Sri Lanka, China to sign framework agreement

PM Ranil Wickremesinghe and Prof. Maithree Wickremesinghe being welcomed at the Capital International Airport in Beijing last evening. The PM arrived in Beijing to take part in the ‘One Belt, One Road’ summit.
PM Ranil Wickremesinghe and Prof. Maithree Wickremesinghe being welcomed at the Capital International Airport in Beijing last evening. The PM arrived in Beijing to take part in the ‘One Belt, One Road’ summit.

Three weeks after signing a significant framework agreement with India to cooperate on economic matters, Prime Minister Ranil Wickremesinghe will oversee a similar agreement with China during his current visit to Beijing.

To be signed between the Ministry of Commerce of China and the Ministry of Development Strategies and International Trade, the agreement, initially drafted by the Chinese with revisions from Sri Lanka, was approved by the Cabinet last week, just before the arrival of Prime Minister Narendra Modi in Sri Lanka and Prime Minister Wickremesinghe´s departure to Beijing yesterday. According to Ministry of Development Strategies and International Trade, Minister Malik Samarawickrema had already signed the Sri Lankan copy and had sent it to the Chinese Embassy before his departure to Beijing as per normal diplomatic procedures.

Titled the Outline of Medium and Long-term Development Plan for Investment, Economic and Technological Cooperation, the agreement envisages providing transparent legal foundations, institutional environments and favourable investment conditions for a number of priority areas, including agriculture, manufacturing, transportation infrastructure, public works, energy, electric power, information communication, tourism, and urban construction with a list of identified projects annexed to the agreement as priority projects.

These projects include:

  •  Central Expressway – Section 1 from Kadwatha to Mirigama
  • Kandy North Pathakumbura Water Supply Scheme
  • Talpitigala Reservoir Project
  • Polonnaruwa Integrated Development Project: East Polonnaruwa Water Supply, Agro Economic Centre Project, Section 4 of Central Expressway,
  • New Railway track from Kurunegala to Habarana via Dambulla
  • Waste water disposal systems for Chilaw, Puttlam, Maharagama and Boralesgamuwa
  • Upgrading of health facilities in selected hospitals
  • Lower Malwathu Oya Project
  • Thambuthegamuwa Water Supply
  • Katana Water Supply
  • Hambanthota Port: Operations, Shipyard, Operation of docks and rear oil tank area, Oil refinery, LNG receiving station and combined cycle power station, Industrial Park, Colombo International Financial City (Port City)
  • Ratnapura Expressway
  • Heda Oya Water Supply

The list includes an estimated cost for some of the items of US$2.76 billion.

This costs excludes the entirety of the Hambanthota Port projects, the Colombo Port City project, the Ratnapura Expressway and the Heda Oya Water Supply.

The agreement envisages a bigger role for commercial finance while acknowledging the ‘function of’ preferential loans. Funding for projects will be through preferential loans, joint financing, guarantees, medium and long term insurance and other forms, the agreement states. The agreement envisages policy support from China to improve Sri Lanka´s investment policy framework including support for investment policies relating to land, taxation, visas, working permits and to further improve the investment environment to attract more Chinese enterprises to invest in Sri Lanka.

The agreement also envisages the establishment of financial institutions and banks from the respective countries in the other and promotion of delivery of financial products and services to each other´s financial markets. Currently, both Sri Lanka and China has entry barriers in the financial sectors.

In a similar framework agreement signed in the last week of April in Delhi, Sri Lanka and India identified a number of other priority projects. These include:

A regasified Liquefied Natural Gas (LNG) fired 500 megawatt capacity LNG Power Plant; An LNG Terminal / Floating Storage Regasification Unit (FSRU) in Kerawalapitiya/Colombo; a piped gas distribution system; retail outlets for supply of Compressed Natural Gas (CNG) to the transportation sector; and conversion of liquid fuel-based power plants to R-LNG fired power plants in Sri Lanka. A 50 MW (extendable to 100 MW) Solar Power Plant in Sampur. Upper Tank Farm in Trincomalee to be jointly developed by India (Lanka IOC PLC) and Sri Lanka (Ceylon Petroleum corporation or CPC). The land of the Lower Tank Farm, which is also in possession of Lanka IOC PLC, pursuant to the 2003 Agreement, to be leased to Lanka IOC directly.

A Port, Petroleum Refinery and other industries in Trincomalee.

Industrial Zones/Special Economic Zones in identified locations in Sri Lanka. Mannar-Jaffna and Mannar-Trincomalee Highways and Dambulla-Trincomalee Expressway under Indian investments.

The railway sector development including new projects of track upgradation and purchase of rolling stock, A Container Terminal in Colombo Port as a Joint Venture, which includes Indian investments considering that majority of transshipment in Colombo Port is related to India.

Agricultural sector and livestock development through techno-economic cooperation, water management, and promotion of agro-based industries. In the aftermath of the signing of the Indo-Lanka framework agreement, Indian foreign ministry spokesman Gopal Baglay was quoted in Indian media as stating:

“The (Modi) government is internally focused on ‘Sabka Sath Sabka Vikas’ (development for all) and externally too in the neighbourhood, our vision to promote connectivity and development takes ‘Sabka Saath Sabka Vikas’ to our external environment, and naturally to the neighborhood first. In this backdrop, with the objective to achieve greater economic, investment and development cooperation in a progressive manner.... the two governments signed this Memorandum of Understanding on Cooperation in Economic Projects.” Sources indicate that the two framework agreements are the culmination of over two years of work on a strategy announced through the UNP´s election manifesto to create an ‘investment corridor’ linking Sri Lanka´s nearest neighbour and one of its biggest trading partners with the regional strategy of China´s one-belt, one-road initiative.

Prime Minister Wickremesinghe elaborated his vision of the investment corridor during his visit to New Zealand in October last year, speaking on the theme of ‘Sri Lanka and its place in the world’.

Stating that with its two billion population, South Asia is a considerable market with growing significance, Prime Minister Wickremesinghe outlined the reasons for creating the North-South link, an investment corridor through Sri Lanka.

“Sri Lanka’s situation in the nautical corridor between the East and West is of import not only from a geostrategic perspective, but also from maritime economic and security perspectives. On the one hand, the Indian Ocean is a vast source of maritime economic resources, on the other; it is a maritime trading corridor through which nearly two thirds of the world’s oil is transported.

“In our perspective, the Indian Ocean remains key to Asian prosperity. An Indian Ocean order, which envisages at its core an ocean free of conflict despite competing economic interests - with lanes of communication, ease and safety of passage, freedom of navigation, secure and sustainable use of resources for the economic advancement of States in an equitable manner is imperative.

To fully tap this potential, Sri Lanka will engage in initiatives with regional players who have major economic stakes in the Indian Ocean,” the Prime Minister said. 

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