President’s Journey 4
Special supplement to mark four years of Rajapaksa Presidency                       HOME

Rajapaksa economic policy

It is not at all easy to face war at two fronts. During the World War II, the then Russian Communist leader, Joseph Stalin had to vex his mind to find out means and ways as to how to face war at two fronts; the invading Germans from the Western front and the probable Japanese intrusion from the Eastern front.

In the same way, Sri Lankan President Mahinda Rajapaksa had to face war at two fronts. At one front he had to face the most ruthless terrorist organisation in the world and on the other, he was burdened by a lagging economy which desperately needed investment and capital.

It is evident that Sri Lankan economy has reached new heights during the last four years under the Presidency of Mahinda Rajapaksa. His economic policy was simple yet, addressed the key issues the country’s economy suffered probably since independence.

Putting President Rajapksa’s economic policy in a nutshell, he always believed that the State has a key role to play in managing the economy and he did not believe in unregulated markets. He was also not fond of privatisation because ideologically he was against it. Further, he recognised infrastructure as a critical pre-requisite for development, which the previous leaders recognised but failed to act on because of the political risk.

With the adaptation of this new economic approach, Sri Lanka’s foreign policy also subjected to radical changes. President Mahinda Rajapaksa was able to cultivate striking relationships with those who can be termed non-conventional donors, to obtain long-term foreign aid when the conventional donors were reluctant to support Sri Lanka on arbitrary grounds.

His insightful thinking made Sri Lanka to land among the next world powers. President Rajapaksa’s regime clearly saw that the world power is shifting from the West to East and strengthened the country’s relationships with the countries such as China, India, Vietnam, Iran and Libya. These nations supported and backed Sri Lanka in its war effort against the world’s most brutal terrorist organisation and are now extending their support to the country’s economy, which never had the chance to explore its full potential due to the 30 years long war.

President Mahinda Rajapaksa was also able to overcome the pressure exerted by some Western powers over Sri Lanka’s attempt to obtain an International Monetary Fund (IMF) standby facility to support its foreign reserve situation. Sri Lanka thwarted the attempt by these countries to use IMF package as a political tool to influence political decisions of Mahinda Rajapaksa regime, and was able to secure US$ 2.6 billion standby facility from the IMF. Sri Lanka received the first tranche of US$ 322 million of this facility in July and was awarded the second tranche, of the same value, last week.

At the backdrop of IMF standby facility, Sri Lanka was also able to issue US$ 500 million worth Sovereign Bonds, which was highly attractive to foreign fund managers and companies. The issue was over subscribed in no time.
These factors helped the country to boost its foreign reserve situation to more than US$ 5 billion and loosen Central Bank’s tight monetary stance, to give the public the benefits of the end of the war.

Further, as a result of the improving economic environment and low inflationary expectations, the Central Bank was able to cut the basis rate by more than 600 points and bring the lending interest rates down. On the other hand, the government recently took the decision to reduce the prices of essential goods and provide public sector employment to another 17,000 graduates.

Chinese support According to official data, Chinese aid to Sri Lanka has grown fivefold in the last year to nearly US$ 1 billion, eclipsing Sri Lanka’s long-time biggest donor, Japan. The Chinese are building a highway, developing two power plants and putting up a new port in the hometown of the President of Sri Lanka, Mahinda Rajapaksa.
And also during the war with the LTTE, Chinese help was imperative in securing the much needed weaponry.

Indian aid
During the Presidency of Mahinda Rajapaksa, India’s contributions had also grown, to nearly US$ 500 million this year. India is building a coal-fired power plant and Indian companies have been invited to build technology parks and invest in the telecommunications sector.
At one instance, Indian Premier Manmohan Singh publicly said that if IMF decides not to support Sri Lanka, India would go ahead supporting Sri Lanka to overcome the then Balance of Payment crisis.
Even though India shut the tap on direct military support due to internal political pressure, it helped with crucial intelligence during the time of war, particularly in intercepting weapons smuggled by sea.

