Colombo Port City: “Chinese Colony” or “Gateway to South Asia”?
Prime Minister Mahinda Rajapaksa making an inspection tour of the Port City in December 2019.
Source:Dailynews
The legal contours of the country’s first-ever offshore financial centre have been worked out and that piece of legislation was at the centre of attraction last week leading to a heated political and social debate.
Many will agree that the China-funded Colombo Port City (CPC) is an ambitious and a giant project that has the capacity to be a make or break factor of this island-nation’s economy in the years to come. The legal infrastructure carries equal weight as, or even more weight than, the physical infrastructure when it comes to the successful operation of this economic hub-to-be of the country.
If the country is to yield the best out of the proposed international financial centre in Colombo, it is necessary it to have a solid and attractive legal foundation that can compete with other offshore financial centres in the world while having enough safeguards to protect the national economy and national interests.
The country is in dire need of foreign investments as its economy is precariously positioned with countless challenges lying ahead, mainly due to the COVID-19 global pandemic and a debt burden that has worsened due to decades of financial mismanagement under successive Governments. The promising opportunities the Port City offers in this direction could be viewed by the Government and financial analysts alike as a knight in shining armour.
Sri Lanka’s strategic location on the modern Maritime Silk Road, the sea route part of the impressive ‘Belt and Road Initiative’ (BRI) of the Chinese, is an added advantage for the Colombo Port City, South Asia’s first offshore financial centre. Built with Chinese funds on an artificially reclaimed 269-hectare land adjacent to the Colombo Port, it is simply the largest foreign investment the country has hitherto received (an initial US$ 1.4 billion).
The Government at the same time has to be wary of the geopolitical realities in the Indo Pacific Region when moving ahead with the proposed financial hub. Knowing that there is a thinly-veiled power rivalry between China and India, and that the United Stated (US) is frowning at the increased Chinese presence in the Indian Ocean Region with its heightened friendship with India, the Government has to tread carefully not to invite unnecessary troubles by any global superpower. (China already controls the Hambantota Port in the South under a deal signed by the previous Yahapalana Government). In addition, the Chinese interest in Sri Lanka is unmistakeably intertwined with its long term economic and political plans and goals.
Given all the above considerations, it is apparent that the Government is at a crossroads today. It has its work cut out to set the Colombo Port City wheels turning with a well-knit legislation that goes hand in hand with a well-thought-out strategy for the best interests of the country. As things stand, it is slated for full completion by 2040.
19 petitions
The ‘Colombo Port City Economic Commission Bill’, which was placed before Parliament on April 8 by Prime Minister Mahinda Rajapaksa, led to a barrage of comments by political parties and civil society activists stealing the media spotlight throughout the ‘Avurudu’ holiday.
Despite the fact that the holidays outnumbered the working days in the week left aside for public litigation, the Supreme Court received 19 petitions challenging the constitutionality and legality of the provisions in the 76-page Bill. Among the petitioners are representatives of the Samagi Jana Balawegaya (SJB), Janatha Vimukthi Peramuna (JVP), United National Party (UNP), Bar Association of Sri
Lanka (BASL), Centre for Policy Alternatives (CPA), Transparency International Sri Lanka (TISL) and several trade unions as well as Abhayarama temple Chief Incumbent Ven. Muruththettuwe Ananda Thera, a politically influential Buddhist monk who headed the powerful Nurses Union. The petitioners seek a declaration that the Bill in whole or in part requires the approval by people at a Referendum and a two-thirds majority in Parliament.
The draft Bill, which is now in the public domain, has proposed a Special Economic Zone with a low tax regime to magnetize Foreign Direct Investments (FDIs) to kick-start the operations of the Port City Colombo. It has proposed a 5-7 Member Commission appointed by the President to manage the administrative and business affairs of the Zone. The Commission, which invokes memories of the Greater Colombo Economic Commission (GCEC) of 1978, will serve as a “single window” facilitator that provides one-stop-shop clearance for potential foreign investors.
