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Development Debacles And Illegitimate Debt In Sri Lanka

Sri Lanka has got number of failed and controversial projects in the past decade. Norochcholai coal power plant, Hambanthota Harbour, Mattala airport, Uma Oya diversion, Colombo port city to name a few. They cost billions of rupees however do not distribute expected benefits. Perhaps many of them are not required for the country. This unwarranted development or over development is the result of political arrogance of the ruling regimes.

During the recent conference on the Environmental Impact Assessment held in Colombo, it was revealed that some major development project don’t even have a feasibility study or even a pre-feasibility study. The developers in both private and public projects expect the EIA process to deal with the feasibility as well. There is no way that EIA teams can fulfil the task of making both feasibility and the Environmental Impact Assessment. The projects this way lack looking in to the more feasible alternatives.

Uma Oya diversion project is a clear example of launching the project during the previous regime without a feasibility study done. Addressing the gathering on 29th April 2008 on the occasion of the visit of the Iranian President Mahmoud Ahmadinejad to Sri Lanka, at Sapugaskanda Former President Mahinda Rajapaksha said “Two gifts by Iran to Sri Lanka to build Uma Oya reservoir project and a modern oil refinery were the noblest of gifts we have received recently. Sri Lankans are visibly moved by this great gesture said President Mahinda Rajapaksa. A reservoir is the noblest gift one could give the Sri Lankan people.” However, President Ahmadinejad was not able to lay the foundation stone at Uma-Oya due to bad weather conditions. By December 2014, the Iranian gift become a death trap for the villagers in Bandarawela.

Other than the irrigation water to Wellawaya and Hambanthota it was promised to add 120 MW to the generation system with 230 GWh of annual energy generation. It was expected to connect the power plant to the national grid in 2015. The estimated cost of the project is 529 million USD and 85% of the total project cost is provided by the Government of Iran through Export and Development Bank as a loan. By now more than 7000 million rupees have been paid as compensation for the affected communities which is not even 20% of the total damage done by the Uma Oya project. Despite the failure of the project, Sri Lankan citizens will pay this money back to Iran next couple of decades. The project had neither a proper feasibility study nor an acceptable EIA with possible alternatives.

Hambanthota Harbor was built by digging Karagan Levaya which was one of the best lagoons for migratory birds reach Sri Lanka. Feasibility study for the harbor was rejected by the ministerial task force since the study is not bankable and is not a full feasibility study in 2002. Yet the project was pushed by the previous regime and it became another white elephant. Total estimated construction cost of the Phase 1 of the project is US $361 million and out of which, 85% has been funded by the EXIM Bank of the People's Republic of China. Then Sri Lanka Port Authority Chairman boasted that Singapore Ambassador in Sri Lanka when touring the site said: “We’d better find ourselves another job”. Sri Lanka being at the very epicenter of trade routes will be able to accommodate even the largest of ships and cater to their needs. As expected, no shipping line was interested to use the harbor. In July 2017, the Sri Lanka Ports Authority (SLPA) leased out the Hambantota Port to China Merchant Port for a 99-year period at price of US$ 1.1 billion.

The SLPA has built an artificial island in the extent of 110 hectares near Hambantota Port at a cost of over $500 million during the previous Rajapaksa regime. This man-made island which has been built as an entertainment facility was also given to Chinese company.

These are just two occasions that Department of National planning and the Ministry of Finance did not play its role when screening the suitable projects for the country. As a result, the Sri Lankan public pay heavy cost to pay back unnecessary and illegitimate debts.

Sri Lanka’s total net external debt exceeded $50 billion in 2017. Sri Lanka’s large external debt repayments total US$ 4 billion per year between 2019 and 2022. Under the previous government from 2004-2015 has borrowed 5.17 trillion rupees of total loans including 2.16 trillion rupees ($14.06 billion) of foreign loan. According to the Central bank’s latest records show Sri Lanka’s total outstanding debt was 10.3 trillion rupees as of the end of September 2017.

Considering the failed projects such as Mattala Airport, Hambanthota Harbour, Uma Oya diversion and some other partly successful projects such as Moragahakanda, Yan Oya etc., half of the Sri Lanka’s debt could be considered as illegitimate debt. Illegitimate debt includes loans that: were knowingly given to oppressive regimes and dictators; caused harm to people, environment and communities; violated human rights; violated basic notions and rules of fairness, and basic assumptions of public contracts; violated democratic principles and exploited the vulnerability, impoverishment and misfortune of others. The accumulation of both legitimate and illegitimate debt in Sri Lanka in the recent times have caused enormous pressure on the country and the citizens which often see as tax increase and increase of the price of food and services.

In recent months Sri Lanka has been cited by several politician in other countries and the media as the latest victim of the China debt trap diplomacy. There and many African and Asian countries who struggle to pay the debt accumulated with Chinese investments overseas. China Belt Road Initiative is one of the mechanisms to get countries to this debt trap. However, it is the ruling regimes of each country has the right to engage or avoid.

It is unfortunate the development decisions in Sri Lanka has no much public acceptance or not referred for public opinion. There is no such an educated voice in the Parliament or such a dialogue happening in the country to select the development we need for the national development. unfortunately, development decision making is in the handful of corrupted politicians. The past experience shows bureaucrats have no say on these decisions or either they are corrupt too. It is paramount to correct the system and clean the politics before Sri Lanka get drowned into this deep debt crisis.


Written by Mr. Hemantha Withanage. Hemantha is the Executive Director of

Centre For Environmental Justice/Friends of the Earth Sri Lanka.


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