Will the new Hambantota port change global supply chain equations ?

Colombo is the nearest port to the world's most busiest Asia-Europe main sea trade channel. To decongest the Colombo port on a study by Canadian International Developmental Agency through SNC Lavlin, the Sri Lankan government in 2010 proposed to start a new port south of Colombo at Hambantota, 200 kms south of Colombo. 

 

Former Sri Lankan President Mahinda Rajapakse(L) and Sirisena

The Kochi or Vizhinjam port, including the container handling port in Vallaarpaadam, Kochi situated in the state of Kerala in the southern tip of India, do not have capacity to be major hubs of global merchandise flowing in this route in the present circumstances. Understanding this drawback of the Indian port, grabbing the initiative on the recommendation of the Canadian consulting firm SNC Lavlin and the Danish engineering firm Ramboll in 2006, the Mahinda Rajapakse government in Sri Lanka decided to build the Hambantota port on a Build-Own-Operate-Transfer basis.

When both India and US refused to collaborate with Sri Lanka in terms of funds and technology, as it affected their commercial interests in the region, the Sri Lankan government had to approach the international community for help. Sensing a great business opportunity,  China under it's One Border One Road initiative of 2005 forwarded a 15 year repayment period loan of $300 million from Chinese Exim Bank in 2007 at a soft rate of 6.3% which kickstarted the project. 

At the same time Sri Lanka also issued an international bond for $300 million at 8.25% interest to collect more investment for the project. We have to understand that these were gravely excess financial repayment commitments that the small island state of Sri Lanka was taking upon itself, hoping that the new port would bring in additional revenues to help it repay. 

Everything went fine, the first phase was completed in 3 years on time. In 2012 contrary to advice by the project building firm, Danish engineering co. Ramboll, without waiting for revenues from phase 1 port to stablilise, Rajapakse govt decided to go ahead with the second phase container port. This time Rajapakse govt went for a loan of $757 million from China Exim Bank, at 2% interest. Rajapakse even named the port after himself.

 

By 2014, trouble began, when the international clientele did not find the port attractive enough, the ships calling in the port declined which affected the revenue generation from the port. With limited funds at it's disposal, the Sri Lankan govt had no other option but to approach the Chinese govt and  companies for help.

In the sudden elections announced by  President Rajapakse, his deputy turned foe, Sirisena became the new President of Sri Lanka in 2015. (in picture courtesy Reuters, Rajapakse is seated on the left with Sirisena). In the financial problems that ensued, Sri Lankan government decided for a bail out after approaching the IMF and decided to lease the port to an experienced company. The lot fell on Chinese Merchants who infused $1.12 billion into the port and was given the rights to operated the port for a 99 year lease.

 

Under the garb of a debt trap getting the Hambantota port in Sri Lanka in its control, it is feared, the Chinese, like the European colonial powers of the 17-18th century, is surreptitiously expanding its neo-colonial aspirations.. 

Now that an important port has passed over to Chinese hands which is also in the Indian Ocean, how will this translate to better ocean movement for sea based traffic ? The US and India are worried beyond the supply chain borders as they feel China could effectively strangle global sea trade and progressively control sea and land trade across Asia and Europe, following the One Border One Road Initiative of 2005.

As per Chinese leaders, this is part of the OBOR, One Border One Road initiative from Chinese President Xi Jin Ping, to partly revive the old Chinese silk land route 2000 years back, connecting China with Europe. 

On OBOR : The longest train journey on the OBOR route was completed over 17 days in January of 2017 covering 8000 miles from Beijing to London.  (click here for my earlier writing on the OBOR initiative from China). The Hampantota port is surprisingly part of this OBOR.

The Sri Lankan government under Rajapakse and later Sirisena may have carried out the work in right earnest, but the economic burden from poor traffic resulted in port control changing hands with China winning the bid to run the port and taking lease of the port for the next 99 years. 

The world does not have a clear picture where the global maritime trade is heading to and who will have the final control over trade on the seas of the world in the next hundred years. Is China expanding globally and taking control of ports for a good reason or otherwise, only time will tell.  We have to wait and see. In the mean time, it will be great opportunity and low costs for global supply chains between Asia, Europe, Africa and the Americas. 

George.. (pictures courtesy New York Times, Atlantic.com and Google Maps)

Ref : 

1. Deborah Brotigam and Meg Rithmire, The Chinese debt trap is a myth, The Atlantic, February, 2021 (click here)

2. Maria Abi-Habib, How China got Sri Lanka to cough up a port, New York Times, June 2018. (click here)