‘Colombo Port City Economic Commission Act’ breeds Economic and Geostrategic Concerns

The act provides for the establishment of the Colombo Port City Special Economic Zone (SEZ); and the Colombo Port City Economic Commission (CPCEC).

‘Colombo Port City Economic Commission Act’ breeds Economic and Geostrategic Concerns
The project is expected to transform the landscape of Sri Lanka with multiple benefits to the economy. (Photo source: Reuters)

By Gulbin Sultana, PhD

The controversial ‘Colombo Port City Economic Commission Act’ came into effect on May 27, 2021. The act provides for the establishment of the Colombo Port City Special Economic Zone (SEZ); and the Colombo Port City Economic Commission (CPCEC). With the coming into effect of the act, the CPCEC, appointed by the President of Sri Lanka (not by the Parliament), became the sole authority to grant registrations, licenses, authorisations, and other approvals to carry on businesses and other activities within the Colombo Port City (CPC) which was constructed by the China Harbour Engineering Company (CHEC) on 269 hectares (ha) of land reclaimed from the sea. According to the Government of Sri Lanka (GOSL), the objective of the act is to make provision for a single-window facilitator for the promotion of ease-of-doing business within the SEZ to attract investment. The act raised concerns in Sri Lanka on the ground that CPCEC may comprise non-citizens as members and it is vested with wide-ranging powers. The CPC is not subjected to the laws and regulations of the Municipal Council and Urban Development Authority (UDA) of Sri Lanka. Concern has also been raised that the CPC will not function in a democratic manner because there will not be any elected representative in this outfit. As the disputes are to be referred to the arbitration, the SEZ will be outside the jurisdiction of the Courts.

When the ‘Colombo Port City Economic Commission Bill’ was introduced in the Lankan Parliament in April, the constitutionality of the bill was contested in the Supreme Court (SC). After hearing 24 petitions, the Supreme Court determined that some of the clauses of the draft bill are inconsistent with the constitution and therefore, required to be either amended or passed by a two-third majority. Some of the clauses even required a referendum in addition to a two-third majority. Following the SC recommendations, the GOSL moved several Committee stage amendments and got it passed in the Parliament with 149 voting in favour and 58 against on May 20, 2021. The content of the amended version of the act is yet to be printed and made public. Analysts and opponents of the acts, however, say that the amendments were recommended by the SC to make the bill consistent with the Constitution. However, the concerns about the possible adverse impact of the act on the national economy and national security, commercial viability, and economic benefit to the Sri Lankan citizens remain.

The CPC Project was launched during Chinese President Xi Jinping’s visit to Sri Lanka in 2014. The project is expected to transform the landscape of Sri Lanka with multiple benefits to the economy. It is expected to emerge as an offshore financial centre in South Asia, between Dubai and Singapore. The construction of the port city was carried out by the CHEC under a Memorandum of Understanding (MoU) signed by the Port Authority of Sri Lanka with China Communication Construction Company at an investment of US$1.4 billion. Approximately 269 ha of land reclaimed by the CHEC are owned by the UDA of Sri Lanka. Of the total area, approximately 178 ha of saleable/marketable land is divided between the CHEC Port City Colombo (Pvt) Limited (the project company) and the GOSL. The project company is allocated 116 ha and GOSL 62 ha. The remaining 91 ha and beaches of 13 ha and waterways of 80 ha are owned by the GOSL. The GOSL has leased the 116 ha to the project company for 99 years. The company does have the right to grant 99-year leases to third-party developers. It is not clear whether there is any condition being put for selecting any such developer. The company is allowed to enjoy commercial benefits from 43% of the 269 ha reclaimed land to recover its investment. Though 57% of reclaimed lands are owned by the Government, the share of land which can provide commercial benefits is much less. Since industrial activities will not be allowed within the port city, there will not be any commercial production. Moreover, investors in the port city are not liable to pay taxes to Sri Lanka. Therefore, there is a major concern about how much economic benefit the Sri Lankans can accrue from the CPC.

According to Sri Lankan Prime Minister Mahinda Rajapaksa, “Sri Lanka could attract investments amounting to US$ 15 billion for CPC and would create about 200,000 new jobs and livelihoods in the first five years due to construction work on the Port City. Additionally, the first five years will also see the creation of about 83,000 permanent job opportunities at the CPC”.

