T E Narasimhan & Veenu Sandhu | New Delhi March 22, 2013 Last Updated at 20:50 IST
An international airport, a strategic port,
communication satellites, road and railway links - China is spreading its web
in the island nation. India has to take decisive steps or else the tide could
In
June 2009, when Sri Lanka officially celebrated the defeat of the Liberation
Tigers of Tamil Eelam after a bloody war that lasted 25 years, the victory
parade, which included tanks, fighter jets and artillery pieces, made India sit
up: most of the military hardware on display was of Chinese make. China had
played a key role in making that victory possible, and the Mahinda Rajapaksa
government made no attempts to hide its gratitude. India has since watched with
increasing concern, and some helplessness, China's growing presence in the
island nation which sits barely 31 km across the Palk Strait from the southern
tip of India. The wave of protests in Tamil Nadu against the Sri Lanka
government's alleged atrocities on Tamils and India's vote in favour of the US
resolution against Sri Lanka at the United Nations Human Rights Council in
Geneva on Thursday is further working towards China's advantage.
The
sentiment is not limited to the country's leaders, who obviously know that
gains can be made by playing one country against the other; it now runs deep.
An assessment report of a political analyst to a company with business
interests in Sri Lanka, which Business Standard has accessed, points
that Lankan society is now vehemently arguing that it should lean towards China
- a "friendly nation" - and not rely on India, particularly on the
economic front. The speculation that India played a key role in watering down
the resolution hasn't allayed the disgruntled sections of Lankan society, the
report says.
Thus,
Sri Lankan Airlines has cut its flights to Chennai by half, to 14, following
the attacks on Sri Lankan tourists, including two monks. There are reports that
Sri Lanka has decided to partially take over a strategic oil storage depot in
Trincomalee from Indian Oil Corporation's Sri Lankan arm, Lanka IOC. India has
denied the reports. A day before this news broke, Lanka IOC Chairman Makrand
Nene had said that there was no competition from China "but we have no
plans to expand in Sri Lanka at the moment."
* * *
Recent events show how close China and Sri Lanka have become. A few days ago,
Rajapaksa inaugurated the country's second international airport, the
$206-million Rajapaksa International Airport in Mattala built with money from
China's Export-Import Bank. Some Chinese officials were present at the
function. Some 40 km to the south is the China-funded $1 billion Hambantota
Port. Why not India? "It's not that China is getting preference; it was
always India first. We invited India first to build our ports, including the
Hambantota port, but it rejected it saying it's not viable, so we invited
China," Rajapaksa had said earlier. A senior official from the shipping
industry in India says the port project "is really a great miss and India
will regret it on all fronts, be it security or trade".
The Hambantota Port is located on a key
shipping route which sees around 300 ships, mostly oil tankers, passing through
every day. Ironically, when the deep-water port formally opened for
international shipping in June last year, the first consignment it moved was
1,000 Hyundai cars from Chennai, outbound for Algeria. If you look at it from
the commercial point of view, then the port is meant to provide docking and
refuelling facilities to the thousands of ships that ferry oil and raw
materials from Africa and the Persian Gulf to China every year. But, this also
happens to be a geo-strategically convenient location. It is a crucial link in
the "string of pearls" which China is building in the region through
a network of ports to consolidate its economic and military influence in the
Indian Ocean: Sittwe in Myanmar, Chittagong in Bangladesh, Hambantota in Sri
Lanka, Gwadar in Pakistan and Marao in the Maldives.
Chinese money is pouring into Sri Lanka. From 2007 to 2011, while India
extended aid of $298.1 million to Sri Lanka, China gave $2.126 billion to
become the largest foreign aid provider to the country. While Indian aid has
been for "soft" purposes like healthcare and education, the Chinese
have funded highly-visible infrastructure projects. As on today, reports say,
China has pledged more than $3 billion for infrastructure development in Sri
Lanka. Some industry watchers have expressed concern that China might even be
getting contracts for mega projects by bypassing tender procedures.
Its engineers are building roads, railway
lines, telecommunication links, dams, hospitals, expressways like the one
between Colombo and Katunayake, stadiums, schools, hotels and power plants.
Last year, Sri Lanka launched its first communications satellite with the help
of China Great Wall Industry Corp, China's state-owned space technology firm.
It has since signed a string of satellite deals with Sri Lanka. It's also
helping build a space academy. Deals are being struck between the two countries
to build telecommunication and information technology networks. The two have
also pledged to improve their defence ties.
Two years ago, China had gifted Sri Lanka
Nelum Pokuna, a state-of-the art theatre and convention hall in the heart of
Colombo. And now, Lotus Tower, a 350-meter multi-functional telecommunication
tower and entertainment centre, is being constructed in Peliyagoda, near
Colombo, with financial assistance from the Export-Import Bank of China. Sri
Lanka's defence secretary, Gotabaya Rajapaksa, has justified China's increasing
presence in the Indian Ocean saying that "the safety and stability of the
Indian Ocean is critical for China's energy security and its increasing
interest and increasing naval presence in this region is quite
understandable."
