Japanese government is in second thoughts of granting financial assistance for Sri Lanka as it is terribly hurt by the government’s cancellation of Light RailRail Transit (LRT) project funded by JICA on the directions of the President in 2020, reliable official sources revealed.
The Finance Ministry is holding discussions with donor countries in its efforts towards foreign finance mobilisation by entering into agreements this year.
The majority of the foreign exchange disbursements of donor countries and international funding agencies were from the loan agreements signed with China, which is almost 60 percent, followed by World Bank (16 percent), Asian Development Bank (13 percent) and Japan (5 percent) during the year of 2021.
The cash strapped government has sought more funding from Japan this year as it is burdened with foreign debt unbearably, official sources said.
According to Finance Ministry data, Japanese financial assistance to Sri Lanka has come down drastically by 94 percent in 2020 compared to 2019, a senior official said adding that this significant drop in funding from Japan was a reflection of the government’a action to cancel the LRT project in 2020.
Japan has reduced its credit to Sri Lanka to Yen 1.4 bilion (US$ 12.04 million in 2020 from Yen 42.7 billion ( $ 367.22 million)in 2019 but it has increased to US $74.9 million in 2021.
President Gotabaya Rajapaksa has directed Sri Lanka’s Ministry of Transport to terminate a Japan International Cooperation Agency (JICA)-funded light railway transit (LRT) project with immediate effect in September 2020.
In March 2019, the Sri Lankan Government signed an agreement with JICA for a loan of 30 billion Yen (US$ 285mn at prevailing rates) to meet part of the cost of the Colombo LRT.
The total project cost was estimated to be 246,641 billion yen (US$ 2.3 billion) but this includes land acquisition, administration, interest and taxes which are not financed by the loan.
The consultants started work in early 2019. Their seven-year contract was signed with the Ministry of Megapolis and covers detailed design and related engineering services, procurement assistance, construction supervision, testing and commissioning as well as defect liability check
The Government has not yet settled a claim of around Rs 5bn from the project consultants for the Japan International Cooperation Agency-funded Light Rail Transit (LRT) for work already done, expenses and loss of profit caused by the cancellation of the project in 2020.
The consultants are a joint venture between Oriental Consultants Global of Japan and Sri Lanka’s Consulting Engineers & Architects Associated. The payments must either be made by a Government institution or through the JICA loan which remains active despite the project cancellation.
Any disbursements already made by JICA will have to be settled, despite the project being called off.For the first two years, the focus was to work out the detailed design and procurement.
The consultants have not been paid since mid-2020 despite sending the bills to the UDA. A negotiating committee appointed to deal with them has gone back and forth.
JICA was issued a letter saying the project was cancelled owing to a change of priorities with no mention of it being too costly.
And while the Government said it would implement the LRT as a public-private partnership (PPP)–there are three other LRT lines they can use this model for–there’s been little movement on this front since JICA funding was called off.