China Eximbank provides RMB 1.3 billion government concessional loan for the Mattala Rajapaksa International Airport Project

On December 23, 2009, the Chinese Government and the Government of Sri Lanka signed a preferential loan framework agreement for the Mattala Rajapaksa International Airport Project. Then, on March 5, 2010, China Eximbank and the Government of Sri Lanka signed a government concessional loan (GCL) agreement [CHINA EXIMBANK GCL NO. (2010) 17 TOTAL NO. (314) 120003992010110252] worth RMB 1,225,602,725 ($209 million) for the Mattala Rajapaksa International Airport Project. The GCL (loan) carried the following borrowing terms: a 2% interest rate, a 0% default (penalty) interest rate, a 20-year maturity, a 5-year grace period, a commitment fee of 0.5%, and a management fee of 0.5%. The Government of Sri Lanka on-lent the proceeds of the loan to Airport & Aviation Services (Sri Lanka) Ltd (a Sri Lankan state-owned enterprise). The borrower was expected to use the loan proceeds to finance a commercial contract [No. HIA2009.11] between Airport and Aviation Services (Sri Lanka) Ltd and China Harbour Engineering Company Ltd, which was signed on November 27, 2009. China Eximbank disbursed RMB 330,7145,000 ($48.85 million) in 2010, RMB 334,126,760 ($51.7 million) in 2011, an unknown RMB amount in 2012, RMB 158,954,168.72 in 2013, and RMB 44,863,372.18 in 2014. The loan’s amount outstanding was RMB 1,103,042,453 as of December 31, 2016, RMB 950,339,752.16 (LKR 24,587,000,000/$134 million) as of December 31, 2019, and RMB 653,654,787 as of June 30, 2022. The purpose of the project was to construct an alternative airport, located in Mattala, to the Bandaranaike international Airport. The project involved the construction of a 4 km runway, a parking apron, a taxiway connecting the runaway and the apron, a terminal building, cargo storage, a fuel arm, and a fire service building. China Harbour Engineering Company was the contractor responsible for project implementation. Construction began on November 17, 2009. The construction of the runway, apron and taxiways was completed ahead of schedule in February 2012. On January 24, 2013, Sri Lanka’s Minister of Civil Aviation Piyankara Jayaratne reported to parliament that the airport would be declared open on March 18, 2013. On October 16, 2012, a Hawker Beechcraft B200 King Air of the Pakistan Civil Aviation Authority became the first aircraft to land at the new airport. The airport was opened for flight operations, as planned, on March 18, 2013. President Rajapaksa, his ministers, and other dignitaries arrived in a SriLankan Airlines Airbus A340 to attend the inauguration ceremony. This project was plagued by cost overruns and controversy. It ultimately cost $243.7 million to implement the project. However, the original budget for the project was $209 million. The Mattala Rajapaksa International Airport is also widely considered to be a commercial failure. The construction of the 12,000 square meters terminal building was originally designed to support as many as one million travelers per year, and the government envisioned major international carriers bringing travelers from Beijing, Chennai, Dubai, Riyadh, and Bangkok to Hambantota for sporting events, international conferences, eco-tourism, and nightlife. However, it was eventually dubbed ‘the world’s emptiest international airport.’ Sri Lanka’s aviation minister reported to parliament in 2014 that the airport had only earned $123 in revenue in a single month, and when a visiting journalist asked a senior government official about the airport, he indicated, “when I visited the airport there, I asked the sole immigration officer how many passports she’d stamped that day. She said, ‘One’.” Within only a few years of becoming fully operational, the airport was running an annual financial loss of $18 million. Consequently, the airport failed to generate sufficient revenue to facilitate loan repayment. in January 2015, Maithripala Sirisena was elected President of Sri Lanka and one of his first orders was to allow SriLankan Airlines to cancel all flights to Mattala Rajapaksa International Airport. The national carrier released a public statement that read: ‘[T]he reality is Mattala Rajapaksa International Airport is not needed and is a distraction in Sri Lankan’s efforts to turn itself around. … SriLankan Airlines continues to be highly unprofitable and having to meet the political requirement of developing and operating a second hub [in Hambantota district] will make it even harder to meet its targets for financial improvement.’ Then, in 2017, responsibility for repayment of the China Eximbank loan that was contracted for the construction of Mattala Rajapaksa International Airport Project was transferred from Airport & Aviation Services (Sri Lanka) Ltd to the General Treasury. On April 12, 2022, the Government of Sri Lanka announced a ‘pre-emptive’ sovereign debt default, noting that it would suspend debt repayments to all external creditors other than multilateral institutions. Its decision to suspend external debt service reportedly affected all China Eximbank loans with amounts outstanding at the time of the announcement (including the loan for the Mattala Rajapaksa International Airport Project).

Additional details

1. Some reports suggest that the face value of the China Eximbank GCL was $209 million. However, this figure refers to the total cost of the project (prior to cost overruns). 2. In correspondence with AidData’s Executive Director, the Director of the China and AIIB Division with the External Resources Department of Ministry of National Policies and Economic Affairs confirmed that USD loan value of the RMB-denominated China Eximbank loan is approximately $190 million. 3. Mattala Rajapaksa International Airport is also known as the Mattala Hambantota International Airport Project, Hambantota International Airport, and Southern International Airport. 4. The Government of Sri Lanka loan key number is 2010006. 5. This project is also known as the Mattala Hambantota International Airport Project. 6. Some sources suggest that the loan commitment date was December 23, 2009 rather than March 5, 2010. However, December 23, 2009 represents the date on which the preferential loan framework agreement was signed. 7. The China Eximbank loan agreement can be accessed in its entirety via https://www.dropbox.com/s/bs61zp7pigaf78d/Sri%20Lanka%202010%20China%20Eximbank%20GCL%20for%20Hambantota%20International%20Airport%20Project%2C%20Mattala.pdf?dl=0 8. The commercial contract [No. HIA2009.11] between Airport and Aviation Services (Sri Lanka) Ltd and China Harbour Engineering Company Ltd, which was signed on November 27, 2009, can be accessed in its entirety via https://www.dropbox.com/s/i24veorv3g9gvd8/HambantotaAirport-Contract-2009.pdf?dl=0

Number of official sources

39

Number of total sources

60