New Delhi: India is not keen to get involved in the China-backed $14-billion Port City Colombo (PCC) project and wants to convey to Indian private stakeholders that “any involvement” will be viewed “adversely”.

Coming up on 269 hectares of land reclaimed from the Indian Ocean, the PCC is being developed as an extension of Colombo’s Central Business District. Unveiled during a visit by Chinese President Xi Jinping in 2014, it’s the single largest foreign direct investment in Sri Lanka. Beijing has already invested $1.4 billion to reclaim land for the project.

According to the official website of CHEC Port City Colombo Private Limited, the project is envisioned as South Asia’s premier residential, retail, and business destination. It will comprise five different precincts — “the financial district, central park living, island living, the marina, and the international island”.

Senior government officials said that the project came up for discussion in a high-level inter-ministerial meeting chaired by Deputy National Security Advisor Vikram Misri on 1 July.

The meeting — convened to look into opportunities for enhancing economic linkages with Colombo — took a strong view that if private stakeholders decide to get involved in the PCC in any way, they would “essentially be on their own”, according to government officials familiar with the decision.

India is concerned that with its “extra-territorial and lax jurisdiction”, the PCC raises apprehensions of being a “hub for money laundering and extra-legal activities” and “Indian companies investing there could face deeper scrutiny of relevant agencies”, according to the minutes.

Besides, it was also felt that the PCC, which is envisioned as a financial centre, would “rival India’s own plans, like GIFT City in Gujarat”.

Once completed, the Gujarat International Finance Tec (GIFT) City will be India’s first business district housing an international finance service centre and special economic zone for domestic and international financial services.

In the 1 July meeting, India also put together a comprehensive plan to step up its assistance to Sri Lanka, boost critical infrastructure and to use the opportunity to strengthen traditional bonds between the two neighbours. Some of the steps to be taken include the development of the Trincomalee Port, power projects, increasing frequency of flights, and the resumption of ferry services.

Why India Is Wary About The Project

New Delhi has been wary of getting involved in the PCC despite the Sri Lankan government’s keenness for it to invest in a substantial way. With a growing Chinese presence in the Indian Ocean region, India sees the project as a “serious threat” to its maritime security. The first phase of the project is likely to be completed by 2027, though the overall gestation period is 25 years.

Explaining the reluctance of the government, Ashok K. Kantha, a former high commissioner to Sri Lanka and ambassador to China, said that given the nature of the project, India has had long-standing reservations and is wary of Indian companies getting involved.

Kantha, who is the director of the Delhi-based Institute of Chinese Studies, added that the project cannot be viewed in isolation. “It’s part of a larger pattern of China’s inroads across a plethora of sectors in the island nation, with Chinese entities acquiring strategic assets in some cases,” he said.

The retired diplomat gave the Hambantota port as an example. “It was taken over by Chinese companies on a 99-year lease as the Government of Sri Lanka was unable to service debt for a loss-making project which was economically unviable. By the end of 2016, the port project accumulated losses to the tune of 300 million dollars. In July 2017, the government was constrained to sign an agreement to hand over the port to China,” he added.

There is a long list of economically unviable projects in the infrastructure sector undertaken by Sri Lanka with Chinese loans, often at commercial terms and at inflated cost, which contributed to Colombo getting into a debt trap, he further said.

In the Colombo Port City too, he added, the China Harbour Engineering Company (CHEC) is providing funding, but 43 per cent of the reclaimed land was handed over to the Chinese entity on a 99-year lease.

What makes this alarming, according to Kantha, is that the CHEC is a subsidiary of China’s state-run infrastructure firm China Communications Construction Company, which is leading President Xi’s ambitious Belt and Road Initiative.

“Within Sri Lanka also, strong reservations have been voiced about long-term tax holidays given for the project as also about its environmental impact. The kind of concession agreement that has been signed does not get much revenue for the government of Sri Lanka,” Kantha said, adding that there are valid concerns about the project becoming a haven for money laundering.

“It has a gestation period of at least 25 years. I don’t see the project becoming economically profitable for Sri Lanka, though Chinese entities have acquired a strategic asset on a long-term lease as they did in the case of Hambantota port.”