Sri Lanka urged not to let debt to India take on different ‘complexion’ in energy talks
- President Wickremesinghe’s visit will occur as Sri Lanka negotiates debt with major bilateral creditors including India and China
- Colombo must be careful to protect its security interests even while trying to secure energy projects with the likes of Delhi and Beijing, experts say
Sri Lanka’s Foreign Minister Ali Sabry last week said officials would discuss renewable energy projects, a potential oil refinery, an energy hub and a port in eastern Trincomalee, adding that talks on an undersea cable between the countries could also be revived.
Wickremesinghe’s Friday visit comes about a year after he was elected president through a parliamentary vote. It also takes place following Colombo’s US$2.9 billion bailout from the International Monetary Fund (IMF), and amid Sri Lanka’s efforts to negotiate its debt with India and China. The former held about 9 per cent, and the latter 20 per cent, of Sri Lanka’s total public external debt of US$40.7 billion at the end of 2021.
India has been gaining a foothold in Sri Lanka’s energy sector over the past year, with the Adani Group winning a US$442 million wind power project in the northern region of Sri Lanka in February this year.
Last year, Indian Oil Corporation’s subsidiary, the Lanka Indian Oil Company, was given a 41 per cent stake by the Sri Lankan government to renovate 61 tanks in the Trincomalee oil storage facility. It will also operate another 14 oil tanks for five decades.
The multiple interests in Trincomalee means it will remain “India’s turf” for the foreseeable future, said Uditha Devapriya, chief international relations analyst of Factum, a Sri Lankan foreign policy think tank. “India will always consider those too strategic to be allowed to pass on to the hands of other powers,” he said referring to China and India.
[Sri Lanka] has to be very careful in handling energy projects, because there are some elements of our own security attached to this
Trincomalee is considered one of the largest natural harbours in the world and was a trading port for centuries. Under colonial rule, Trincomalee developed into an important fort from the 17th to the 20th century. More recently, Japan, the USA and China have all shown interest in Trincomalee.
While the focus of the talks was a “replay” of issues that have dominated India-Sri Lanka relations, Devapriya noted the debt programme would come into play this time. “What’s interesting about this visit is that they’ve taken on a new light and complexion because of the debt-restructuring agenda,” Devapriya said.
Experts have urged the government to exercise caution when lowering a player’s entry barriers to Sri Lanka’s power and energy markets to ensure the stability of the country’s “political future”.
“[Sri Lanka] has to be very careful in handling energy projects, because there are some elements of our own security attached to this,” said Javid Yusuf, a lawyer and former Sri Lankan ambassador to Saudi Arabia.
Colombo should not be overdependent on one country, he warned, adding it might create new challenges in the future.
Last week, the head of India’s Export Credit Guarantee Corporation was reported by Indian media to be considering offering Sri Lanka a 12-year extension on its debt repayment.
However, the success of the India visit would decide the final outcome, Devapriya said.
“Given India is a lead on the official bilateral creditor committee, and [since] Sri Lanka wants to finalise external debt-restructuring by September, continued backing from India is essential in the near term,” said Thilina Panduwawala, head of economic research at Frontier Research, a Sri Lanka-based macro advisory firm.
Meanwhile, experts say Wickremesinghe’s trip is an opportunity for Sri Lanka to better balance its relationships with Asian superpowers India and China.
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Sri Lanka, located just off southern India, links maritime routes connecting Asia, Africa and Europe, making it a strategic relationship for its larger neighbours.
As a regional behemoth, India has held much sway in Sri Lanka, even influencing the country’s constitution via the Indo-Lanka Accord signed in 1987.
The balance began to shift after Sri Lanka’s 30-year civil war ended in 2009, as the Rajapaksa dynasty oversaw a development boom while nurturing ties with China, from whom it sought funding to build power plants, highways, the Hambantota port and the Mattala airport. Sri Lanka is also a strategic part of Beijing’s ambitious Belt and Road Initiative that seeks to connect Asia, Africa and Europe through development and trade.
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But this dynamic with China changed early last year as shortages in fuel, medicine and skyrocketing food prices wrecked havoc when Sri Lanka ran out of foreign currency reserves to import essentials. India stepped up with rapid financial and humanitarian help totalling US$4 billion – a role partly driven by India’s need to offset China’s position in Sri Lanka, Panduwawala said.
Some proposed Chinese projects have been cancelled over Indo-China tensions, including hybrid energy projects in northern Sri Lanka.
But Chinese petroleum company Sinopec in May signed a contract to import and distribute fuel in Sri Lanka. The company has also been shortlisted by the government for constructing a refinery near the Chinese-built Hambantota port in southern Sri Lanka, said Foreign Minister Sabry.
But, given the country’s economic predicament, balancing Sri Lanka’s relationship between India and China and other superpowers remains the way forward, Yusuf said.
