The Hambantota Port, a deep-water port in Sri Lanka’s southern coast, has become a symbol of geopolitical tension, financial vulnerability, and political ambition. At the heart of the debate is Sri Lanka’s controversial agreement with China, which has sparked concerns over debt, sovereignty, and strategic control. Understanding this deal requires delving into its historical roots, evolving promises, financial burdens, and the complex agreements that emerged in 2017.
A Vision Born in 2002: Ranil Wickremesinghe’s Strategic Insight
The Hambantota Port’s potential was first officially acknowledged in 2002, during Ranil Wickremesinghe’s tenure as prime minister. As part of the Regaining Sri Lanka 2002 economic plan, Wickremesinghe’s government identified the necessity to expand the nation’s port infrastructure. Hambantota, an underdeveloped region with strategic proximity to international shipping lanes, was seen as an ideal candidate for a new port. A feasibility study was conducted to determine the port’s viability, highlighting its potential to boost trade and position Sri Lanka as a regional maritime hub.
However, Wickremesinghe’s government faced political challenges, and the Hambantota Port project would not gain real momentum during his term. Yet, the groundwork was laid, and it would later become a key promise in the election of Mahinda Rajapaksa, a figure who transformed this vision into reality—but at a steep cost.
Rajapaksa’s Campaign Promise: The Second Feasibility Study
In 2005, Mahinda Rajapaksa ran for president, drawing attention to the economic disparities between rural and urban Sri Lanka. Hambantota, Rajapaksa’s home district, became central to his campaign as he promised to turn the region into a global maritime hub. Under his leadership, a second feasibility study for the Hambantota Port was launched. The project was soon greenlit, not only as a means to develop the southern region but also as a symbol of national pride.
Rajapaksa secured funding from China’s Exim Bank in 2007, and construction began shortly thereafter. The project was envisioned in phases, with the initial focus on building a basic terminal. But soon, financial complexities arose that would push the project down a more perilous path.
Project Costs: A Ballooning Budget
The initial cost of the port’s construction was projected to be $1.3 billion. As with many large-scale infrastructure projects, these estimates soon proved inadequate. By the time Hambantota’s first phase was completed, the costs had significantly escalated, exacerbated by inefficient planning, construction delays, and the need for additional phases.
Despite the early enthusiasm, Hambantota Port struggled to generate the anticipated revenue. Its remote location and the competition from Colombo’s well-established port hindered its commercial success. The project had become a financial drain rather than the economic boon that was promised. This would lead to even greater dependence on China, as Sri Lanka turned to Beijing for more financial assistance.
Chinese Debt Trap: The 6.3% Interest Rate Dilemma
One of the most debated aspects of the Hambantota Port deal is the question of whether Sri Lanka was ensnared in a “debt trap” by China. Sri Lanka’s debt to China is a fraction of its total external debt, yet the terms of Chinese loans, including a 6.3% interest rate on some of the loans linked to Hambantota, have come under scrutiny. This is considerably higher than loans from other international institutions like the World Bank, which often carry interest rates of 1-3%.
The high cost of servicing the debt, combined with the port’s underperformance, made repayment untenable. By 2016, Sri Lanka’s government, now under the leadership of Wickremesinghe, found itself negotiating a solution that would relieve some of the financial burden.
The 2017 Private-Public Partnership: A Delicate Dance of Ownership
In 2017, Sri Lanka entered into a Private-Public Partnership (PPP) with China Merchants Port Holdings Company (CMPH), a Chinese state-owned enterprise. Under this deal, CMPH acquired an 80% stake in the Hambantota Port on a 99-year lease, with the Sri Lanka Ports Authority (SLPA) retaining the remaining 20%. The agreement stipulated that the SLPA would receive an additional 20% of the port’s shares in 2026, thereby reducing CMPH’s ownership to 60%.
This deal brought immediate financial relief for Sri Lanka, with CMPH agreeing to pay $1.12 billion upfront, which was used to alleviate some of Sri Lanka’s debt. However, the decision to lease the port to China for nearly a century raised concerns about sovereignty and strategic control. The port’s location, close to major shipping routes in the Indian Ocean, has fueled fears of militarization, particularly in the context of China’s growing influence in the region.
Pros and Cons of the 2017 Deal
Pros:
- Immediate Debt Relief: The $1.12 billion payment from CMPH provided critical financial relief, easing the strain on Sri Lanka’s economy.
- Potential for Future Profit: With CMPH’s expertise in port operations, there is hope that Hambantota could eventually become profitable, bringing future returns to Sri Lanka.
- Infrastructure Development: The port, though not yet a commercial success, has the potential to stimulate further regional development, attracting businesses and industries to the area.
Cons:
- Sovereignty Concerns: Leasing the port for 99 years has raised fears about Sri Lanka’s sovereignty, especially given China’s strategic interests in the Indian Ocean.
- Long-Term Financial Risks: Although the deal brought short-term relief, there are concerns about the long-term economic viability of the port. If the port continues to underperform, the financial burden may persist.
- Geopolitical Tensions: The deal has drawn international scrutiny, particularly from India and Western powers, who view China’s growing influence in Sri Lanka with suspicion. There are fears that the port could be used for military purposes in the future.
Conclusion: A Strategic Gamble
The Hambantota Port deal represents a strategic gamble for Sri Lanka, one that reflects the broader challenges facing the country. What began as a vision for regional development has turned into a complex web of financial dependencies, geopolitical tensions, and questions about sovereignty. Whether the 2017 deal will ultimately benefit Sri Lanka remains to be seen, but it serves as a cautionary tale about the risks of large-scale infrastructure projects funded through high-interest loans.
This saga underscores the importance of careful planning, transparent governance, and the balancing of national interests against foreign investments. In the coming years, all eyes will be on Hambantota to see whether it can rise to its potential or remain a controversial legacy of ambitious promises and high-stakes diplomacy.