Iranian relationship
Iran was the latest entrant to support President Mahinda Rajapaksa. Late last year came the promise of a whopping US$ 1.6 billion line of credit, primarily to help Sri Lanka buy Iranian oil.
In April 2008, Iran began work in several infrastructure development projects: Sapugaskanda refinery, as well as creating a 100-megawatt hydropower project and irrigation plan in Uma Oya. In addition, Iran agreed to provide low-interest credit to Sri Lanka that will help the island nation purchase Pakistani and Chinese military equipment. In June 2009, Sri Lanka signed a US$ 106 million agreement with an Iranian firm to provide electricity to roughly 1,000 villages in Sri Lanka.

Libyan support
Following President Mahinda Rajapaksa’s successful State visit to Libya from April 8-10, 2009, the Libyan Government will give US$ 500 million as a financial co-operation package for development projects in Sri Lanka. The Libyan Government will also assist in granting development assistance for the Udamattala Airport, infrastructure development projects in the North and Eastern Provinces, development of highways, communications and tourism.

Libya also expressed interest in looking at investment opportunities in Sri Lanka. President Rajapaksa spoke of areas such as highways, housing, oil exploration, the hotel industry, development of ports and airports etc. as possible areas for investment. The Libyan side requested Sri Lanka to submit a list of viable economic projects that are already in the pipeline for their consideration.

Development and infrastructure projects

Hambantota Port
The new Hambantota Port, which was shelved down three times and delayed for the last six decades following independence, finally g
ot its green light, due to the unwavering leadership and sheer dedication of President Mahinda Rajapaksa and will see the completion of the first stage of the project by mid 2010.
The st
ate-of-the-art port is built inland, in Karagan Levaya Lagoon and under its first stage, two small breakwaters and two cargo terminals, one for containers and the other for oil and gas, costing nearly Rs. 360 billion would be constructed. Hambantota is in close proximity to one of world’s busiest SLOC (Shipping Lane of Communication) – being just six nautical miles from the main East-West trade route across the Indian Ocean, which sees nearly 100, 000 vessels pass by each year.
The port could be considered as South Asian gateway to Europe, Far East, the Middle East, Africa, Australia and the Pacific Rim countries. These geographical advantages are some of the main reasons for Hambantota to develop into a major transshipment centre and gateway for other countries in the region.

Galle Port
Galle Port is to be developed, earmarked as a regional port to expand the current capacity to meet future demands with a new breakwater, harbour basin with a deeper draft and multi-purpose terminal to handle bigger vessels. The Galle Port Development Project is estimated to cost Rs. 17 bn, with Rs. 13.5 being funded through a Japanese Government grant. The Port’s construction work commenced in December 2008 and is scheduled to be completed by mid 2012. The development of Galle Port is aimed at realising cost-effective transportation means for the Southern area in a competitive market economy.

Colombo Port
The Colombo Port Expansion Project-CPEP, (formerly Colombo South Port Extension) project involves building a terminal with three berths that could handle around 2.4 million Twenty-foot Equivalent Units (TEUs) at an estimated cost of around or over Rs. 50 billion.
The proposed Colombo South Harbour will be located West of the present South-West Breakwater in an area of approximately 600 hectares and will have four terminals of over 1,200m in length each to accommodate three berths alongside depths of 18m and provision to deepen to 23m to accommodate deeper draft vessels of the future.

Oluvil Port
The constructions of Pluvil Port Development Project was inaugurated with the initiative of President Mahinda Rajapaksa in Oluvil, under the Negenahira Nawodaya (Eastern Resurgence) launched for the expedited development of the Eastern region of the country. SLPA and the Denmark contractors MT Hojgaard signed the Memorandum of Understanding (MOU) for the construction of Oluvil Port Project on March 13, 2008. The Denmark Government provides financial assistance for the Oluvil Port Project, which would cost nearly Rs. 4.61 bn and is scheduled to be completed within 27 months.

