Hambantota Port Chinese loan not included in SriLanka’s external debt

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Hambantota Port Chinese loan not included in SriLanka’s external debt

The Sri Lankan Government, in its official accounts of external debt, has not included the loans obtained from China, amounting to $ 1.89 billion in principal and interest, to construct the Hambantota Port, revealed Auditor General (AG) W.P.C. Wickramaratne at the meeting of the Committee on Public Enterprises (COPE).

At the meeting held between COPE and the Sri Lanka Port Authority (SLPA) on Wednesday (23), the Auditor General had said that none of the Government balance sheets contain the loan obtained to construct the Hambantota Port.

Therefore, he confirmed that the loan has not been included in the external debt of Sri Lanka, and that its repayment is being made by the Treasury under the category of normal expenses and not as debt servicing through a separate schedule in the External Resources Department (ERD).

There were five loans extended to Sri Lanka between 2007 and 2014 to construct the said port. Whilst the total amounted to around $ 1.37 billion, only $ 357 million was obtained at a higher commercial interest rate of 6%, while the balance was disbursed at a concessionary rate of 2% by the Exim Bank of China to finance various parts of the project.

COPE Chairman Prof. Charitha Herath also revealed that based on the documents presented by the ERD, the total amount payable at the end of 31 December 2021, was Rs. 165.48 billion.

The Auditor General’s Report for 2020, stated that the balance of loans and interest amounting to Rs. 147,746 million, out of the foreign loans obtained for the construction of the Hambantota Port, saved in the accounts of the SLPA as of 30 November 2017, had been eliminated from the financial statements for 2017 by the SLPA without the consent of the General Treasury or the approval of the Cabinet of Ministers, and since then, the amount to be repaid had not been included in any Government accounts.

However, the General Treasury was responsible for repaying the above loans and interest as per the approval of the Cabinet dated 4 August 2017 granted to the Cabinet Memorandum No. MPS/SEC/2017/32 dated 20 July 2017 submitted under the heading of “Hambantota Port Concession Agreement”. 

However, SLPA Chief Finance Manager Premasiri De Silva said that the loan was removed from the SLPA accounts when the SLPA paid the loan amount of Rs. 149 billion to the Treasury, and that the amount received for the 99-year lease of the Hambantota Port was also handed over to the Treasury.

The Authority had received Rs. 164,339 million from Hambantota International Port Services (HIPS) and Hambantota International Ports Group (HIPG) by transferring the assets of the Hambantota Port on a long-term lease basis.

A representative from the Treasury said that it had advised in April 2021 that this loan should be included in the books of the SLPA, since the asset was mentioned as a non-current asset in the SLPA books, so based on the accounting treatment, the asset and relevant liability should be under the same accounts.

De Silva added that if the SLPA took liability for the sum they had already paid, their balance sheets would be impacted and this would affect future financing.

The Auditor General also pointed out that If the SLPA took these loans into account at this current juncture, with the depreciation of the rupee, there would be a massive impact to its profit and loss calculations.

COPE informed the Auditor General to prepare a fact sheet on who had actually signed the loan agreements obtained for the construction of the Hambantota Port, as evidence was not provided to reveal who had done this – whether it was the SLPA, ERD, or Government of Sri Lanka.