Lender’s Interest versus Borrower’s Stake : Infrastructure Development on Conditional Bilateral Credit-T Lalithasiri Gunaruwan

Sep 30th, 2014 | By | Category: samabima english, TOP NEWS

Recognising a help and expressing gratitude for it is a worthy human gesture. This applies to groups, societies, or even countries. Non recognition of a helping hand given is considered unkind and disgraceful. Worse is when parties unrelated are praised when the true helper is elsewhere unrecognised.  In Sinhalese tradition, such behaviour is deplored, and the expression underlying such an attitude is “Gangen diya bee muhudata aawadiema”, or “praising the sea having drunk water from the river”.

This must be the feeling that came out from His Excellency the High Commissioner of India, Mr Sinha, when he made his chief guest’s speech at the Anagarika Dharmapala Commemoration session organised last week by the Centre for Contemporary Indian Studies of the University of Colombo.  He publicly mentioned in this speech that India has done so much for Sri Lanka, but inadequate expression of gratitude came from the Sri Lankan side, while others were frequently praised. A particular point of reference made in Mr Sinha’s speech was the Yal Devi train going to Jaffna after two and a half decades on the reconstructed Northern Railway tracks using Indian credit facilities.

As Sri Lankans, we should not ignore this as Mr Sinha’s personal opinion as he is the High Commissioner for India, thus more likely be reflecting the official sentiment of India. That is more the reason why we should examine the facts.

It is undeniable that the railway track reconstruction beyond Omanthai in the Northern Line and beyond Medawachchiya in Talaimannar line were undertaken using Indian credit. If the Sri Lankan Treasury is short of capital, offering funds through Indian Line of Credit for Sri Lanka to procure the necessary imported material could be considered help, and such has to be acknowledged and thanked.  If this is what the Indian High Commissioner was referring to, his expression of dissatisfaction cannot be considered ill-founded.

Is the Sri Lankan economy truly short of capital?  If so, can it be justified that the country spends lavishly on capital projects?  Should Sri Lanka Railway (SLR), having reconstructed the railway track of 13 km between Vavunia and Omantai by 2010 at a cost of less than Rs 50 Million a kilometer using her own money and technical capabilities, pay over Rs 250 Million a kilometer through borrowings from India, get it done by Indian contractors making the Sri Lankan engineering and technical skills redundant, while, at the same time, putting the country into a pathetic situation where the lender appears to be seeking gratitude?

It was the fundamental philosophy of Mahinda Chinthana Policy of 2005 that the opportunities arising in the local economy would be offered for local entrepreneurs so that the maximum economic value addition and skill utilisation could be obtained to stimulate domestic economic growth. On that principle, reconstruction of railway lines by Indian or Chinese or any other foreign contractors cannot be justified. It was on that valuable and patriotic principle that the then Minister of Transport, Mr Dulles Alahapperuma, during his visit to Iran in 2009, kindly declined the offer made by the Iranian Government that they would do the Northern railway track through their contractors on a loan granted to Sri Lanka, and instead, requested rails and other material for the SLR to construct the track.  On that principle also that the Uthuru Mithuru project was conceived in April 2009, and per-sleeper based donations were invited from all patriotic Sri Lankan who wished to see the Jaffna railway being reconstructed by our own.  Even after that initiative was sabotaged apparently by forces outside of the Ministry of Transport, the railway engineers made an estimate to construct the 70 kilometer track between Palai and Kankesanthurai at nearly one-fourth the Indian cost, based on the green light given by the joint communiqué between H E President Rajapaksa and Indian Prime Minister on June 13th 2010 which stipulated that the section between Palai and KKS would be reconstructed by the SLR.  Plans were prepared to complete the track construction between Palai and KKS before end 2011, when all these possibilities were ignored and the entire Northern track construction was pitifully handed over to an Indian company for reconstruction.

