By Amy Kazmin in New Delhi
Sri Lanka is poised to sell a majority stake in its remote Hambantota port to a Chinese state company after revising the deal to assuage Indian concerns that the port would be used as a military base.
Sri Lanka is selling the port as part of its strategy to pay down some of its estimated $65bn in debts, including $8bn owed to China. Currently, nearly all Sri Lankan government revenue goes to debt servicing.
The $1.3bn, Chinese-built deep-sea Hambantota port, which began operating in 2011, is situated in a remote corner of Sri Lanka with little demand for large-scale freight traffic, making it financially unviable.
But its strategic Indian Ocean location makes it attractive for military use, and New Delhi has long suspected that Beijing's long-term interest in the project is strategic rather than commercial.
Tensions between the two giant Asian neighbours have been rising sharply in recent years, as India has sought to assert itself on the global stage, and Beijing has been pursuing its "One Belt, One Road" project building infrastructure across Asia.
After months of protracted negotiations to revise the original deal for the sale of Hambantota, the state-owned China Merchants Port Holdings Company has now agreed to pay $1.1bn for a 70 per cent stake in the facility, down from the 80 per cent stake initially envisioned.
But sensitive operations - including security, navigational services and approvals - will be handled by a second company, in which the Sri Lankan Port Authority will have a majority stake, ensuring Colombo retains crucial controls over what ships can dock there.
Mahinda Samarasinghe, Sri Lanka's shipping minister, described the agreement - due to be presented to parliament on Friday and signed at the weekend - as a "win-win for both the countries".
Shailesh Kumar, a senior analyst with the Eurasia Group, a risk consultancy, predicted that pressure from New Delhi - which had been unhappy with the earlier sale plan - "is now likely to abate".
"With the change in terms, India will no longer stand in the way," he wrote in a research note.
Reuters, which has reviewed the agreement, has reported that the Hambantota Port Group Services Company, which will control the sensitive aspects of the port operations, will be 50.7 per cent owned by the Sri Lankan government, while China Merchant Port Holdings will have 49.3 per cent.
Brahma Chellaney, a professor of strategic studies at New Delhi's Centre for Policy Research, said that the deal "technically looks OK" but that China's future use of the port for military purposes cannot be ruled out.
"Sri Lanka's decision-making has become increasingly constrained by the debt trap that it has fallen into," he said. "The Chinese will dictate the terms; they will run the show."