Sri Lanka Cabinet approves long-delayed port deal with China

Sri Lanka's cabinet cleared a revised agreement for its Chinese-built southern port of Hambantota on Tuesday, the government said, after terms of the first pact sparked widespread anger in the island nation.

The port, close to the world's busiest shipping lanes, has been mired in controversy ever since state-run China Merchants Port Holdings, which built it for $1.5 billion, signed an agreement taking an 80 per cent stake.

Under the new deal, the Sri Lankan government has sought to limit China's role to running commercial operations at the port while it has oversight of broader security.

Chinese control of Hambantota, which is part of its modern-day "Silk Route" across Asia and beyond, as well as a plan to acquire 15,000 acres to develop an industrial zone nearby, had raised fears that it could also be used for Chinese naval vessels.

Sri Lankans demonstrated in the streets at the time, fearing loss of their land, while politicians said such large-scale transfer of land to the Chinese impinged on the country's sovereignty.

Details of the new agreement have not yet been made public. But according to parts of the document seen by Reuters, two companies are being set up to split the operations of the port and allay concerns, in India mainly but also in Japan and the United States, that it won't be used for military purposes.

China Merchants Port Holdings will take an 85 per cent stake in Hambantota International Port Group that will run the port and its terminals, with the rest held by Sri Lanka Ports Authority. The company's capital will be $794 million.

A second firm, Hambantota International Port Group Services Co, with capital of $606m, will be set up to oversee security operations, with the Sri Lankans holding a 50.7 per cent stake and the Chinese 49.3 per cent, according to the document.

Ports Minister Mahinda Samarasinghe said that several foreign missions had sought clarification from Colombo about whether the Chinese navy would be using Hambantota port as it steps up its presence in the Indian Ocean.

"We told China that we can't allow the port for military use and that 100 per cent responsibility of security matters should be with the Sri Lankan government."

China has been building ports in Pakistan, Sri Lanka and Bangladesh and smaller island nations in what military officials call a "String of Pearls" in the Indian Ocean, or a network of friendly ports where its warships can refuel.

China Merchants Port Holdings also agreed to reduce its stake in the Sri Lankan joint venture running the commercial operations of the port to 65 per cent after 10 years, the document says.

"The cabinet approved the deal and now it needs parliament approval. We will send it for approval this week," cabinet spokesman Dayasiri Jayasekera said.