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Economy

Sri Lankan hub dealings pit China against India

New Delhi jostles for airport control after Beijing gains stake in nearby port

Protesters, with a banner saying "Save Mattala International Airport," march towards the Indian consulate in Hambantota in early October. (Photo by Jeewan Chandimal)

COLOMBO At the eerily quiet Mattala Airport, on the forested southern coast of Sri Lanka, a battle between Asian superpowers is unfolding.

Few outside the country have heard of Mattala, and only one airline has been using the airport, located in Hambantota, 250km from Colombo, since it opened in March 2013. Now, however, Mattala is an object of contention between powerful domestic and foreign interests following a $290 million offer from the Indian government to take it over.

Negotiations on a 40-year lease are taking place just months after Beijing staked a nearby claim. In July, China leased Hambantota port for 99 years at a cost of $1.1 billion. China also has a claim to Mattala -- it lent the government of Sri Lanka, under then-President Mahinda Rajapaksa, $190 million to build the $209 million facility. On Nov. 5, the Chinese government opened an office for the 50 sq. km industrial and logistics zone it is building around the port. Chinese Ambassador Yi Xianliang put China's projected investment in the zone at $5 billion.

Harsh Vardhan, chairman of New Delhi-based Starair Consulting, which focuses on aviation issues, said China's expanding footprint in South Asia has raised hackles in Delhi. "Recent moves by China in creating strategic infrastructure on [an] ownership basis in various countries that have security ramifications have resulted in India also following similar footprints," he said.

The hub at Hambantota, Rajapaksa's hometown, was widely seen as a vanity project. Intended to spark further development, it has failed to take off because of a lack of investment and the area's remote location, far away from business hubs and established cities. Its only customer is a Dubai-based budget airline, which uses the airport occasionally.

India has said it will open a flying school and an aircraft maintenance hub at the airport, with the appointment of a state or private aviation company once a lease is signed. Sri Lanka is also seeking investment from India to develop Trincomalee harbor, which lies about 265km from Colombo on the island's northeastern coast. Indian Foreign Secretary Subrahmanyam Jaishankar has said that India is a top contender to develop the harbor, in competition with Singapore.

However, the government of Prime Minister Ranil Wickremesinghe is facing stiff domestic resistance to the airport deal, especially from the opposition, led by Rajapaksa and his son, Namal Rajapaksa, who is a member of parliament. The younger Rajapaksa led a demonstration against the deal at the Indian consulate in Hambantota in early October, calling the airport a "vital national asset."

Mattala Airport, opened in 2013 at a cost of $209 million, has been dubbed the world’s emptiest airport, with just one airline customer. (Photo by Sanjana Hattotuwa)

Despite this, Wickremesinghe said in early November, "We will sign an agreement with India soon to jointly develop this airport." He said he expected the project to launch by next March.

SYMBOLIC GESTURE Analysts believe that New Delhi's interest in Mattala is based on worries about Beijing's expanding power in the region, and especially in Sri Lanka, India's near neighbor. Hambantota is expected to play an important role in China's Belt and Road Initiative to expand infrastructure links between Europe and Asia.

Harinda Vidanage, director of the Bandaranaike Center for International Studies, a think tank, said that India is making a symbolic gesture. "For all these countries, ports and airports are vital nodes of connectivity. So, while China has acquired one node of connectivity, India is now trying to acquire the other node of connectivity," he said.

Namal Rajapaksa, who was arrested in October for defying a court order not to protest at the Indian consulate, said Sri Lanka was falling prey to the jostling for power between China and India.

"This government has no vision, and is looking at the easy way out instead of focusing on putting forward a policy plan that can generate income for both the port and the airport," he told the Nikkei Asian Review. "We welcome any country investing in Sri Lanka, but we don't want our assets sold to other countries."

With no bags to screen, an idle security guard chats on his mobile phone. (Photo by Chathuri Dissanayake)

Rajapaksa was released on bail on Oct. 16, but 31 other protesters were to be held until Nov. 13. In January, a demonstration by trade unions and opposition politicians against plans to lease Hambantota port to China turned violent. Despite that, the debt-laden government signed an agreement in July with China Merchants Port Holdings.

Sri Lanka is already heavily indebted to China, which accounts for $8 billion of its $65 billion of debt. Most of the Chinese debt is believed to have been incurred during Rajapaksa's presidency. Wickremesinghe is keenly pursing a trade agreement with China.

Shiran Fernando, chief economist at the Ceylon Chamber of Commerce (which uses an old name for Sri Lanka), said that in view of the country's debts the government had little choice but to look into the option of leasing the port and airport in the hope of bringing in some profit.

"If we are looking at the next five to 10 years, and as we are not receiving sufficient revenue, the lease agreements with China and India will mean that we are getting some income, at least for now, to repay the maturing debt," Fernando said. "But 30 to 40 years down the horizon, and depending on how successful they become, we never know if such agreements would have a long-term negative impact on the country. It's too early to say."

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