Vokswagen and Hambantota
08 January 2017
In March last year the Fortune magazine ran an article simply
titled "Hoaxwagen" illustrated with a photo of a spanking new Volkswagen
car spewing a cloud of noxious black smoke from its tailpipe. No
explanation of what that article was all about was necessary. The whole
world by then knew all about how a renowned automaker, whose legendary
‘Beetle’ held the world in thrall for several decades, had in the
words of one writer "incinerated" its reputation by a massive emission
fraud. Here in Sri Lanka we were awaiting the construction of a
Volkswagen assembly plant at Kuliyapitiya under an agreement signed
between the local project partner and the Board of Investment. Given
the power of the VW brand, it was no surprise that our political
leadership massively touted the coming project for which there was a
ceremonial groundbreaking early in the New Year with no less that the
president and prime minister in attendance.
But the people
of Sri Lanka did not know until the smelly stuff hit the fan last week,
with a television station quoting a spokesperson for VW saying there
was no plan at present to bring their brand here, that there was going
to be no Volkswagen assembly at Kuliyapitiya in the foreseeable future.
It was only on Jan. 2, 2017, that an amended agreement between the
local partner and the BOI was signed removing all references to
Volkswagen in the original agreement reached in August 2015. In
September of that year, the emissions scandal broke hitting the iconic
German automaker with all kinds of trouble both over the scale of the
offence and the huge penalties running into billions of dollars it
would attract. It is amazing that the concerned authorities here did
not follow-up whether intentions inherent in an existing agreement could
be realized under the changed circumstances. Since the story broke the
prime minister went on record saying that Newsfirst need not have gone
to Volkswagen in Germany to find out whether they were coming here. If
he had been asked, he would have said that they were not, given the
circumstances they were placed in. The fact that neither the German
ambassador nor a representative of VW was at the groundbreaking was an
obvious pointer that there will be no VW involvement in the project
that was being launched.
The opposition would undoubtedly
seize the propaganda potential of this mess. We do not know whether
somebody pulled the wool over somebody else’s eyes and for long
pretended that nothing was amiss with the proposal that had been
presented and the agreement that had been signed. If not, it behooves
on those who made much of VW assembling vehicles here to have gone
public with the real picture before a television station chose to rub
egg on the face of the entire government. But why people who should
know better did not make their own checks on the real picture in the
context of the scandal that hit VW and apprise the political leadership
of the existing situation is what defies comprehension. Was our
mission in Berlin unaware that the much touted project was not going
forward? Was Colombo not so advised? These are matters that bear
examination. The local partner of the project is believed to be
exploring the possible assembly of other European brands at
Kuliyapitiya. Whether he would succeed or not and whether such brand
owners would invest remains to be seen. The site was allocated on a
basis that is no longer valid. So would possession remain?
There
has been a lot of flak, rising to a crescendo last week, about
government plans to rescue the Hambantota harbor ‘sinking’ under a load
of debt. This port was built on borrowed capital with little or no
thought given on how the massive debts incurred were going to be
repaid. It has already incurred huge losses and will continue to do so
unless some plan to make it economically viable is devised. The
incumbent government is seeking to do so through a joint venture with a
Chinese partner who will take the majority 80 percent equity in the JV
with the Sri Lanka Ports Authority taking the balance. This is
obviously not the best arrangement. The government would normally have
liked to keep control and limit the foreign partner to at best a 49
percent minority. But this would not have been possible if the
rationale for the deal – enabling Sri Lanka to meet its debt obligation
over the construction cost – was to be realized.
There is
also the question of the period of the lease of the harbor. Ports and
Shipping Minister Arjuna Ranatunga said last month that the Chinese
originally wanted a 199-year lease and then came down to 99-years. He
was thinking of a 50-year lease but that seems wishful. There has been a
lot of airy fairy talk about Hambantota being close to major
international shipping lanes along which hundreds of vessels sail every
day. If a fraction of that number could be persuaded to take their
bunkers there, the port could be very profitably operated, it ws said.
But experts point out that ships will not make purely bunkering calls;
they would want to load and discharge cargo and receive ancillary
services like ship chandling and many more. The previous regime had to
virtually force car carriers to do their business at Hambantota which
was attracting the label of being a port at which no ships called. That
port has various geographical advantages that would serve China’s
strategic needs now and in the future. That is why China more than
anyone else would be willing to invest there. Also, China has the will
and capacity to invest in ancillary industries that would give the port
business.
In this matter Sri Lanka is like somebody who is
forced to make a distress sale. In such circumstances buyers will try
to get the best bargain for themselves and China is no exception. But
the former president who bears responsibility for landing Sri Lanka in
the soup both with regard to the Hambantota port and the Mattala
airport, both regarded as personal vanity projects in his home
district, is the least qualified to fault his successors trying make
the best of a bad situation. Rajapaksa has problems with the sale of
family silver. What did he do with prime Galle Face land on which hotels
are now rising? The Port City was also a deal in a hurry with no
alternative proposals invited and all stops pulled off to sign the
agreement while Chinese President Xi Jinping was here. What’s going on
can be criticized – but not by Mahinda Rajapaksa.
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