Hambantota Port Agreement Pdf

In an interesting turn of events, newly elected Sri Lankan President Gotabhaya Rajapaksa raised concerns about the Hambantota port lease with China, signed by the previous government in 2017. In his first-ever interview as newly elected president, Rajapaksa said he would review the Hambantota port lease and renegotiate. From 2007 to 2014, five loans (excluding loans for a relief facility project) were granted for the construction of the port under the government of Mahinda Rajapaksa, who now holds the post of Prime Minister. Some of these loans were obtained at interest rates of up to 6 percent, while others were discounted loans. The total amount of these loans amounted to $1.263 billion. Of these five loans, only two loans, with a total value of $US 357 million, were obtained at commercial rates, indicating that the majority of loans to the Hambantota port project were grantors. However, the repayment period of the loan was not long, which led to an increase in credit rates when the additional period expired. A widely held and popular myth is that Sri Lanka was not able to repay the loan received for the construction of the port, so it was handed over to China. However, when the Sri Lankan government reached the agreement with CM Port for the lease of the Hambantota port, the debt costs for the loans granted by China Exim Bank for the construction of the port were not high. These credit rates (including interest) accounted for less than 5% of Sri Lanka`s total external debt repayments. In addition, the loans for the second phase of the Hambantota port project were not yet repaid at that time. The duration of government bonds, which accounted for more than 40% of total debt service in 2019, has been a more serious concern when it comes to the cost of debt servicing. Rajapaksa`s comments have attracted much interest, with the Hambantota port agreement still frequently cited to highlight China`s “debt trap” phenomenon.

However, there are many myths about this port agreement, most of which have received little or no clarification. In this context, it is wrong to claim that China bought the hambantota port because Sri Lanka did not pay the debt for the construction of the port. The oft-cited “port deal” was actually a lease that was clearly separated from the loans obtained for port construction purposes, and the money received from the lease was used to bolster the country`s foreign exchange reserves, not to repay China.