Politics behind Hambantota troubled waters

Troubled waters

Daily FT

The crisis at the Hambantota Port and questions about transparency in the deal to lease a major stake in the southern harbour to a Chinese company are emblematic of Government failures across the board

The Magam Ruhunupura Mahinda Rajapaksa Port in Sri Lanka’s deep south has never been a stranger to controversy.

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The Japanese vessel Hyperion Highway, which was seized and detained by striking port workers in Hambantota for four days, being escorted out of the harbour by the Sri Lanka Navy on Sunday (11)

It was the epicentre of a new headache for the Sirisena-Wickremesinghe Government last week, after some 400 striking dock workers attached to a private company set up to manage the port in 2012 seized a Japanese owned vessel calling at the port to dispatch a cargo of vehicles and pick up another transhipment of vehicles bound for its next port of call – Sohar, Oman. The crisis raged for four days, and resulted in damages of up to $ 400,000 for the shipping company, after workers lowered gantry cranes and forklifts to prevent the ship from being unmoored for departure.untitled-4

Navy Chief Vice Admiral Ravindra Wijegunaratne assaulting reporter RoshanGunasekera

Hyperion Highway, the vessel owned by Japan’s K Line Shipping finally departed Hambantota at 5.45 PM on Sunday (11) – four days behind schedule, after the Sri Lanka Navy controversially intervened to ‘rescue’ the ship from the protestors and escorted it out to sea using inshore patrol craft. Navy personnel arrived at the besieged port in boats on Sunday after the local shipping agents for Hyperion Highway personally reached out to the President, Prime Minister and Ports Minister to secure the release of the vessel.

Navy Commander Vice Admiral Ravindra Wijeguneratne who led the Navy operation to release the Japanese vessel is under investigation by the Defence Ministry after he was caught on camera assaulting a television reporter and abusing him in foul language during the Navy’s ‘rescue operation’ that involved moving protestors away from the seized vessel.

The strike has continued since the release of the foreign vessel last weekend, with dock workers fearing joblosses in the wake of a Government deal to sell an 80% stake in the loss-making Hambantota Port to a Chinese company. The striking workers are temporary cadre attached to Magampura Port Management Company Ltd., a company set up by the Government in 2012 that has registered losses of Rs. 1.9 billion in 2014 and 2015. In a bid to protect their jobs, ahead of the Chinese company’s takeover of the Port management, the workers are demanding permanent employment in the State-owned Sri Lanka Ports Authority (SLPA).

Rajapaksa ‘showpiece’

The $ 1.4 billion seaport, funded through a Chinese loan and built by a Chinese construction consortium, was intended to be the showpiece in former President Mahinda Rajapaksa’s southern kingdom – part of a sprawling economic hub his administration was trying to develop in the strongman politician’s hometown of Hambantota.

The Port was opened on 18 November 2010 – Rajapaksa’s 65th birthday – with an extravagant ceremony that cost the State upwards of Rs. 100 million, according to corruption investigations into the tamasha now underway by a special Presidential Commission of Inquiry. For one year after it was commissioned, a large rock discovered at the entrance to the channel prevented deep draft ships from being able to berth in the newly-constructed port. After nearly a year of denying the presence of an obstacle in the channel, SLPA engineers finally began a process of blasting the rock at an additional cost of $ 40 million – also borrowed from the Chinese Government.

Shipping experts, with experience in the State shipping sector, explained that the tip of the rock was located only seven meters from the ocean surface, and was almost certain to have been discovered if proper soil testing using bore-holes drilled into the proposed site of the port had been conducted prior to construction. These experts said that nearly 200 bore holes had been drilled during soil testing for the Colombo South Harbour expansion project while the number of bore-holes drilled for soil and sea bed testing at the Hambantota Port had been less than five. The SLPA reportedly authorised this minimal testing before the port was built these experts noted, and subsequently the State-owned authority was forced to fork out millions of dollars more to complete work that should have been done at the initial stages of construction.

But even after this obstacle was cleared, the port has struggled to attract ships and cargo. Desperate for ships to call, the Rajapaksa Government decreed that all vehicle shipments would be diverted to the Hambantota Port in 2012, purportedly to ease congestion at the Colombo Port.

Six years later, car-carriers are the only ships of note to call at the Hambantota Port, and shipping industry experts say it has only attracted lacklustre interest – a phenomenon sometimes attributed to poor marketing of the new deep sea port.

Debt trap

The Rajapaksa regime suffered twin electoral defeats in 2015, but the new Government has struggled to service the debt his administration left behind – a substantial portion of it owed to the Chinese Government for mega-projects undertaken mostly in the former President’s home district. Forbes estimates the Government of Sri Lanka’s debt to Beijing at $ 8 billion.

