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Chinese companies grab mega projects in Sri Lanka bypassing tender process

[Sunday Times.lk, Monday, 24 December 2012 11:00 No Comment]

Chinese money is pouring into Sri Lanka through loans with their companies getting mega project contracts bypassing tender procedures and emerging as single bidders, local agents of foreign companies said.

The Chinese loans are expected to reach a new high of US$12 billion, they said. This amount was confirmed by Treasury officials.

Meanwhile according to a Sunday Times report on December 16, a Chinese loan of more than US$ 69 million or about Rs 8.9 billion for a hydro power project is on hold until Sri Lanka pays up a fee of more than Rs. 627 million to China’s state owned insurance company.

“The demand for this fee is notwithstanding sovereign guarantees the Sri Lanka Government has offered. The move highlights how Chinese state agencies are exercising what appeared to be great caution and adopting maximum security for funding projects in Sri Lanka,” the report said.

The local agent of an Indian construction company said that the Chinese company commission for its local agent depends on the value of the project negotiated.

Generally, it is said to be in the range between 10 and 15 per cent of the contract value. Sometimes, it could be a little more than that depending on the circumstances of the deal like, for instance, competition, he added.

Heavy commissions in the region of US$120 to $180 million per annum from each and every Chinese project covering ahighways to expressways and from roads and bridges to buildings are paid to agents and front companies to overcome the competition they are facing in grabbing local business, he said.

According to other local agents, Chinese-funded projects in Sri Lanka are mainly handled by four companies – Metallurgical Construction Co. (MCC), China Harbour Engg Co. (CHEC), Sinohydro Corp, China National Machinery & Equipment (CMEC), and China Huanqiu Contracting and Engineering Corporation (HQCEC) which has high political connections in Sri Lanka.

Financial resources provided by China as foreign assistance fall into three categories: grants (gratis cash), interest-free loans and concessionary loans. The first two comes from China’s state finances while concessionary loans are provided by the Export-Import Bank of China (Exim Bank) as designated by the Chinese government, a senior Finance Ministry official said.

He revealed that Sri Lanka would spend $21 billion or 6.5 per cent of the GDP each year in the period 2013-2015 for mega development projects. China is expected to contribute more than half this amount.

China has committed since 2007, as per Treasury records, contracts and investments worth $6.4 billion. So far $3.6 billion has been disbursed while projects worth $2.8 billion are waiting to be signed, he revealed. The China Development Bank Corporation has agreed to provide $1.5 billion over a three year period for roads, power plants and irrigation schemes.

Chinese companies have so far bagged at least 14 major infrastructure projects in Sri Lanka, making the country a major player in the country’s development efforts. He noted that long term borrowing from China at interest rates ranging from 2-3 per cent and 6-7 per cent under strict conditions laid down by Chinese lending institutions was the only option available to the Sri Lankan government to implement post-war development projects in North, East and the South.

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