India to Build 'Hybrid' Power Plants Off Sri Lanka’s Northern Coast After Chinese Firm's Expulsion

China's growing economic ties with Sri Lanka under the Belt and Road Initiative (BRI) has caused concerns in New Delhi, traditionally Colombo's biggest trading partner. A state-backed Chinese company acquired the strategically-located Hambantota Port on a 99-year lease in 2017, besides building a container terminal in Colombo.

India and Sri Lanka have signed a memorandum of understanding (MoU) to build “hybrid power projects” on three islands off Sri Lanka’s northern coast, as per an official statement by the two governments.

The signing of the MoU was witnessed by Indian Foreign Minister S. Jaishankar and his Sri Lankan counterpart G.L. Peiris, a release by the Sri Lankan Foreign Ministry said on Tuesday.

The three islands—Delft, Analativu, Nainativu—where the power projects are slated to be erected are located in the Palk Strait, which lies between Sri Lanka and India.

Originally, a joint venture led by Chinese renewable energy firm Sinosoar was awarded the contract to develop the power plants by Colombo in January last year.

However, the Chinese Embassy in Sri Lanka disclosed in a tweet on 1 December that the pact was “suspended” due to “security concerns” expressed by a “third party”.

India has so far not refrained from commenting officially on the earlier agreement, but several media reports cited unnamed Indian officials as saying that New Delhi had expressed concerns over the location of the project, as the three islands are located less than 100 kilometres from the Indian state of Tamil Nadu.

In February this year, Sinosoar-Etechwin issued a statement alleging that the final award letter from the government had been delayed due to “interference from outside”.

“The consortium learned from the media that a third party protested against the decision of the Sri Lankan Cabinet on the ground of so-called 'self-security', and concocted a series of false information inconsistent with the facts, which seriously affected the consortium’s reputation and legitimate rights”, it also said.

Originally, the project was slated to be funded through a loan from the Asian Development Bank (ADB).

Jaishankar is on a three-day visit to Sri Lanka, which kicked off on Monday.

Overall, seven more MoUs were signed between the two governments, including in the fields of education, culture, security, power, fisheries, and technology.

On the first day of his trip, India's top diplomat held consultations with Sri Lankan President Gotabaya Rajapaksa, Prime Minister Mahinda Rajapaksa, Finance Minister Basil Rajapaksa, and Foreign Minister G.L. Peiris.

Besides holding bilateral engagements with Sri Lankan government delegates, Jaishankar is also attending the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) foreign ministers’ meeting in Colombo.

BIMSTEC is a seven-nation grouping geared towards enhancing trade, connectivity, and security cooperation among its members, which include India, Myanmar, Sri Lanka, Thailand, Nepal, Bhutan, and Bangladesh.

India Announces Additional $1 Billion Credit Line For Sri Lanka

The Indian foreign minister also announced a $1 billion credit line to Sri Lanka to deal with the ongoing economic crisis, which has been blamed on factors such as inflation, shortage of foreign reserves to pay for imports, as well as the effects of the COVID pandemic.

Sri Lanka is facing a forex crisis, with foreign currency stocks dropping by about 70 percent owing to revenues from tourism, one of the mainstays of the economy, drying up. The island nation has been facing a shortage of fuel, cooking gas, medicines, and food items.

India has so far provided $2.5 billion in economic assistance to Sri Lanka to help it tide over the crisis, while Colombo also requested a debt restructuring package from Beijing in December last year.