Aviation
Vision of the Government of Sri Lanka is to enhance the economy of least developed regions of the island. Hambantota and Moneragala Districts are identified as potential region and Greater Hambantota development programme was designed to uplift economic activities of the region. The concept of a second international airport for Sri Lanka originated in 1938. The government’s manifesto contained in the Mahinda Chinthanaya emphasises the establishment of a second international airport in Sri Lanka.

Bandaranaike International Airport – BIA
Bandaranaike International Airport is the hub of SriLankan Airlines, the national carrier of Sri Lanka and Mihin Lanka, the budget airline of Sri Lanka, is the only international airport in the country.
The present runway shoulders and taxiway is to be widened to meet the wingspan of new large aircraft. Under the re-surfacing, the existing runway is expected to be overlaid at a cost of Rs. 3 bn.

Hambantota International Airport – HIA
The Hambantota International Airport Project will be declared open on November 27, by President Mahinda Rajapaksa.

The proposed international airport at Udamaththala, whilst serving as an alternate aerodrome to the BIA, would bring more business ventures to the region. This will reduce unnecessary congestion to Colombo and suburbs. Tourism and hospitality industry would be flourished with the integrated development of port and airport in the Southern region. Considering the economic development of the southern region, it was forecasted that over 500,000 passengers would use this airport in the year 2028 i.e. after 15 years of its operation. Forecasted cargo volume is 50,000 Metric tonnes and air traffic volume is 6,250 operations per annum. Duel lane ground access system will be available from Hambantota, Embilipitiya, and Thanamalwila to the proposed airport.

Norochcholai Coal Power Plant
The Stage One of Sri Lanka’s first ever Coal Power Project – 900 MW Norochcholai Plant will be completed soon and will be commissioned mid 2010, while civil works for Stages Two and Three commenced simultaneously.

Under Stage One, which cost Rs. 45.5 bn, 300 MW will be added to the National Grid, while Stages Two and Three, with a capacity of 600 MW, is estimated to cost Rs. 89.1 bn. The total project costing is Rs. 134.6 bn and will be completed by 2011.

The power project is built by China National Machinery and Equipment Import and Export Corporation (CMEC) on a Design, Build and Transfer (DBT) basis while the jetty for unloading of coal is built by China Harbour Engineering Company (CHEC). In June, Sri Lanka received a soft loan of US$ 891 million from China’s Exim Bank and signed a commercial agreement for the Second and Third Stages of the power project.

Sampur Coal Power Plant
Sri Lanka Government is to finalise with its Indian counterpart, the much-protracted deal for the construction of the Sampur Coal Power Plant and the High Voltage Direct Current (HVDC) undersea cable link to Anuradhapura.
The 1,000 MW Sampur Power Plant was expected to commence work as early as June 2008. Under its first stage, 500MW will be supplied to the National Grid by 2012. A total of 700 acres of land in the Sampur High Security Zone (HSZ) has been earmarked for the project and the construction is to be carried out by the National Thermal Power Corporation (NPTC) under the supervision of Ceylon Electricity Board (CEB).
Anuradhapura to India HVDC transmission line, which is linked to the Sampur agreements, will also be finalised during this meeting. India wants this to be implemented as soon as possible, since it is interested in purchasing power from Sri Lanka.

Uma Oya
The Uma Oya mega irrigation scheme which would supply 100 MW to the National Grid, is estimated at Rs. 59 bn and is scheduled to be completed by 2014.
The Government ceremonially launched the construction work of this project on April 28, 2008. Of the total estimated cost of the project, Rs. 45 bn will be obtained from Export Development Bank of Iran (EDBI) as a loan while the balance Rs. 14 bn will be granted by the Sri Lankan Government.

Upper Kothmale
The Upper Kotmale Hydropower project launched in 2006, is estimated to cost Rs. 95 bn and construction is due to be completed by 2011. It is funded by the Japanese Government on an Overseas Development Assistance loan, which is channelled through Japanese Bank for International Cooperation (JBIC).
This Hydro Power Project is being implemented by the Ceylon Electricity Board and it is a run-of-river hydro power project with an installed capacity of 150MW. Once the project is completed it will produce 409GWh per year.

