China’s New Foreign Assets
Media reports indicate that Uganda risks losing the Entebbe International Airport to China due to default in debt repayment. The Ugandan government represented by the finance ministry and the civil aviation authority had signed an agreement with the Export-Import Bank of China (EXIM Bank) on November 17, 2015, for a loan of US$ 207 million at 2 percent payable interest. This loan had a maturity of 20 years which included a seven-year grace period.
The Ugandan Civil Aviation Authority only recently disclosed certain provisions of the Financing Agreement for the US$ 207 million loan; that it was taken against the Entebbe International Airport and other Ugandan assets to be transferred to Chinese creditors following arbitration in Beijing. The interpretation is that Uganda actually risks surrendering Entebbe International Airport and other assets to China in case it defaults on the loan repayment.
Vianney Mpungu Luggya, Manager Public Affairs of Uganda Civil Aviation Authority tweeted on November 27: “I wish to make it categorically clear that Entebbe Airport has been given away for cash is false. @GovUganda can’t give away such a national asset. We have said it before and repeat that it has not happened. There isn’t an iota of truth in it.” But this may be a politically motivated face saving tweet because the wording appears somewhat ambiguous.
According to the Daily Monitor, Uganda’s Finance Minister Matia Kasaya apologized to the Parliament last week for “mishandling” the $207 million loan from China’s EXIM Bank to expand Entebbe International Airport. Built in 1972, the Entebbe Airport has reportedly achieved 75.2 percent progress, and with two runways reached 100 percent overall completion. The Daily Monitor report further states that the Ugandan government waived international immunity in its loan agreement; allowing China to take over the management of Entebbe International Airport without international protection.
It has now emerged that Ugandan President Yoweri Museveni had sent a delegation to China in March 2021 to renegotiate the toxic clauses of the loan deal signed in 2015 but China naturally did not allow any change to the original deal. This is akin to Sri Lanka wanting to renegotiate the deal for Hambantota Port whenever a new President takes charge. But in the case of Uganda, Museveni himself was the President when the loan agreement was signed. So he cannot absolve himself that he was not aware of its clauses.
Museveni aged 77-years, rose to power amid an armed uprising in 1986. Now with the above scandal, there are inputs of an impending coup d’etat in Uganda by the end of the year or early next year. But that does not change the fact how Uganda has allowed itself to be debt trapped by China. Cursed globally for debt trapping countries, China has attempted to cover up its cunning with Wu Peng, China’s director-general of African Affairs dismissing the media reports as illogical propaganda that China is confiscating facilities from African states because of debts. But the zebra cannot change its stripes and it maters little if the Entebbe Airport is sold or leased for 99 years like Hambantota port of Sri Lanka.
While the global focus was on Uganda with legend of the Istraeli raid on Entebbe International Airport in July 1976, China has quietly made another conquest in Sri Lanka. On November 2021, Sri Lanka’s cabinet approved a contract award to the China Harbour Engineering Company (CHEC) for construction of the second phase of Colombo Port’s East Container Terminal (ECT). It may be recalled that the ECT was to be developed jointly with India and Japan under the terms of a 2019 tripartite Sri Lanka-India-Japan agreement.
Under the tripartite agreement, investors from Japan and India were to have had 49 percent stake in the ECT while the state-owned Sri Lanka Ports Authority (SLPA) was to have retained 51 percent shares. But earlier this year, Sri Lanka cancelled the agreement alleging that the Indian firm (Adani Group) involved in the project refused to agree to the terms of service.
How much is the truth in Adani Group refusing to agree to the terms of service is not known but both India and Japan had expressed displeasure over the manner in which ECT’s tendering process was being conducted. The fact also is that the Colombo Port trade unions were opposed to this tripartite arrangement, alleging it would amount to a sell-out of the ECT. Such opposition perhaps was politically engineered because where these trade unions were when Hambantota Port was handed over to China for 99 years lease? China anyway is the master of drafting agreements with inherent debt trapping to finally extract many times more in strategic terms.
Why India and Japan were dropped from the ECT deal was obviously because of the Chinese influence in Sri Lanka, particularly its hold on the ruling Rajapaksa clan no matter what political statements the President and Prime Minister of Sri Lanka keep making. The fact remains that China has debt trapped Sri Lanka nice and proper and will continue to indirectly influence foreign relations of the island nation.
The SLPA claims that in the new ECT deal with the CHEC, the port terminal will be totally operated by them but surely in the earlier tripartite agreement too operation of the port would have remained with the SLPA holding 51 percent stakes, not India or Japan. The issue is that irrespective of who operates the ports China uses it financial clout over Sri Lanka to defy regulations and do what it wants.
Whenever Chinese nuclear submarines and warship docked at Colombo, they did not dock at the SLPA berths in Colombo which is ‘mandated’ to accommodate military vessels. Instead they docked at the Colombo South Container Terminal (CSCT), a deep-water facility built, controlled and run by China’s Merchants Ports Holdings Company Ltd through an aid project costing $650 million. The CSCT may be better suited for submarine dockings, but it is also a ‘Chinese enclave’ within a Sri Lankan administered harbour.
The SLPA’s deal with CHEC means more Chinese investments in Sri Lanka, with China already the largest investor in Sri Lanka with funding and investments totaling nearly US$15 billion. An article in the China Daily in July 2014 outlined a blueprint for the establishment of 18 Chinese ‘Overseas Strategic Support Bases’ in the Indian Ocean Region. China is proceeding according to a plan for consolidating its Belt and Road Initiative (BRI). Its plans for developing seashore assets in India’s immediate neighbourhood are focused on Pakistan, Sri Lanka, Myanmar, Maldives, Seychelles and Thailand.
China’s BRI which involves some 139 countries spans East Asia, Central Asia, South and Southeast Asia and Europe. In mid 2020, a report by Refinitiv Financial Solutions estimated it at about US$3.17 trillion. Chinese projects under the BRI include development and investment initiatives in transport, construction, aviation, energy, and telecommunication sectors.
The alternative to China’s BRI is the US-inspired ‘Build Back Better World’ (B3W) Project which was adopted at the 47th G7 summit in June 2021 for meeting infrastructure needs of low and middle-income countries. The infrastructure needs of these countries are estimated to be around US$40 trillion by 2035. B3W aims to catalyze funding for quality infrastructure from the private sector and encourage private-sector investments that support climate, health and health security, digital technology, gender equity and equality.
The B3W initiative builds on the Blue Dot Network (BDN) which is collaborative project that aims a global network through lending-based financing for building roads, bridges, airports, ports, power plants and the like. BDN was formally launched jointly by the US, Australia and Japan at the Indo-Pacific Business Forum in Bangkok on November 4, 2019, with US$60 billion capital from America’s International Development Finance Corporation (DFC).
B3W is to be a transparent scheme. But as far as China’s debt trap policy goes it can be expected to continue as long as there are greedy politicians who bother little about sovereignty of their country in the long term. The execution of the B3W and DTN will be important including the speed, quality and country or region it is being implemented in relation to China’s strategic ambitions. For India, how these projects shape the strategic environment will be important.