Sri Lanka’s Hambantota Port saga contains a financial mystery that extends far beyond the controversial 99-year lease to a Chinese operator. At the centre of the controversy is an extraordinary accounting breakdown in which hundreds of billions of rupees in port-related liabilities were removed from official accounts without the required institutional approvals, raising fundamental questions about public accountability, sovereign debt reporting and the protection of taxpayers.
The Hambantota project was pursued despite successive feasibility studies by internationally recognised consultants warning that the proposed port would duplicate capacity already available at Colombo Port. Nevertheless, Sri Lanka proceeded with Phase I and obtained a US$307 million loan from China’s Exim Bank at an interest rate of 6.3 percent. The financing terms were considerably more expensive than conventional concessional borrowing.
The port subsequently failed to generate the revenues originally anticipated. According to the investigative material, its annual losses reached approximately Rs.18.8 billion, placing increasing pressure on the General Treasury. Revenues from other profitable maritime operations were reportedly used to sustain the financially struggling project and prevent the liabilities from becoming an even greater burden on the state.
The most serious revelation emerged during a wider government auditing process. Investigators found that Rs.179.55 billion in Hambantota-related loan liabilities had been removed from the financial statements of the Sri Lanka Ports Authority (SLPA).
The removal reportedly occurred without the concurrence of the General Treasury and without Cabinet approval. Consequently, the liability occupied an extraordinary institutional limbo: it had disappeared from the SLPA’s books, while the Treasury had not formally incorporated it into its own accounts.
The accounting problem was compounded by another major adjustment. A Rs.31.54 billion foreign-exchange conversion loss associated with the Chinese credit facilities was also removed from the accounts. This meant that the financial position presented in official records did not fully reflect the economic burden created by the project.
Parliamentary oversight subsequently exposed serious weaknesses in coordination between government institutions. A July 2017 Cabinet memorandum had envisaged the Treasury taking responsibility for servicing the Hambantota loans. Hitherto the intended transfer of responsibility apparently did not translate into corresponding accounting action.
Another crucial issue involved the US$1.12 billion received from the 99-year lease of the port to China Merchants Port Holdings. Instead of being used to retire the underlying construction debt, the proceeds were reportedly absorbed into general government expenditure. The original liabilities therefore remained a burden while simultaneously becoming difficult to identify through the SLPA’s accounts.
The implications extended beyond Hambantota itself. Once previously unrecognised liabilities were brought into focus, questions arose over the accuracy of Sri Lanka’s public-debt statistics, fiscal projections and debt-sustainability calculations.
The episode demonstrates that sovereign debt is not merely a question of how much a country borrows. Where liabilities are recorded, who assumes responsibility for them, and whether Parliament and the public receive an accurate picture are equally critical.
For Sri Lankan taxpayers, the Hambantota controversy therefore represents more than a failed infrastructure investment. It raises a fundamental question: How could a liability worth hundreds of billions of rupees move between institutions or disappear from one institution without a transparent, legally accountable accounting trail?