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Cablegate: Hambantota International Airport: Increasing

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UNCLAS SECTION 01 OF 02 COLOMBO 001125

SENSITIVE

SIPDIS

DEPARTMENT FOR SCA/INSB

E.O. 12958: N/A
TAGS: CE ECON ETRD EINV EAIR ELTN CH
SUBJECT: HAMBANTOTA INTERNATIONAL AIRPORT: INCREASING
CHINESE INVOLVEMENT IN SRI LANKAN INFRASTRUCTURE

REF: COLOMBO 01007

COLOMBO 00001125 001.3 OF 002


1. (SBU) Summary: The Government of China is constructing
an international airport in conjunction with the large
Hambantota port. Hambantota is located in the rural South of
Sri Lanka, which also happens to be President Rajapaksa,s
home region and political base. China Harbor Ltd. is engaged
in final negotiations with the Government of Sri Lanka for
the contract to construct Hambantota International Airport.
Negotiations should be completed by mid-December. Full scale
construction may begin in early January 2010 with the project
completed sometime in 2011. The airport project will be
wholly funded with a Chinese EXIM bank loan worth $190
million USD with concessional interest rates and a 40 year
repayment schedule. Over the next 5-10 years, Hambantota
airport is unlikely to turn a profit. Incoming passenger
flights will be on a charter basis only. The GSL and AASL
would like to develop the airport into a regional air cargo
hub and the airport has been designated as a tax free zone
for this purpose. Although the economic viability of the
airport is questionable, the project will increase Chinese
influence, provide fat construction contracts for Chinese
companies, and augment Chinese control of Sri Lankan
infrastructure. End Summary.

CHINA FINANCES AN INTERNATIONAL AIRPORT IN RURAL SRI LANKA

2. (SBU) Hambantota is a rural area in the south that is 4-5
hours drive away from Colombo. The Government of Sri Lanka
hopes that the Hambantota port (also built with Chinese
assistance) and planned manufacturing zones will spark the
development of Hambantota as a regional transportation hub.
Hambantota is also President Rajapaksa,s home region and his
political base, which would certainly benefit from the
increased employment opportunities afforded by the Hambantota
projects.

3. (SBU) Sri Lanka has broken ground for the Hambantota
International Airport, the country's second international
airport. Preliminary designs for the airport have been
completed and the Ministry of Ports and Aviation (MoPA) and
Airport and Aviation Services (Sri Lanka) Limited (AASL), in
theory, are looking for interested contractors to submit
detailed design plans and construction proposals. In
practice, China Harbor Limited has the inside track for
construction of the airport. The company is in final
negotiations with the Government of Sri Lanka and a contract
to begin construction of the airport should be completed in
mid-December. The MoPA hopes to see construction begin in
early January 2010 with the project completed sometime in
2011. This is an ambitious target date which may not be met
if airport construction slows for any reason.

4. (SBU) The airport project will be wholly funded with a US
$190 Million Chinese EXIM bank loan with concessional
interest rates and a 40 year repayment schedule. Once
completed, the airport will be managed by AASL; however, AASL
will consider potential joint ventures with domestic or
international companies. Chinese companies have not yet
expressed interest in airport management of Hambantota.
Initially, one runway, capable of handling take-offs/landings
from Airbus A380s, will be constructed along with a passenger
and cargo terminal and requisite support facilities.
According to MoPA, there is ample space to construct a second
runway if needed. 850 hectares have been allocated for the
new airport, with additional 1,200 hectares held in reserve
for future airport expansion.

ECONOMIC VIABILITY IS IN QUESTION

5. (SBU) Over the next 5-10 years, MoPA and AASL do not

COLOMBO 00001125 002.3 OF 002


anticipate the Hambantota airport turning a profit.
Initially, incoming passenger flights will be on a charter
basis only. The GSL and AASL would like to develop the
airport into a regional air cargo hub and Hambantota has been
designated as a tax free zone for this purpose. The MoPA is
in deep negotiations with at least two international cargo
handlers to base their regional hubs out of Hambantota. To
date, Chinese airlines and cargo carriers have not expressed
significant interest in making Hambantota a regional hub or
establishing passenger routes to/from Hambantota although
MoPA is optimistic that this will eventually occur. The MoPA
is also looking at ways to integrate the airport with the
Port of Hambantota, and feasibility plans are being developed
to utilize the airport for the transport of bulk cargo
brought by ship to Hambantota.

GSL JUSTIFICATION FOR A SECOND AIRPORT

6. (SBU) According to the MoPA and AASL, construction of the
Hambantota airport is necessary given the need to have an
alternate landing facility for international flights if
diverted from Bandaranaike International Airport north of
Colombo. Current plans call for diverting international
flights to southern India in the event of an emergency.
Note. It is not clear why the GSL did not expand a regional
airport near a population center for this purpose. End Note.
The GSL also envisions utilizing the Hambantota airport as a
base of operations for aviation and maritime rescue
operations as well as conducting ship to shore transfers of
crews anchored near the port. The GSL plans to integrate the
airport with the Hambantota master plan with the extension of
the southern highway and railway.

7. (SBU) Comment: Plans to build the Hambantota airport are
ambitious and the timeline for its completion very
optimistic. With Chinese assistance though, this is a
realistic goal for the GSL and the MoPA. The Chinese have a
strangle hold on construction of the airport and have added
leverage for the project due to Chinese EXIM bank financing.
While Chinese businesses have not yet expressed interest in
joint management of the airport or in establishing air links
to the airport, they will have preference and an inside track
should they decide to throw their hats into the ring.
Coupled with Chinese involvement in the Port of Hambantota,
infrastructure development projects within greater
Hambantota, and involvement in construction projects within
Hambantota proper, Chinese interests have a lock on influence
with the GSL for the foreseeable future. Chinese efforts in
Hambantota are in line with robust aid and development
assistance in other areas of Sri Lanka. It remains to be
seen whether Chinese involvement ends when a project does or
whether Chinese businesses will then pick up the slack and
fill the void. End Comment.
FOWLER

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