Sri Lanka softens its stance on China port city deal

By Shihar Aneez

COLOMBO (Reuters) - Sri Lanka's new government said on Thursday it might renegotiate a $1.5 billion "port city" deal with China Communications Construction Co Ltd 601800.SS, softening its pre-election threat to scrap the project.

New Prime Minister Ranil Wickremesinghe, before last month's presidential vote, said he would cancel the port deal if his party came to power. Maithripala Sirisena, backed by Wickremesinghe's party, unseated ex-president Mahinda Rajapaksa at the polls.

"We can renegotiate with China after reassessing the deal," Cabinet Spokesman Rajitha Senarathne told reporters.

"We need to see the feasibility study. We need to see the environmental impact assessment (EIA) and reassess the tax concessions given to it and land ownership issues."

He said the current government had not seen any EIA or feasibility study of the project and it needed to be re-assessed because of impacts on coastal erosion.

Work has already begun on construction of the port city, launched by Chinese President Xi Jinping when he visited in September last year.

The site is on 233 hectares of reclaimed land in the capital, Colombo. Under the proposed deal, 108 hectares would be given to the Chinese firm, including 20 hectares on an outright basis and the rest on a 99-year lease.

Sri Lanka's giant neighbor India, which has uneasy relations with China, is worried about the port city project.

Indian diplomats have told Reuters the 20-hectare plot is a security concern because of the large number of India-bound cargoes that pass through Colombo port.

China Communications Construction Co Ltd said in a statement issued on Wednesday an initial technical feasibility study and EIA had been carried out and approved by the previous Rajapaksa government.

It said an environmental management plan had been provided by the company "after monitoring the environmental impact, especially the erosion of the beach, according to the requirement of EIA".

"We are open to cooperate with the government authorities and provide all the information required according to the relevant regulations, believing on a strong cooperation together to the best success of this magnificent project," it said.

Wickremesinghe's pro-business United National Party says some development deals struck by the previous government, which was heavily dependent on China for infrastructure, did not follow appropriate tender procedures and were not transparent.

The port development would include shopping malls, a water sports area, golf course, hotels, apartments and marinas.

(Reporting by Shihar Aneez; editing by Andrew Roche)