Kerawalapitiya Combined Cycle Power Plant
Kerawalapitiya “Yugadhanavi” power plant is the largest power plant ever built by Sri Lankan engineers. The project is implemented by West Coast Power Company, which is a subsidiary of the CEB and with this power plant the government has ensured an uninterrupted power supply to the nation.

Kerawalapitiya LNG plant
The Kerawalapitiya plant, which is Sri Lanka’s first LNG power plant, is also the largest power plant ever to be built in the country. Under phase one a generation capacity of 500 MW will be added to the national grid by 2011, while the remaining 500 MW would be added to the grid by 2012 under phase two.
The US$ 600mn project was a Foreign Direct Investment (FDI) and would be built in a record time period of 18 months.

Infrastructure development
During the short four-year reign of President Mahinda Rajapaksa, the development of the island’s economic and social infrastructure was expedited to a level that the country never witnessed during the time of previous leaders. According to the Mahinda Chinthanaya, the development of road and electricity infrastructure were also not confined to particular regions, but covered the entire provinces of the country. Accordingly, a number of new and large infrastructure projects such as ports and airports, roads and flyovers, power projects, water projects, economic zones, hotels and apartment developments, hospital and schools etc are nearing completion.
Among some of the expressways and highway projects that are in the pipeline for the development of a high mobility network are, the Colombo-Katunayake Expressway (25km), Southern Highway (130km), Outer Circular Highway (28km), Colombo-Kandy Highway (98km) and Katunayake-Padeniya-Anuradhapura Highway (153.3km).

Colombo-Katunayake Expressway
The Colombo Katunayake Expressway (CKE) is the first of many expressway projects the Government of Sri Lanka is in the process of implementing in order to strengthen and expand the country’s road network with a view to fostering a greater economic development in Sri Lanka. The CKE will be the first fee levying road project in the country.

Southern Expressway
This is the longest Expressway out of the proposed Expressway Network. This is run from Kottawa to Matara, and it will also include Galle Fort access road. Asian Development Bank (ADB) and Japan Bank International Cooperation (JBIC) are the main funding agencies for this project.

Colombo-Kandy Highway
This is an alternative Highway between Colombo and Kandy. This is connected to the Outer Circular Highway at Kadawatha and will run up to Katugastota. Currently feasibility studies are going on.

Flyovers
Under President Rajapaksa’s reign, the government has planned to complete the construction of 20 flyovers within four years by building five flyovers each year. The Government has since constructed seven new flyovers in Colombo and suburbs alone, with the aim to ease the huge traffic congestion.

Kelaniya Flyover
Kelaniya Flyover is located on the Colombo-Kandy Road and it has been built across the Peliyagoda Railway Crossing. The phase I and phase II of the project was completed in record time of 136 days.

Nugegoda Flyover
Construction of a flyover on the High Level Road near Bo-Tree Junction at Nugegoda commenced on October 7, 2008 and opened on January 23, 2009. The Nugegoda Flyover currently has two lanes and is 261 metres long and 8.5 metres wide. It is expected to be expanded to four lanes. The cost of the British Government funded project is Rs. 878 million.

Dehiwala Flyover
Dehiwala Flyover construction on Galle Road was commenced on July 7 and opened to the public on October 21, 2009. The purpose of construction of this 337-metre flyover was to eliminate the traffic delay in Galle Road (AA002) at the Dehiwala Junction.
More flyovers have been planned to build in Kohuwala, Boralesgamuwa, Armour Street, the Hilton Roundabout, the Lipton Circus, Maradana, Kirulapone and Slave Island as well as in Mahawa, Polgahawela, Ja-Ela and Veyangoda.

Bridges
Sri Lanka’s longest bridge, the Kinniya Bridge and Irakkandi bride were commissioned to the public by President Mahinda Rajapaksa on October 20, 2009.

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