The Hambantota Port was always the most viable investment among Rajapaksa’s ‘vanity projects’ – that include an international airport, a convention centre and the port – all funded by Beijing. In ancient Sri Lanka, a port in the region was part of the Maritime Silk Route, and even today, the Hambantota Port lies a few nautical miles south of one of the world’s major sea lanes, between the Bay of Bengal and the Arabian Sea. Up to 70,000 ships reportedly traverse these sea-routes south of the Hambantota harbour every year.

To manage a burgeoning debt crisis, the Sirisena-Wickremesinghe Government requested Beijing to consider debt-for-equity swaps for projects China had funded and sought international partnerships to manage the loss-making ventures and turn them around. The Chinese Government rejected the debt for equity proposals, preferring to allow Chinese commercial entities to take over the projects by buying large stakes in the port and airport ventures.

China Merchants Port Holdings, a Chinese owned blue-chip company listed on the Hong Kong stock exchange, will sign a joint venture with the Sri Lankan Government early next year to lease an 80% stake in the Hambantota port for $ 1.12 billion for 99 years. The Sri Lanka Ports Authority will own the remaining 20% stake in the southern port, while the Chinese firm will take over management and operations of the harbour.untitled-5

The port lease

China Merchants Port Holdings is already a major player in Sri Lanka. It operates the Colombo Port’s highly-profitable South Container Terminal through Colombo International Container Terminals (CICT), another joint venture company with the SLPA. According to shipping industry experts, partnering with the Chinese firm that has a proven track record will “make things happen” in Hambantota.

The problem with the Government’s proposed joint venture with the Chinese firm is not the fact that it is leasing an 80% stake in the port or even the duration of the lease, one shipping expert told Daily FT, speaking confidentially. China Merchants Port Holdings holds an 85% stake in CICT, under a 35-year Build-Operate-Transfer (BOT) agreement, while the remaining 15% stake is held by SLPA. Even in Hambantota, provided the Chinese firm is able to make the venture profitable, the SLPA will earn 20% of the profits without further investing in management and operations of the deep-sea port.

Instead, the two questions that will plague the Government pertaining to this proposed joint venture would be a lack of transparency of the process to award the lease to the Chinese firm and the failure to obtain an independent valuation of the Hambantota deal before the deal was struck with China Merchants Port Holdings, the expert said.

Usual practice with these transactions is for the seller to obtain an independent valuation by a reputed international firm that will be compared against the valuation performed by the proposed buyer. “Based on these two valuations, the deal is negotiated, and you arrive at a figure somewhere in the middle of the two,” the expert explained. In the case of the Hambantota Port joint venture, the Government has valued the port at the cost of construction – $ 1.4 billion – without adding value for the goodwill the project has already garnered after six years in operation and its potential to generate income in the future.

Since the Government announced plans for a public-private-partnership with the Chinese company to run the Hambantota Port, and a 15,000 acre Chinese-led investment zone near the port, it has faced stiff opposition to the moves. The former President and a coterie of parliamentarians loyal to himhave been vocal in their protests against the proposed Chinese investment in the southern port. Opposition has centred on the premise that the Government was selling State assets, in a ‘great betrayal’ of the country’s economic resources.

Political motivations

The Government strongly suspects that the dock workers’ strike at the Hambantota Port was motivated by these political forces that maintain a stronghold on political life in the rural southern district. The workers were hired in 2012, and according to Government Ministers they belong to the Nil Balakaya – a political youth organisation created by the former President’s eldest son and Hambantota District MP Namal Rajapaksa.

According to reports from the area, these claims could be accurate, since many members of the youth movement – most of them hailing from Hambantota – were provided employment in various Government and semi Government ventures while the Rajapaksa administration held office. Daily FT learns that temples in the area have been providing meals to striking workers at the behest of powerful local politicians. Monks at these temples have also chanted pirith to bless the protesting workers and their efforts. However, the opposition JVP has also strongly backed the protests and the dock workers’ demands. Yesterday new protests erupted also strongly supported by the JVP and led by residents in the sparsely-populated district against Government attempts to dispense land in Hambantota for a proposed investment zone.

Irrespective of its political motivations, the workers’ right to protest and unionise has found strong public and opposition support, especially in light of questions that have been raised about the Government’s proposed lease of the port. Hyper-mobilised unions and labour strikes are also a hallmark of UNP-led administrations, because the party’s liberal economic policies and free-market values are perceived as being antithetical to social welfare, public enterprise and workers’ rights. But there was near universal agreement that the dock workers’ decision to seize the Japanese ship docked at the Hambantota port and prevent its departure over four days was a step too far. Given the impact such a seizure could have on confidence in maritime commerce in the island, even the Government’s somewhat-controversial decision to call in the Navy to rescue the ship from the workers may not have been called into question if video footage had not emerged showing the unruly conduct of the Navy Commander who made a target of a journalist reporting on the strike.

