China's loans to Sri Lanka over the past four years total over $3,836 million, reported The Sunday Leader.
The loans are repayable over a 14 to 20 year period, at interest rates ranging from 1.53% to 6.5%, much higher than usual rates for infrastructure loans from the World Bank or the Asian Development Bank.
Most of the loans had conditions, requiring Sri Lanka to buy everything, from raw materials to machinery, from China, and to give the contracts, and sometimes even sub-contract, to firms from China, the paper said. China’s current 42 projects employ more than 1,700 Chinese workers.
China has financed key development programmes, including road construction, port development, power supply, water supply, irrigation and other infrastructure developments, and the equipment and machinery necessary for the projects.
For example, the new 25.6 km (16 mile) airport highway was built with a loan of $248.2 million from Exim Bank of China, with China Metallurgical Group Corporation as the contractor, according to Reuters,
One of the largest projects was the port in President Mahinda Rajapaksa's hometown of Hambantota, which was built with a loan of $1.3 bn from China's Exim Bank at an "exorbitant 6.3% interest", the Ceylon Today reported last November.
The paper added:
“[The Port] lies forlorn with occasional ships calling at its docks. The Port, which has the capacity to handle over 30 vessels at any given time, has ships only occasionally dropping anchor. Sources say that ships dock at the MMRP because they are compelled to do so by the government in its endeavour to generate traffic at the new seaport.”
"With no ships calling at the Port, the question that arises is how can Sri Lanka repay the massive loan it had obtained? The [port] has to generate at least Rs 8 billion a year to pay its annual instalment of Rs 6 billion, thereby honouring its commitment to repay the loan. But, with no business being generated, due mainly to ships not docking at the [port], sources said the burden is on the management of the Colombo Port to honour the financial commitments of the MMRP by generating sufficient funds to meet all costs," the paper said.
Sri Lanka has planned over $6 billion worth of projects, including airports and sea ports, highways, coal and hydro power plants and railways, mainly to be funded by Chinese loans, according to Reuters.
See our earlier related posts:
9th round of consultations with China 'highly successful' says Sri Lanka (03 May 2014)
Sri Lanka owes over $15 billion in foreign loans (20 July 2012)
Who benefits from Chinese loans to Sri Lanka? (21 November 2010)