The CPC will initially need investments to develop its infrastructure and its Master Plan includes offshore banks, trusts and international companies, condominiums with time-shares (an arrangement whereby several joint owners have the right to use a property as a holiday home under a time-sharing scheme), parks, international hospitals and recreational facilities. The Project aims to develop the CPC as a world class ‘Smart City’ in South Asia. Obviously, its products and services are targeted at high-net-worth individuals and corporate clients.
Opposition’s concerns
The Government fought tooth and nail last week to defend the draft Port City legislation by dispelling misinformation, allaying doubts and fears and clarifying any grey areas associated with it. The Opposition parties took up a collective slogan stating that the proposed Bill makes the CPC a “Chinese Colony”.
One major concern raised by the Opposition is that the Port City does not come under the jurisdiction of the Colombo Municipal Council (CMC) or the Western Province, and this coupled with the non-application and exemption of many local enactments makes it similar to a separate territory. However, several analysts pointed out that the GCEC, which later became the basis for the Board of Investment (BOI), had a similar arrangement.
“One law and one country was what the ruling party campaigned for prior to the election. The Port City Bill runs contrary to this concept. This Bill also betrays the country’s sovereignty. This attempt of the Government has to be defeated,” Opposition Leader and SJB Leader Sajith Premadasa commented.
More concerns raised by the Opposition include that the CPC funds are not audited by the Auditor General and those do not come under the scope of the Parliamentary watchdog committees. Parliament is only notified of the President’s Gazettes relating to the future affairs of the CPC and Parliament’s nod is not needed for them to be operative.
The Opposition has also alleged that only foreigners can invest in the Port City, that even foreigners can be appointed as Members of the high-powered Port City Economic Commission, and that any item bought by the locals at the Port City premises would be taxed at the exit point.
In an interesting development, US Ambassador to Sri Lanka Alaina Teplitz was one among the first to raise concerns that “the nefarious actors” may attempt to turn the CPC in to a “money-laundering haven” exploiting the sweeping tax breaks. Her comments in an online discussion with a group of journalists in Colombo received wide publicity, and the Government promptly countered those negative sentiments stressing that the Port City-centric new Financial City would not allow investments by way of money laundering or funds which were raised from any form of terrorist activities.
Smart City
Last week, the Government made an all-out effort to negate the allegations against the Bill by taking the time to directly respond to those concerns one by one. Strongly backing the proposed Port City legislation, Money, Capital Markets and State Enterprise Reforms State Minister Ajith Nivard Cabraal viewed that it would be a “turning point” for the country’s economy and that the President has been given wide ranging powers to oversee the functions of the CPC to ensure that its activities do not impede national interests.
“The CPC is not limited to China but open to all countries. It will help jump-start our ailing economy. Claims of a ‘Chinese Colony’ are unfounded. The Project will bring in US$ 15 billion as FDIs in the next five years and will generate 83,000 new jobs. Legal reforms are needed because Sri Lanka has dropped in the World Bank’s Ease of Doing Business rankings to the 99th position, behind India, Bhutan and Nepal in the South Asian region,” underlined the State Minister.
Cabraal explained that the CPC would be under Sri Lankan jurisdiction and its investment approvals would be presented to the Cabinet by the President. “The Port City Economic Commission will be audited by an international auditing firm. The Police will oversee security in the Port City premises. There will not be a different system in place,” he commented observing that the shape of this Project is no different to similar projects in other parts of the world.
Last week, Attorney General Dappula de Livera informed the President that the Port City Bill is not inconsistent with the Constitution. The Government is seen determined to push the legislation through Parliament subject to any revisions as deemed fit by the Supreme Court. No doubt, the CPC legislation will be a game-changer in the country’s economy, and it is up to the Government to craft a success story out of it to elevate the country’s economy to a whole new level.
