Chinese Foreign Minister Wang Yi will visit Sri Lanka next week amid a crippling economic crisis that has seen Colombo look to Delhi for help and swiftly execute the long-delayed India-Sri Lanka plan to the joint development of the Trincomalee petroleum reservoir farm.
Wang Yi’s two-day visit, scheduled for Jan. 7-9, will take place amid a row between the two countries over a contaminated shipment of organic fertilizers that has led to unexpected tensions between the two countries .
After Colombo cancels order to import 99,000 tonnes of fertilizer, Beijing blacklisted Sri Lankan People’s Bank and accused it of “vicious” default on letter of credit .
India Angle: 1987 Agreement
INDIA’S INTEREST in the petroleum tank farm dates back to the signing of the India-Sri Lanka Agreement of 1987, which stipulated in the annex that the renovation works of the tank farm located in the northeastern province of Trincomalee would be undertaken jointly by the two of the countries. The deal remained dormant as India and then Sri Lanka fought the Tamil Tigers. An attempted relaunch in 2003 came to nothing. In 2017, the two sides agreed to operationalize the long-standing deal, but opposition from unions at Ceylon Petroleum Corporation delayed any progress on the file.
Earlier this month, as the Chinese company launched arbitration proceedings for $ 8 million in compensation, Sri Lanka ended the controversy by agreeing to make a payment of $ 6.4 million. dollars.
Wang Yi’s visit will be important for the sweeteners he can offer the Rajapaksa government to recover the lost goodwill.
Meanwhile, Colombo continues to finalize plans for the joint development with India of a huge park of petroleum reservoirs in Trincomalee. Although neither country puts it so loudly, Delhi could in return offer financial assistance to help Sri Lanka overcome its current crisis.
“We said that the two issues should progress in parallel and that progress of one should strengthen the progress of the other towards strengthening economic ties,” an official source said, adding that the coming month may see major developments on the Trincomalee oil tank farm agreement. .
Sri Lanka’s foreign exchange reserves fell to $ 1.6 billion at the end of November. The shortage has resulted in a drop in food imports, pushing up the prices of basic necessities in the country. An IMF bailout is the last option Sri Lanka is unwilling to take.
Earlier this month, international rating agency Fitch downgraded Sri Lanka’s rating from CC to CCC, warning that the country was likely to default on two international sovereign bonds, one to come in January 2022 for $ 500 million and the other maturing in July for $ 1 billion.
The Central Bank of Sri Lanka called Fitch’s action “hasty” and said it had ignored Colombo’s diplomatic efforts with friendly countries to secure financial assistance. A statement from the bank said cash flow was expected by the end of December 2021 and March 2022.
“The government and the Central Bank remain confident that these flows will materialize and that the level of gross official reserves at the end of 2021 will remain above $ 3 billion. Fitch appears to have ignored the SWAP reserve facility with the People’s Bank of China of approximately $ 1.5 billion, ”the press release said.
In addition to loans and foreign currency term financing agreements with China during the year, Sri Lanka signed the three-year stand-by swap agreement with Beijing in March 2021. The governor of the Central bank said earlier this month that the government could take advantage of it to pay. for imports from China.
But Colombo has also asked India for help. Sri Lankan Finance Minister Basil Rajapaksa, who visited Delhi in November, was offered a “four-fold package” – a line of credit for fuel imports only from India; the early finalization of the joint India-Sri Lanka development plan for the Trincomalee oil park; a currency exchange offer to help Lanka pay off its external debt; and the facilitation of Indian investments in various sectors.
Earlier this week, the Sri Lankan weekly Sunday Times reported that Energy Minister Udaya Gammanpila had tasked the chairman of Ceylon Petroleum Corporation (CPC) to form a subsidiary, Trinco Petroleum Terminal Ltd, which will be the ad hoc vehicle for India-Sri Lanka. joint development of the Trincomalee petroleum park.
The decision is expected to be approved at a cabinet meeting next week. The newspaper reported that President Gotabya Rajapaksa agreed to the formation of the branch.