Through this approach, Sri Lanka only gained a newly constructed railway track, but on the other hand, lost a lot. First, it spent at least four times the capital which would be reasonably necessary to build these tracks to the required quality, or forewent four times longer track construction which could have been newly done using that amount of capital. That is a national economic loss, difficult to be justified by any patriotic economic management, let alone a Government anchored on the Mahinda Chinthana – 2005 policy. Second, it deprives the railway engineers and technical skills of professional practice. This prevents the nationally important technical skill building effort, as well as the project execution, implementation decision making and risk taking ability of the technical and managerial cadres. In effect, by handing this project over to India, the country lost the best opportunity to gain experience and to emerge as a railway track construction force, a potential international player in the market, a potential competitor to India, in the long run. Third, the project employed Indian engineers, technical skills and apparently labour as well. Thus, not only the poor unemployed youth in the North, but the technical officers and track workers of the SLR,  possibly excluding those “project management staff” who would now be earning supplementary revenues on an easy life and without shouldering responsibility, lost an opportunity to participate in this national effort and earn a supplementary income. This modality of getting the Northern railway tracks done by contracting out to foreign companies could possibly have been one of the examples that may have prompted the Chief Minister of the Northern Province to say that the Government’s infrastructure development programmes did not benefit the Northern people. Fourth, it pushed the Government of Sri Lanka into more debts, the payment burden of which, largely on excessive capital spending, would be on the future leaders and future generations, while it enabled India to gain another international market for its companies and to make profits.

In this respect, the project appears to infuse more long-term losses and burdens to the Sri Lankan economy and her future generations, while the opposite appears to have happened with regard to India. The question thus could possibly be reformulated, as to why India is not adequately thanking Sri Lanka for letting Indian firms obtain business in rail track construction in Sri Lanka, which the SLR is quite capable of doing more economically, as it has been doing over the past 150 years.  The gravity of this  might become more apparent if hypothetically one allows a foreign company (say Chinese or Pakistani) do railway tracks in India depriving Indian Railway and her subsidiaries the opportunity.

It must be said at the same time that this logic not only applies vis-à-vis Indian projects. The current practice of entertaining unsolicited proposals enabled through bilateral lending envisages contracts being given to the lender countries. This is a fundamental violation of the choice the borrower country should have with regard to the project design and implementation mechanism, and grossly making it surrender to all the dictates of the lender. The lender takes it all, including the business, contract execution, and finally the repaid loan and interest; and the borrower gets basically nothing other than the highly over-priced asset, the quality of which is not competitively tested either as no open bidding among potential suppliers or contractors is possible within this system.

Therefore, it is advisable that the Government of Sri Lanka makes these points clear to the Indian High Commissioner, and console him in his sorrow that Sri Lanka was not being adequately thankful for what India has done to Sri Lanka. If not, the next time the complainant could be the Chinese representatives that their help was not adequately thanked either. In fact, the Matara-Beliatta railway track construction undertaken by Chinese contractors under Chinese Ex-Im Bank loans, has an estimated cost of more than Rs 1000 Million a kilometer, around 15 times the cost estimates for the Jaffna railway submitted by the SLR.  Let us make these points clear to the Chinese authorities, and also to Korean or other bilateral lenders to Sri Lanka on similar conditionality of contract award to their own companies without open bidding, before they also start expressing their dissatisfactory sentiments.

It must also be said that true friends do not help expecting anything in return, not even gratitude, though the recipients are truly thankful for such bona-fide help. Communist China, Soviet Union, and many other countries helped Sri Lanka in the past, and those were in the form of “grants” and not loans with commercial interests, even though there would have been politically driven motives. The best such help any Sri Lankan could think of is the Indian gift of Buddhism, around which the present Sinhala Buddhist civilization is built around. No need to say that the entire nation, generation after generation, is thankful for such sincere help, even though they might not have come out expressing it in words.

T Lalithasiri Gunaruwan

Senior Lecturer (Economics)

University of Colombo

(Formerly, General Manager Railway and Secretary to Ministry of Transport)

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