Several experts however fear that in the absence of know-how in Sri Lanka to deal with such an offshore financial centre, the Port City may turn into a “ghost city”. In that context, GOSL justifies the importance of the CPCEC Act. The Act provides special facilities such as tax exemption, and single window facilities to attract investment. All the successful International financial centres in Singapore and Dubai provide such incentives to the investors. But the question to ponder over here is that can the CPC be compared with the international financial centres in Singapore and Dubai, as a foreign power is in the possession of marketable land on lease for a long term in the CPC?

There is another concern that in the long run the CPC would become a Chinese Colony, and thereby turn Sri Lanka into a potential theatre of geostrategic conflict. Denying this allegation, GOSL argues that in July 2019, the parliament, by passing a resolution without vote, made the Port City a part of Western Province. In August 2019, it was brought under the UDA of Sri Lanka. Accordingly, all the developmental activities in CPC will be subjected to the supervision and regulations of the UDA. However, the question remains as to how much control the Sri Lankan authority would really have after the 116 ha land is leased to CHEC, and especially in case the CHEC decides to lease it to a third company, as the agreement allows the project company to do so. Moreover, with the new act coming into effect, the economic commission, which has wide-ranging power, can have non-citizens as members.

CPC project is another flagship project (like the CPEC of Pakistan) under the Chinese Belt and Road Initiative (BRI). BRI aims to seek out markets to export China’s industrial overcapacity to overseas markets and enhance connectivity with Asian, African and European continents and their adjacent seas for free flow of trade as well as building strategic infrastructures, which would facilitate China to fulfil its vision of emerging as a global maritime power. In this regard, China is looking for facilities along strategic transit channels through land-use agreements between Chinese state-owned companies and local authorities to mitigate geo-economic risks and fostering energy security. To realise this vision, the People’s Liberation Army Navy (PLAN) needs reliable logistical chains to resupply food, fuel and armaments across the Sea Lines of Communications (SLOCs).

China has its logistical limitations in the Indian Ocean area. Hence it requires the building of logistical infrastructure at strategic locations in the Indian Ocean. Since Sri Lanka is a strategically located island in the Indian Ocean, China has a specific strategic interest in the island nation. China’s interest behind the investment in the huge developmental projects in Sri Lanka cannot, therefore, be seen just as commercial interests, as claimed by both the Chinese and the Sri Lankans. China’s strategic intention becomes clear from the fact that it has invested heavily in some of the projects in Sri Lanka which are not commercially beneficial at all, such as Lotus Tower, International Convention Centre in Hambantota, Mattala Rajapaksa International Airport and Hambantota International Cricket Stadium.

In addition to infrastructure development, China is enhancing its influence in the country in the field of politics, defence, culture, and science and technology. Through COVID assistance and vaccine diplomacy, China has further strengthened its influence in the country. China is likely to leverage all these influences at the time of need to fulfil its global vision.

Sri Lankan leaders often talk about keeping the country away from big power competition and following a non-aligned foreign policy. However, the way Sri Lanka is allowing China to increase its footprint in the country shows that the policy of non-alignment is nothing but mere rhetoric. There are examples of the GOSL cancelling India and Japan-funded projects in the pretext of public opposition. But in the case of both Hambantota and CPC, it has gone ahead with the deals despite public protests.

Even the Lankan nationalists do not seem to be too much concerned about the Chinese influence. Though every now and then, there are protests against growing Chinese influence in the country, nationalist protest demonstrations seem to be more worried about the US or Indian than Chinese influence. The main reason for protest against the Chinese funded projects is not so much against the Chinese presence, as against the lack of democratic practices followed by the Government while enacting the bills related to such projects.

Both GOSL, as well as the nationalists, have shown their biases towards the Chinese. In that context, even if Sri Lanka wants to avoid making itself a theatre of geostrategic conflict, it may get drawn into the big power politics in the Indian Ocean region unwittingly by leaning towards China, may be to fulfil its developmental aspirations on the one hand and enhance its strategic importance on the other. However, given the dynamics of India-China relations, Sri Lanka should not expect that India will shut its eyes and keep mum over the developments in the CPC, which is just 290 km away from its mainland, even though unlike the US, it has not raised any official concern on the Colombo Port City Commission Act yet.

(The author is Research Analyst at MP-IDSA. Views expressed are personal and do not reflect the official position or policy of the Financial Express Online.)

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