[NGW Magazine] Sri Lanka in China's Sights

This article is featured in NGW Magazine Volume 2, Issue 18

By Tim Daiss

Developments are ongoing in Sri Lanka that show the growing geopolitical reach of China on one hand and the opposition from the India-Japan alliance on the other in the struggle for dominance in south Asia.

Sri Lanka, an island nation of some 22mn people in the Indian Ocean, is in talks with China to establish an LNG power plant in Hambantota, in the south of the country. Sri Lanka's prime minister Ranil Wickremesinghe said discussions were ongoing, according to an August 31 Asia Pacific Daily (APD) report. China has already invested heavily in Hambantota through a port, an international airport and a proposed economic zone, the report added.

Wickremesinghe said that steps have been taken to have two LNG plants in the country with the assistance of India and Japan. He added that tenders have been called for a fourth LNG plant. “If all this is successful we will have four LNG power plants established at the same time,” he said.

There is some doubt about the status of these, with the energy ministry using "plant" to refer to both import terminals and LNG fired power plants. Although he says steps have been taken to have two plants in the country with Indian and Japanese assistance, there appears to be only an Indian-Japanese terminal proceeding at this time, which is a joint venture between Petronet, Japan and Sri Lankan companies.

Petronet's LNG terminal would be set up on the western coast of Sri Lanka in close vicinity of Colombo, where most of the power projects – operating mainly on costly liquid fuel – are. The Colombo Metropolitan Area is home to roughly a quarter of the total population of Sri Lanka generating over half the GDP. The LNG terminal near Colombo would improve the economics of various power plants and also generate immense direct and indirect benefits for vast majority of Sri Lankan people.

Petronet said in a September 6 press release that the project would reaffirm the "traditionally and friendly relations between two countries and their continuing endeavours to enhance bilateral relations through increased economic, investment and development co-operation for mutual benefits of the two nations.... It's a giant step towards the energy security of Sri Lanka and underscores the 'neighbourhood first' policy of [India's] prime minister Modi.

China’s possible participation in an LNG plant in Sri Lanka is significant for several reasons. First, it would help Sri Lanka bring in much needed natural gas as the country tries to jump start development of its own offshore resources. Sri Lanka has no proved onshore oil and gas reserves and relies on imports for both hydrocarbon resources.

However, in February the Sri Lankan government launched a tender to develop a gas block in the Mannar Basin off its northwest coast, vacated when Cairn India pulled out of an exploration project in 2015 as oil prices were plunging to multi-year lows. According to the Sri Lankan government, oil and gas were discovered in the area in 2011.

In February 2016, French oil major Total also signed an agreement with the government to explore two ultra-deep water blocks off the east coast of Sri Lanka. Since the ending of a 25-year civil war with Tamil separatists over seven years ago, Sri Lanka has tried to renew oil and gas exploration. Importing oil cost the country $2.7bn in 2015.

Sri Lanka also wants to commercialise its potential natural gas deposits and it included them in its 10-year national energy plan set out in 2015. The country’s energy minister Patali Champika Ranawaka said that the Ceylon Electricity Board, the country’s largest electric company, will convert its diesel and oil-based power plants to run on gas instead.

One Belt One Road Initiative

China’s interest in helping Sri Lanka build an LNG plant also has geopolitical ramifications across both south Asia and the Indian Ocean. China, for its part, is keen on investing in energy projects and other types of infrastructure. This is part of the One Belt, One Road (OBOR) initiative of China's president Xi Jinping, launched in 2013.

China’s OBOR began as a plan for infrastructure projects intended to boost trade along two already determined routes, the first one following the ancient Silk Road stretching from China to Central Asia and the Middle East and Europe. The second route links China to southeast Asia, Oceana and Africa by sea through several contiguous bodies of water - the South China Sea, South Pacific Ocean and the Indian Ocean.

The London-based Financial Times said: “with $900bn of planned investment ranging from ports in Pakistan and Sri Lanka to high-speed railways in east Africa to gas pipelines crossing central Asia, China’s OBOR is arguably the largest overseas investment drive ever launched by a single country.”

Though Beijing claims that its massive initiative is purely economic, critics argue that the country has ulterior motives: to encroach on, and eventually supplant, US global hegemony, both economically and in time militarily as China develops its blue-water navy to protect its overseas assets and its trading routes.

At the least, the OBOR infinitive is an example of mercantilism at its finest and will give Chinese companies, particularly state-owned enterprises, a growing global market and a likely advantage for their products and services.

Slugging it out for dominance

Though China’s plan is ambitious it has competition. A growing Indian-Japan alliance is also jockeying for influence in the region with its own energy and infrastructure projects. Over the past few years, India's prime minister Narendra Modi and Japanese prime minister Shinzo Abe have met several times, forging one of the most important geopolitical relationships in the Asia-Pacific region. They have reached pacts ranging from civil nuclear deals, to numerous infrastructure projects, energy deals and military co-operation.

The most recent meeting between the two leaders came at the 12th India Japan Annual Summit during the second week of September. As many as 15 various pacts were signed between the two sides.

India’s Live Mint newspaper said: “They [Modi and Abe] decided on co-operation in connectivity spanning Africa, southeast Asia and India’s northeast, some parts of which are claimed by China; pledged to fight terrorism and drew up a roadmap for future economic interaction.”

“The Indo-Japanese partnership is getting pitted against China. It is so because only these two countries together have some heft to put up a challenge to China at a time when the US is too distracted by domestic chaos,” Harsh Pant, a professor of international relations at King’s College London, told NGW.

“As a result all smaller states including Sri Lanka are trying to leverage both these sides. We will see more of this happening in the coming years. India and Japan are working on an Asia Africa Growth Corridor which is an ambitious plan to respond to OBOR,” he added.

However, this growing alliance is being watched closely in Beijing, which is taking a dismissive, if not patronising, view of it, according to some. An op-ed in the Beijing-based Global Times that ran during the same time of the Modi-Abe meeting said: “Closer India-Japan ties won't pose grave threats to China because many of their emotional moves to console each other won't produce any real effects in challenging China.”

It added that China would never follow India and Japan, "who have somewhat lost themselves.” Though not the official mouth piece of the Chinese Communist Party (CCP), the Global Times does often express its views.