Major changes in Hamb deal, signing likely this
President intervenes to get two key concessions: 50 to70 year lease, shareholding 60:40 PM finalises provisions of MoU with India, will hold talks in New Delhi Cabinet reshu force on May
The decisions by the CCEM, which some ministers viewed was a parallel cabinet, would not only continue but receive more leverage in making decisions on all economic matters. Such matters even extend to broad range of issues. One such area is military procurements. Early this year, the CCEM deliberated on obtaining financing from a Russian bank to provide military equipment to SL Army troops on UN peace keeping deployment in troubled Mali, a landlocked nation in West Africa.
It is a year now since Prime Minister Ranil Wickremesinghe last paid a visit to China.
As a nation then prepared to observe the national holidays, he was at work talking to Chinese leaders. That was to convert China’s loans to the previous Government of some US$ 1,308 million for the Hambantota Port into equity. The funds came from the Exim Bank of China in two instalments – US$ 306 million and US$ 800 million, both at 6.8 % interest. Other expenses, including the blasting of rocks cost US$ 202 million. The repayment period was twenty years with a grace period of five years. Upon his return, Wickremesinghe even briefed former President Mahinda Rajapaksa, who put through the original Chinese deal.
Wickremesinghe was told later that the loans could not be converted into equity since China’s laws did not permit that. Thus, the increasingly powerful Cabinet Committee on Economic Management (CCEM) which he chairs began talks in May last year with the Chinese Embassy in Colombo for a joint venture. The result was the selection of the offer made by the China Merchants Port Holdings Company Limited (CMPort). A Framework Agreement was signed with it after a protracted process.
The signing of a Concession Agreement is now awaited amidst a variety of issues raised by Ports and Shipping Minister Arjuna Ranatunga. Ahead of the national New Year holidays, talks to reach finality on this agreement saw exchanges in Colombo between the Government and the Chinese side. One of the two touchy areas among others was a provision giving the Chinese company (or the joint venture partnership) a 99-year lease. The other was: the proposed share component in the operating company for CMPort and the Sri Lanka Ports Authority/Government under the draft Concession Agreement is 80 % and 20% respectively.
The Sunday Times has learnt that at President Maithripala Sirisena’s intervention, these two important provisions have been changed. “It can now be anything between 50 and 70 years,” a source familiar with the ongoing process said. Similarly, the shares could be 60% (Chinese company) and 40% (Sri Lanka Government) respectively, the source added. According to the source, “all important issues where the Government wanted changes” are now complete and the agreement would be signed at the end of this month.
The much needed funds totalling US$ 1.4 billion from CMPort would go to meet debt servicing. More will be needed. The Government is throwing its full weight to raise funds and thus avert a serious debt crisis that would have a devastating effect on the economy. Finance Minister Ravi Karunanayake, now in Washington DC, is seizing the opportunity of the spring meetings of the International Monetary Fund (IMF) and the World Bank to brief them on the situation in Sri Lanka.
He will also brief the IMF on the Hambantota Port deal and the yield expected. Karunanayake told the Sunday Times on the telephone from Washington that the IMF is supporting the Government’s ambitious reform agenda to put public finances on a sustainable footing and create space for its social and development programme. He said that the IMF’s executive board is set to approve a further US$ 160 million when it meets in June. This would be the third tranche of the IMF’s Extended Fund Facility where a total of US$ 325.1 million has already been received.
An end of mission statement last month by an IMF mission, among other matters, noted; “Overall, macroeconomic performance in the second half of 2016 was mixed with gradually recovering growth and an uptick in inflation due to the impact of drought and the VAT increase. The current account remained stable, but the financial account weakened with the resumption of capital outflows. A more prolonged drought could raise food and oil imports with adverse impact on growth, inflation, and the balance of payment.”
With this in mind, the Government has also embarked on other measures. Premier Wickremesinghe who heads the Cabinet Committee on Economic Management (CCEM) wants to decide on the form of the 2018 budget without delay. He revealed just weeks earlier, a glaring shortcoming in the ministries. They had utilised less than 40 per cent of the Capital Expenditure in 2016. He has noted that “some ongoing projects are no longer beneficial politically for the Government and economically for the country.” He has said that funds raised be “spent effectively” in 2018 and 2019.
Treasury Secretary R.H.S. Samaratunga briefed the same meeting on the Medium Term Budget Plan and the current economic situation. He said that there should be re-thinking on Capital Expenditure budget in the country. He was of the view that it was “more practical” to increase the revenue through exports and push the liability management out rather than increase taxes and place the burden on taxpayers.
Premier Wickremesinghe also focused on Foreign Direct Investment (FDIs) and the export targets needed. He stressed that “there should be effective policy reforms to attract FDIs, increase revenue, increase productivity and reduce recurrent expenditure and wastage of State Owned Enterprises (SOEs). It was decided not to have ad hoc taxes and to finalise all relevant taxes at an early stage. This is to “ensure predictability” so that the private sector and investors can plan ahead. It was decided to finalise the strategies in April and make announcements in May. By this time, officials said, the Government’s new economic development plan for the rest of its tenure in office would be ready. It will be announced by President Maithripala Sirisena, as revealed in these columns last week.
Key economic policy decisions, it was agreed at the meeting, should be taken from one central authority which is the Cabinet Committee on Economic Management (CCEM). It was noted that once tabled at cabinet, CCEM will enforce it and the relevant Minister can intervene at one forum or the other. It would first be at the CCEM and thereafter at the Cabinet. A separate Secretariat is to be set up to service the CCEM in what seems a parallel cabinet secretariat. From recent weeks, President Sirisena has been chairing an apex body that monitors the CCEM every other week. Premier Wickremesinghe is a member. Ministers whose area of activity becomes the subject of deliberations are invited to attend.
The decisions by the CCEM, which some ministers viewed was a parallel cabinet, would not only continue but receive more leverage in making decisions on all economic matters. Such matters even extend to broad range of issues. One such area is military procurements. Early this year, the CCEM deliberated on obtaining financing from a Russian bank to provide military equipment to SL Army troops on UN peace keeping deployment in troubled Mali, a landlocked nation in West Africa. Tuareg rebels there are fighting a secessionist war with the Malian Government to attain independence for the northern region known as Azwad. Sri Lanka has been obligated to deploy 250 soldiers with equipment as part of a UN peace keeping force. Part of the equipment has been salvaged by the Army by repairing those available. Troops assigned to the Malian engagement have undergone specialised training which also included survival techniques.
The CCEM authorised the Department of External Resources last August to explore the possibility of obtaining a credit line from the Russian Government to procure the requirements of the Mali contingent. However, the Sri Lanka Embassy in Moscow reported that the Russian authorities had wanted another issue resolved before the credit line could be considered. It was the purchase of a Gerpard 5.1, a frigate with a helipad and a range of 6,000 nautical miles. The MoD in Colombo was of the view that the price of the vessel was too high.
However, two Russian banks – Sberbank and VTB – had made offers to the Sri Lanka Embassy to finance the procurements required for the Mali contingent. The total funding requirement