Sri Lanka pins hopes on China-funded port, as India watches

Sitting along the ancient "Silk Road" trading route and one of the world's busiest shipping lanes, the Hambantota port is intended to be the engine that will drive Sri Lanka's economic recovery after decades of ethnic conflict. Partly funded by a soft Chinese loan of 300 million dollars, the first phase of the deep-sea port is scheduled to open in November.

The government hopes that by the time the second phase is completed in 2014, the port on the island's southern tip will have become a magnet for foreign investment in transshipment and spin-off business opportunities.

Sri Lanka Ports Authority chairman Priyath Wickrama said Hambantota would initially aim to service around 2,500 of the 70,000 cargo ships that ply the East-West sea lane every year.

"In about 10 years, with the second phase coming on stream, we aim to handle about 8,000 ships a year," he said. Sri Lanka's neighbour and biggest trading partner, India, is believed to be concerned that Hambantota is part of a Chinese policy to throw a "string of pearls" geographical circle of influence around India.

China is also developing port facilities in Bangladesh, Myanmar and Pakistan, and has plans for rail projects in Nepal.

"Indian threat perceptions have grown as China has become more active in South Asia," said Eurasia Group's Asia analyst, Maria Kuusisto.

"New Delhi sees this Chinese manoeuvring as an incursion into its historic sphere of influence, and is consequently trying to outbid the Chinese for strategically important infrastructure projects," she said.

Last year, China overtook Japan as Sri Lanka's biggest lender, providing USD 1.2 billion in loans. And China has emerged as the partner of choice for big projects in Hambantota, including a new airport, railway, roads and a conference hall.

"The berths for cargo and oil are coming up nicely and the port will handle its first ship mid-November," Wickrama told AFP during an inspection tour of the port, some 240 kilometres (150 miles) south of the capital Colombo.

Colombo is currently Sri Lanka's main port, handing more than 6,000 ships a year. Some 30 investors from China, Singapore, India, the Middle East and major shipping lines have already sent in investment proposals for Hambantota that range from ship building, cement grinding and fertiliser bagging to warehousing and vehicle transshipment.

Investors can lease land, enter into an equity-sharing joint venture with the Ports Authority or pay royalties, Wickrama said.

However, the lucrative business of bunkering -- supplying ship fuel -- is closed to private investment. "We don't want to give bunkering to outsiders," Wickrama said. Sri Lanka's bunkering market is estimated at some 300,000 tonnes a year, according to private equity firm JB Stockbrokers.

"Ships travel from East India and Australia to the African continent. Their route does not pass through key bunkering ports such as Dubai and Singapore, so Hambantota port is ideally placed to tap that market," the broking firm said.

The first phase includes two berths each for oil and cargo, while another five cargo berths will be added in the second phase. Chamal Rajapakse, who is speaker of parliament and President Mahinda Rajapakse's elder brother, rejected any suggestion that Chinese involvement in Hambantota had an ulterior motive.

"Our relations with China for Hambantota are purely commercial," Chamal Rajapakse said.

"China gave us the best commercial rates. We offered the port to India before, but they didn't respond," he added.

Nevertheless, Indian analysts say New Delhi will closely monitor the port's development for any usage by China that could be deemed detrimental to India's security interests.

"Although China and Sri Lanka claim that this is merely a commercial venture, its future utility as a strategic asset for China cannot be ruled out," said RN Das, a senior fellow at India's Institute for Defence Studies and Analyses.