News
Lanka to borrow US$500 mn in yuan to cover CEP1 cost
View(s):President Anura Kumara Dissanayake has sought Cabinet approval to borrow the equivalent of US$500 million in renminbi (RMB) from the EXIM Bank of China and to separately disburse US$438 million of Sri Lankan government funds to complete the long-delayed first section of the Central Expressway (CEP 1).
This means that Sri Lanka, which has no RMB income, will have to convert its US dollar reserves to repay the loan. It additionally necessitates an amendment to the original commercial contract agreement, for which Cabinet approval has also been sought. The change in currency from USD to RMB is at the request of China EXIM.
Earlier this month, a committee appointed to analyse outstanding financial claims from the Metallurgical Corporation of China Ltd (MCC), the contractor for the 37.1 km stretch from Kadawatha to Mirigama, recommended settling the multibillion-rupee payments and negotiating with the same company to build the remainder of the road.
The China Exim Bank-funded project is stalled at a mere 36.38 per cent physical progress since construction started in September 2020. Recent delays were largely attributed to Sri Lanka’s economic crisis, which caused the suspension of loan disbursements from the Exim Bank and a lengthy debt restructuring process.
The Sri Lanka Government and the EXIM Bank of China entered into a preferential buyer’s credit agreement as early as March 2019 to finance CEP 1. An amendment to that contract was signed in June 2024 under Sri Lanka’s external debt restructuring process.
In April this year, Sri Lanka’s Finance, Planning and Economic Development Ministry—which comes under President Dissanayake—communicated to China EXIM the Government’s willingness to continue CEP 1 with EXIM Bank financing. EXIM requested a change in currency. Discussions were subsequently held regarding the loan currency and amount, interest rate, etc., and agreement was reached on an interest rate cap and floor of 2.5% to 3.5%.
The original EXIM Bank concessional loan was US$989 million, of which just US$51.5 million was disbursed before its suspension. While the remainder is US$938 million, EXIM, post-debt restructuring, has now only committed to lending US$500 million in RMB. Consequently, the Sri Lanka Government has undertaken to fork out the remaining US$438 million.
With the continuation of the contract, the Government must pay the contractor around US$200 million in claims and interest. A proposal by five of Sri Lanka’s largest construction companies to cancel the 2015-16 direct contract granted to MCC and to call for fresh, competitive, open tenders—on the basis that this proposition would cost the country far less and also lead to a speedier conclusion of the road—has been disregarded.
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