Vice Admiral Ravindra Wijegunaratne is a highly-decorated naval officer, who was trained at the Britannia Royal Naval College in Dartmouth, where he was awarded the best-mid shipman award in 1982. Wijegunaratne was instrumental in forming the Sri Lanka Navy’s Special Boat Squadron in 1993, the elite naval special forces unit, highly trained in counter-terrorism and special boat tactics to fight in brown waters and coastal shallows. In political and military circles, Wijegunaratne is known as an easy-going and highly talented officer.

Captain Haddock?

But on Sunday, clad in shorts and a blue Navy t-shirt – the Sri Lanka Navy’s working gear – grabbing reporter RoshanGunasekeraby the neck and abusing him in foul language, the decorated Vice Admiral conjured recollections of Hambantota’s pistol-packing Mayor Eraj Fernando, who was responsible for similar scenes against Opposition MPs and journalists in April 2014. The internet exploded with memes mocking the Navy Chief’s conduct, using the blue-shirted parallel of Captain Haddock of Tintin comic book fame, in a ‘billions of blue blistering barnacles’ fit. The incident also evoked ugly memories of the last time the military had been sent in to quell a civilian demonstration – in Weliweriya – with disastrous results.

And within hours of the assault, the narrative changed, from the workers’ inexcusable seizure of an international commercial vessel to the conduct of the country’s armed forces and its senior officers and the dangers of sending armed military personnel into volatile civilian demonstrations. The merits and demerits of the journalists’ conduct notwithstanding, and whatever the provocation alleged by the Government, the Navy Chief had no right to assault and abuse a private citizen, much less a journalist assigned to report on the protest at the port. Whatever justification and moral high ground the Government possessed when it sent in the Navy to rescue the foreign ship, it ceded by the indefensible attack on the free press by one of its tri-forces commanders.

So somehow, the tables have been turned, and the problem-riddled Magam Ruhunupura Mahinda Rajapaksa port that the Sirisena-Wickremesinghe Government inherited has become its own unique failure. Two years ago, the Wickremesinghe-led UNP railed against the Rajapaksa Government for seeking to make Sri Lanka a colony of Beijing. Today, Mahinda Rajapaksa and his political movement are accusing Wickremesinghe’s UNP of selling the country’s economic assets to the Chinese Government. The UNP’s economic ideologies make this an easy sell for the pro-Rajapaksa SLFP, which is channelling worker frustrations to take the battle to Wickremesinghe’s Government in virtually every sector with a series of strikes in the capital Colombo and elsewhere.

Emblematic

For several reasons, the ongoing crisis at the Hambantota Port is emblematic of how the UNF Government is failing on all levels nationally and across the board. Its failure to ensure transparency in its international trade dealings reneges on the Government’s own pledges to institute transparent, corruption-free governance. A parliamentary debate about the proposed lease prior to signing the joint venture, would have put the agreement and its terms in the public domain and allowed Government and opposition members to thrash out the finer details of the contract. Instead, trade agreements and Government projects are shrouded in secrecy and subsequently found to be riddled with corruption.

The crisis at the port also highlights the Government’s dismal failure at effectively communicating its policies and the reasoning behind its economic decision-making to the public.

Public private partnerships are often opposed by left wing groups and workers movements at the outset, but have become success stories in the long run. This is especially true of Sri Lanka Telecom which is partly owned by a Japanese company and SriLankan Airlines, before the Rajapaksa administration terminated the management contract with global aviation giant Emirates and the National Carrier began losing billions again. With regard to the Hambantota Port, the Government was servicing dead debt on a project that was offering no return on investment and measures had to be taken to stem the flow.

The decision to lease out a stake in the port is eminently reasonable, provided the stake was sold transparently and with minimal losses to the State – and the Government had been able to make its case more effectively to workers and the public about the deal. Furthermore, the attack on a journalist by a member of the armed forces demonstrates the Government’s failure to undertake effective security sector reform that would transform the country’s military into a peace-time force. The assault was also a fitting reminder of how tenuous the democratic gains made since January 2015 really are, and how poorly the Government has been able to translate its commitment to upholding the freedom of expression and the rights of a free and unshackled press across other branches of the state.

Lastly, and perhaps most significantly in terms of its own political survival, if the strike and seizure of a foreign vessel was motivated by political forces inimical to the incumbent administration, it demonstrates the Government’s epic failure to neutralise the Rajapaksa threat and the former President’s seemingly undying project to return to power.

Each of these failures, extrapolated nationally, are slowly coming together to create the perfect storm for the Sirisena-Wickremesinghe administration which will mark two years at the helm of the country’s political leadership in a few weeks. Together, these failures and the lack of political capacity and will to investigate and prosecute members of the former regime on corruption, and the continued tolerance of corruption within its own ranks, have resulted in an increasingly-disillusioned and frustrated electorate with no-where to turn for political redress. The national unity Government led by the UNP is sailing perilously close to the wind, with large parts of its reform agenda remaining to be fulfilled. With a referendum on the constitution looming and its political survival at stake, the Government’s failure to act – and act now – to change course and regain the public trust, will only hasten its day of reckoning.

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