July 25, Colombo: Sri Lanka's government on Tuesday approved the deal to lease the loss-making Hambantota Port to a State-owned Chinese conglomerate for over a billion dollars.
Ports and Shipping Minister Mahinda Samarasinghe said the Cabinet today granted final approval to sell a 70 percent stake in the strategic Hambantota port for US$1.12 billion to state-owned China Merchants Port Holdings.
Under the agreement, the Chinese will manage the port operations and Sri Lanka Navy will be in charge of port security.
According to the agreement the Port will be leased to the relevant company to carry out the operations. The government will also be a partner of the operations.
The Minister said the Hambanthota Port was a huge burden to the Port Authority due to continuous losses and paying loan installments borrowed for the port.
"Security of the port will not be given to anyone else. It will be handled 100 percent by Sri Lankans," the Minister said. "That should allay fears that port could be misused by the Chinese."
Hambantota port straddles the world's busiest east-west international shipping lane across the Indian Ocean and some nations, especially India have raised concerns that it could become a military hub for the Chinese.
Minister Samarasinghe said foreign naval vessels could call at Hambantota as they did at the main port in the capital Colombo.
"We will not provide special treatment to any country. We want to maintain good relations with all and we don't want to antagonize anyone," Samarasinghe said.
"We don't envisage giving special treatment to any one country like during the previous regime," he said referring to a 2014 incident when two Chinese submarines called at Colombo - the only time any foreign submarines had stopped there.
The previous government took a $8 billion loan from the Chinese to build the port - a commercial failure which does not even generate enough revenue to pay staff salaries - and other infrastructure.
The new government, which came to power in January 2015, has been trying to renegotiate the terms of the loan.
Samarasinghe said Hambantota port needed a fresh capital injection of $600 million to make it viable, but Colombo could not afford the investment and was banking on the Chinese to turn around the business.
According to new negotiations, China Merchants Port Holdings agreed to reduce its stake in the Sri Lankan joint venture running the commercial operations of the port from 70 percent to 65 percent after 10 years, the document says.
Minister Samarasinghe said the deal now needs to be approved by the parliament and it will be presented in parliament for approval on Friday. After debate in parliament it will be ratified, the Minister said.