether the projects could have been done cheaper or whether Sri Lanka is, indeed, getting the best deal from the Chinese.

Chinese assistance to Sri Lanka is divided into buyer’s credit, preferential buyer’s credit and concessional loans. These are offered via the Export-Import (Exim) Bank of China. The country also provides limited grant aid under the Chinese government’s economic and technical cooperation programme.

The website of the Exim Bank says that buyer’s credit is mainly extended to finance exports of Chinese products, technologies and services as well as overseas construction projects that can facilitate Chinese exports of equipment, construction machinery, materials, technical and managerial expertise, and labour services.

In addition to reported inflated cost and loan repayment in US dollars, therefore, Sri Lanka allows the import of Chinese labour, technology and material. “Even to lift a slab of stone from one point to another at Hambantota, Chinese labour was used,” said a local source, requesting anonymity. “These projects do not generate employment in Sri Lanka. If it’s a loan, shouldn’t we be getting more out of it?”

Sources from the Department of Immigration and Emigration revealed that 7,844 Chinese workers are in Sri Lanka on employment visa at present. The visa is usually granted for a year after which it may be extended on recommendation by the Ministry of Defence under whose purview the department falls.

Local construction companies not in the running

Asked whether local construction companies were offered the chance to bid for road projects handled by the Chinese (predominantly in the North), a director of the National Construction Association replied in the negative. But Sri Lankan firms do get the opportunity to bid on projects funded by the World Bank, IMF, ADB and Japan.

Commenting on quality of roads built by China, he said there was no issue as the local companies worked to the same specifications. While Sri Lankan enterprises could “definitely” have bid for the roads at lower cost, they could not have sourced funds for the projects. “The Exim Bank has deep pockets,” he commented, requesting anonymity. “Sri Lanka is also on the strategic radar zone of China to counter balance Indian influence in Sri Lanka.”

The Chinese do give some subcontracts to local companies but they mostly bring subcontractors from China, he continued. The terms, conditions and rates are offered by the Chinese are also “far less attractive”. Some companies have supplied small quantities of aggregates to the Chinese contractors.

“There are pros and cons (to Chinese involvement),” this director said. “You get the road network up to standard at a much higher cost but little local value addition. This is what is known as the ‘beggar country syndrome’. You take whatever deal you can get.”

Yes, beggars can’t be choosers. We know that Chinese assistance to Sri Lanka involves no ‘extraneous’ conditions related to human rights. China does not expect us to make sweeping macroeconomic changes. In fact, China expects nothing of us but the import their material, technology and labour and the meeting of their repayment conditions. China gets a stronghold in this part of the world and Sri Lanka gets her projects.

At what cost, however, remains a state-engineered mystery. It would help to have some clarity on the issue — for the sake of good governance, if nothing else. The secrecy veiling the bidding process and repayment terms only breeds suspicion.

What happened at Karadiyanaru?

The Government Analyst’s Department is yet to produce its report into the blast at Karadiyanaru on September 17. A confusing number of people died when three container loads of Chinese dynamite exploded inside the premises of the Karadiyanaru police station. While the number of deaths was initially reported at 60 (including two Chinese employees of the China Overseas Engineering Pvt. Ltd), it was later revised to between 20 and 25. Asked for an accurate figure last week, SP Prishantha Jayakody, police spokesman, said he couldn’t remember.

Jayakody said the Police Department was in the process of arranging compensation for the victims of the blast. No request for payment has been lodged with the Chinese company. Neither have legal proceedings been instituted against them. “We can’t say whose fault it was,” Jayakody pointed out.

Asked what had triggered the blast, the source from the Government Analyst’s Department ruled out sabotage and said the container that exploded contained the dynamite along with detonators and safety fuse. “It was probably an accident,” he said.

He added that the dynamite had been “a fairly old stock”. “The risk of old dynamite is very high,” he explained. “When you store this commercial explosive for a long period, it oozes and creates accidents. Most countries have stopped manufacturing and use of dynamite.”

A report is expected in a few days.

LAKBIMAnEWS interviewed an explosives expert who said on condition of anonymity that the first problem had been the storing of dynamite, gelignite, ammonia and detonators in the same container. But he said leaking from dynamite sticks cannot alone trigger a blast. Dynamite detonates as a result of pressure, heat and vibration.

“In other words, you can’t flick a cigarette and cause it to explode,” he explained. “If dynamite leaks, it will catch fire. If you drop a stick of dynamite on the ground and stamp on it, it will go out of shape. It will not explode without a detonation.”

His opinion was that the explosion may have been accidentally triggered via a detonator. The detonator could, for instance, have fallen on the ground after which some friction, pressure or vibration inadvertently caused it to go off.

Chinese Assistance from 1st January 2006 to date (information obtained from parliament)

- Technical guidance on maintenance of BMICH - Grant of US$ 0.06 million
- Assistance for South Asian Games - Grant of US$ 0.43 million
- Construction of few selected road infrastructure elements - Grant of US$ 10 million
- Project to upgrade facilities at BMICH - Grant of US$ 0.06 million
- Maintenance requirements at BMICH - Grant of US$ 7.2 million
- Construction of National Performing Arts Theatre - Interest free loan of US$ 10.8 million
- Refurbishment of Superior Courts Complex - Grant of US$ 0.02 million
- Puttalam Coal Power Project Phase I (34%) - Buyers Credit Loan of US$ 155 million
- Puttalam Coal Power Project Phase I (66%) - Preferential Buyer’s Credit Loan of US$ 300 million
- Supply of 100 Railway Passenger Carriages - Concessional Loan of US$ 27.08 million
- Supply of 15 Diesel Multiple Units - Concessional Loan of US$ 38.68 million
- Hambantota Port Development Project - Buyer’s Credit Loan of US$ 306.73 million
- Bunkering Facilities and Tank Farm Project at Hambantota - Buyer’s Credit Loan of US$ 65.1 million
- Colombo-Katunayake Expressway Project - Buyer’s Credit Loan US$ 248.2 million
- Puttalam Coal Power Project Phase II - Preferential Buyer’s Credit Loan of US$ 891 million
- Mattala Hambantota International Airport Project - Concessional Loan of US$ 190 million
- Supply of 13 Diesel Multiple Units to Sri Lanka Railways - Concessional Loan of US$ 100 million

The document tabled in parliament in response to a question posed by UNP MP Ravi Karunanayake did not contain the following:

- Road Projects in North amounting to US$ 570.3 million
- Purchase of six MA60 aircrafts amounting to US$105.4 million

- courtesy: LakbimaNews -