Sri Lanka gives new deal to CATIC after hotel plan killed

Thu Nov 3, 2011 9:51am EDT

* Govt: new deal has no link to hotel project

* Govt last month cancelled $500 mln hotel deal

* Opposition: someone benefiting from deals

COLOMBO, Nov 3 (Reuters) - Sri Lanka awarded China National Aero Technology Import and Export Corporation (CATIC) an $89.6 million contract, barely a week after annulling a $500 million hotel deal with the state-run Chinese conglomerate.

The hotel deal was among the largest foreign investments since Sri Lanka won a quarter-century civil war in 2009, and its cancellation was a rare victory for the main opposition United National Party (UNP), which questioned it in a parliament dominated by President Mahinda Rajapaksa's ruling party.

Cabinet spokesman Keheliya Rambukwella said the new contract, to relocate a university, was not a quid pro quo or compensation for the hotel deal's collapse.

"That's a different deal and they must have come with the full funding when the tenders were called," for the university project, he told a press briefing.

The new project is to relocate the University of Moratuwa's Institute of Technology to new campus and the $89.6 million cost will be funded by the Chinese government, Rambukwella said.

Sri Lanka is borrowing heavily to fund a $6 billion plan to develop infrastructure neglected during the war. China was the Indian Ocean nation's largest lender in 2009 and 2010, giving a combined $2 billion during those two years.

UNP legislator Harsha de Silva, the main critic of the CATIC project, said the university deal was yet another Chinese project that would cost Sri Lanka's economy dearly.

"This is a typical economic hitman story. When we can't do things, China is asking for flesh. I think either the government doesn't see this or some people are benefiting from these kind of deals," de Silva told Reuters.

The CATIC hotel deal's cancellation was a rare case where China, a major ally, appeared not to get its way in Sri Lanka.

Officially, Rajapaksa questioned why the land for the hotel on the colonial-era Galle Face seafront was being sold instead of given on a long-term lease. CATIC balked at the change in terms, having already paid $54.5 million.

The government says it is negotiating to give CATIC another property, and is in talks to lease the Galle Face land to another party, which it declined to name, to build a hotel.

CATIC is primarily a weapons manufacturer, but has other interests including in hotels.

What remains unclear is why the government has not also changed the terms of a similar $500 million hotel, shopping and apartment project with Shangri-La Asia Ltd , which paid $125 million to buy 10 acres next to the 6 acres CATIC wanted. (Additional reporting by Shihar Aneez; Writing by Bryson Hull; Editing by David Holmes)

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