Some of the gains to China are clearly at
India's expense. Last year, a plot of land in the heart of Colombo earmarked
for an Indian cultural centre (the Indian High Commission had completed all
formalities) was sold to Chinese aircraft manufacturer, China National Aero
Technology Import and Export Corporation, at the eleventh hour. The incident brought
an uneasy feeling of being elbowed out to make way for China. M Rafeeque Ahmed,
president of the Federation of Indian Export Organisations, fears that India is
missing opportunities which are now favouring China and this "will make
Sri Lanka economically colonised". India's national security agencies have
expressed concern over these developments. But it is not clear what the
government is doing to consolidate India's economic position in Sri Lanka. All
that Foreign Ministry spokesperson Syed Akbaruddin is willing to say is:
"When we have to, we will issue a press release."
But companies with business interests in
Sri Lanka want to hear more than that. Sri Lanka says there is no threat to
Indian investments. Sam Wijesekara, counsellor (Commercial), Sri Lanka Deputy
High Commission, says: "It is wrong to say India does not have any role to
play in the Sri Lankan economy. Today India is on top of the list when it comes
to private investments." Official data shows that in 2011, investment
worth $98 million came to Sri Lanka from India as compared to $3.5 million from
China. Leading Indian companies in Sri Lanka include the Tata group, Ceat,
Nicholas Piramal, Ashok Leyland, SBI, ICICI Bank, Axis Bank and LIC. Somi
Hazari, managing director of the Shosova group of companies, who trades in
textiles with Sri Lanka, however says business has come down drastically.
"Business is moving towards China, and it's not just because trade with
China is cheaper. The Tamil issue is playing out in China's favour." From
2001 to 2011, India's textile exports (mainly from the southern districts of
Tamil Nadu and Punjab) to Sri Lanka have increased about three-folds. But China
has during the same period increased its textile exports to Sri Lanka by almost
eight times. In the cement market, too, India is losing share to China and
Pakistan. India-Sri Lanka trade has increased by one per cent per annum on an
average from 2007 to 2011. On the other hand, average growth of China-Sri Lanka
trade has been 32 per cent annually.
* * *
There are other areas of concern too. Sri Lanka is believed to hold sizeable
deposits of natural gas and fossil fuels. For India's energy security, the
country is extremely important. As of now, Cairn Lanka, a subsidiary of Cairn
India, is the only company from outside Sri Lanka which is actively involved in
hydrocarbon exploration here. It has so far drilled four exploration wells in
the block in the Mannar basin. This has resulted in two discoveries: natural
gas deposits in Dorado and Baraccuda. But there could be competition soon.
"I understand that China is also looking at exploration opportunities in
Sri Lanka," says R S Sharma, former chairman and managing director of Oil
and Natural Gas Corporation and ONGC Videsh Ltd.
Sri Lanka has already announced the
second round of bidding for licences for the remaining blocks in the Mannar
basin. China, it is believed, will be a major contender and a strong competitor
in the bidding. Industry watchers say India's position has become shaky after
the recent incidents in Tamil Nadu. If China wins the bid to drill in the
Mannar basin, it will be positioned right under the nose of Tamil Nadu, a few
kilometers away from the Indian coast.
The way things are going, it won't come as a surprise if China bags several of
these blocks. Colombo's leading newspaper, Sunday Times, has reported
that the Lankan government has decided not to consider international companies
and their "key shareholders" who have "known alignment in world
politics" when offers are invited to assess its offshore petroleum data.
The decision, it said, was taken on a recommendation by Rajapaksa who also
looks after the petroleum resources development secretariat which handles the
country's hydrocarbon exploration. This was after the Sri Lankan government ran
into trouble with the Norway-based TGS Nopec to analyse Sri Lanka's offshore
petroleum data. The decision could impact Indian companies too, given that the
Cabinet, as reported by Sunday Times, has also decided that companies should
not in any way impair Sri Lanka's national interest.
Recently, India's National Thermal Power Corporation also faced hurdles and
considered pulling out of Sri Lanka, its maiden overseas venture, following
fresh terms set by the Ceylon Electricity Board. The board wanted downward
revision of operations and maintenance cost to Rs 20.5 lakh per MW each year
from the current Rs 38.92 lakh. Officials at NTPC now say the issue has been
resolved and the 500-MW coal power project at Sampur in the Trincomalee
district is on track.
China, meanwhile, is sending just the
right feelers to Sri Lanka on the Tamil issue. Last week, the newly-elected
Chinese president, Xi Jinping, telephoned Rajapaksa to say that China supports
Sri Lanka's efforts to protect its national sovereignty and would continue to
offer assistance. In Tamil Nadu, Dravida Munnetra Kazhagam is, meanwhile,
determined to wrench back its core issue - of the rights of the Tamils - which
it feels is being hijacked by fringe elements. With the Lok Sabha elections
just a year away, DMK's chief, M Karunanidhi, is going all out on this. And in
doing so, the man who turns 90 next year is pushing Sri Lanka deeper into the
arms of China.