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FeaturesHarsha: Interest on loan for H’tota port grossly unfair

Harsha: Interest on loan for H’tota port grossly unfair


* Sri Lanka pays Chinese bank five times more than  current market rate
 * Interest cost should have been 1.3 percent, but actual  cost 6.3 percent
* Opposition law maker charges that terms were changed,

UNP MP Dr. Harsha De Silva, a trained economist, says Sri Lanka has entered into a ‘grossly unfair’ contract with China EXIM Bank to pay an ‘exorbitantly high fixed interest on the Hambantota port’.

“We should have been paying 1.3 percent on credit line offered for the development of the Hambantota port, but instead, the country is being charged 6.3 percent interest on the loan,” Dr. De Silva told The Island Financial Review.

“It appears that the Sri Lankan public will be called upon to pay an enormous amount of interest on the Chinese loan for the Hambantota port. New evidence suggests that the amount could have been much lower; almost 80 percent lower, if going by today’s global interest rates if the government stayed with the originally agreed terms and conditions. The question is why were terms changed and also whether any action is being taken to take advantage of falling global interest rates,” he pointed out.

Dr. De Silva said that according to the government the interest rate without commitment fees and other charges on the US$ 306 million loan agreed upon in 2007 for the first phase of the development of the Hambantota port, without the additional cost of US$ 148 million including US$ 45 million to blast the earlier non-existent bedrock, has been fixed at 6.3 percent per annum. This loan to EXIM Bank of China is repayable in two semi-annual installments over 11 years including a one year grace and the first payment is to be paid soon as revealed in parliament recently.

“It has now come to light, as stated by Sri Lanka Ports Authority Chairman Dr Priyath Bandu Wickrema, that the original interest rate was LIBOR (London Inter Bank Offer Rate, the commonly used benchmark for international borrowing) plus a premium of 90 basis points (100 basis points makes 1 percentage point). LIBOR has continued to fall since the time the loan was agreed upon and today it is at just 0.43 percent per annum. This means the EXIM Bank loan interest if calculated using today’s rates should be 0.43 percent plus 0.90 percent, which is 1.33 percent per annum. This 1.33 percent must be compared to the agreed 6.30 percent. The latter amount is almost an unbelievable five times more than the former amount,” Dr. De Silva revealed.

“The question that arises is who changed the original decision to lock Sri Lanka in to such unfair terms and conditions. It seems that, like the oil hedging agreement the Government has bungled this agreement with China EXIM Bank. Or is it that the favorable conditions were passed on to China for other considerations? For whatever reason, given that we are now stuck with this grossly unfair agreement, have we built-in an option; a common risk mitigating derivative instrument, to move out of this almost usurious 6.3 percent rate and revert to the original LIBOR + 0.90 percent rate? If not, why not?

This could just be the tip of the iceberg. There could be many other high interest loans negotiated when in fact rates could be much lower. While we ask the government to respond to us on this matter we will continue to look in to the conditions of dozens of other Chinese loans that seem to be our standard financing model today.”

Historical LIBOR rates for the last 10 years

Govt. approves manufacturing plants at H’tota

The Cabinet of ministers have approved contracts for the establishment of manufacturing plants at the Hambantota Port.

“A Business Plan has been prepared by the Sri Lanka Ports Authority to identify the business ventures. Proposals were called from interested parties for the commencement of business ventures at the Hambantota Port and those have been evaluated by a Cabinet Appointed Negotiating Committee and a Project Committee,” the government announced on Thursday (4).

“The proposal to award the contracts for operation of the following on the recommendations of these Committees, was approved by the Cabinet: a Sugar Refinery Plant, Petro Chemical Plants, and a Fertilizer Storage/ Processing/ Bagging Plant,” it said.


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