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China EXIM Bank’s Central Expressway loan interest triggers concern
View(s):By Minaza Hassan
Interest imposed by China’s EXIM Bank for a loan covering a portion of the Central Expressway’s Kadawatha-Meerigama section came up at a panel of legislators when funding was discussed this Tuesday by the Committee on Public Finance.
The loan, originally proposed at US$1 billion, has now been reduced to US$500 million and will be provided in Sri Lankan rupees, with the interest rate which has increased from the initial proposal of a 2.5% fixed rate to a floating rate with a maximum of 3.5% due to current market conditions. However, concerns were raised about whether the arrangement is unfavourable to Sri Lanka.
Examining the supplementary estimates for 2025 under the Highway Ministry, the committee noted that the Road Development Authority (RDA) has borrowed more than Rs. 310 billion from local banks for road projects as of July 2025. The ministry requested Rs. 36 billion from budget allocations through the supplementary estimate to repay part of these loans. After consideration, the supplementary estimate was approved.
The incomplete Kadawatha section Pic by Eshan Fernando
For the completion of the Kadawatha-Mirigama section, Rs. 175 billion from local funds is needed, explained a ministry official. The Central Expressway project—started in 2016 to enable faster and better access by building interchanges that connect Colombo, Kandy and Kurunegala—was halted in 2022. It has four sections, with section one (Kadawatha-Mirigama) being the most prominent.
Construction was suspended due to the economic bankruptcy in 2022. China’s EXIM Bank halted the loan, and contractors stopped work. Costs increased. Recently, the project was revived after the National People’s Power government held extensive discussions with the lender. Authorities have also explored the option of terminating the existing contractor and re-tendering to local contractors, but this was deemed unfeasible due to high costs.
Termination would have resulted in substantial claims from the contractor, including termination fees, penalties, delayed payment costs, and other contractual liabilities. “Contractually, termination would have required paying the contractor for loss of profits and other claims, which, when added to penalties and settlement costs, would far exceed the savings from hiring local contractors, even at lower rates. Moreover, re-procurement with local contractors would take at least six months, further delaying completion,’’ said a consultant for the ministry.
“The main loss from the suspension was not the partially built structures exposed to the weather. That was not a major issue, but rather the delay in delivering benefits to people. Had the road been completed earlier, people would already be enjoying its use. Now, with completion expected around April, no public benefit can be realised until then, despite the financial losses,’’ explained the consultant.
Although some reports suggest the project is being carried out at a loss due to past setbacks, it remains essential because of its importance to connectivity. The Kadawatha–Mirigama section links to the Mirigama–Kurunegala zone and eventually turns off toward Kandy, where the first phase of that project is now proceeding to schedule with government funding.
However, at the meeting on Tuesday, officials from the Ministry of Transport, Highways, Ports, and Civil Aviation explained that the China EXIM Bank loan interest had been shifted from an initially proposed 2.5% fixed rate to a rate capped at 3.5%, due to current market conditions. Further negotiations are expected.
Panel chairman Dr Harsha de Silva questioned this arrangement, urging reconsideration to avoid potentially unfavourable terms for Sri Lanka. Previously, the Chinese bank had agreed to a loan of US$1b, which was reduced to US$500m. Although this amount was initially to be paid in yuan, they have now agreed on Sri Lankan rupees, said a consultant from the ministry. However, repayment may be in yuan. This arrangement has been reviewed by the Treasury.
Separately, officials from the State Debt Management Office reported that Sri Lanka’s outstanding debt includes US$37b in foreign loans and Rs. 19.6 trillion in domestic loans; however, they were unable to provide the exact repayments due this year. The committee chairman expressed dissatisfaction and emphasised the importance of employing skilled personnel in the Debt Management Office to strengthen loan acquisition and repayment.
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