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Sri Lanka wants to undo deal to lease port to China for 99 years

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Sri Lanka’s new government led by President Gotabaya Rajapaksa wants to undo the previous regime’s move to lease the southern port of Hambantota to a Chinese venture, citing national interest.

Former Prime Minister Ranil Wickremesinghe in 2017 changed the terms, saying it would be difficult to pay the loans taken to build the project. He agreed to lease the port for 99 years to a venture led by China Merchants Port Holdings Co. in return for $1.1 billion. That helped ease the Chinese part of the debt burden raised to build the port, Wickremesinghe said in an interview in 2018.

“We would like them to give it back,” Ajith Nivard Cabraal, a former central bank governor and an economic adviser to Prime Minister Mahinda Rajapaksa, said in an interview at his home in a Colombo suburb. “The ideal situation would be to go back to status quo. We pay back the loan in due course in the way that we had originally agreed without any disturbance at all.”

The port is emblematic of the controversy dogging Chinese President Xi Jinping’s Belt and Road initiative from Kenya to Myanmar, including accusations that the world’s second-largest economy is luring poor countries into debt traps. In Sri Lanka, where the transaction to lease the port was opposed by Rajapaksa’s party, Mahinda took Chinese loans during his 10-year rule as president to build the project in his home district.

“This is a sovereign agreement” and it’s unlikely that it will be scrapped or altered in a big way, said Smruti Pattanaik, a research fellow at the Institute for Defence Studies and Analyses in New Delhi. “The Chinese may reconsider some clause, if it is considered crucial for the Rajapaksa regime.”

An attempt to rework the transaction will help the new Sri Lankan government, led by Gotabaya and his brother Mahinda, showcase their drive to change contracts seen as hurting national security, a key campaign platform for Gotabaya, a former defense secretary.

“China-Sri Lanka cooperation, including the Hambantota port project, are built on the basis of equality and consultation,” China’s Foreign Ministry said in a faxed statement from its spokesperson’s office. “China looks forward to working with Sri Lanka to make Hambantota a new shipping hub in the Indian Ocean and developing the local economy.”

China’s infrastructure-building in Sri Lanka became part of Beijing’s Belt and Road Initiative, prompting concern in India about its geopolitical rival using a port close to its southern coastline for future military or strategic uses. Gotabaya is in India on Friday for his first state visit overseas.

China has dismissed worries over any military dimension to its investment in the Hambantota port, which lies on the main shipping routes between Asia and Europe, and said it was mutually beneficial that would aid Sri Lanka’s economy.

“Sri Lanka will have to offer it something equally, if not more, attractive in financial terms for Beijing to agree to the cancellation of the lease agreement,” said Brahma Chellaney, a professor of strategic studies at the Center for Policy Research in New Delhi. “With the Rajapaksa family back in power, China hopes to expand its footprint in Sri Lanka.”

A similar port deal under the Belt and Road program in Myanmar was drastically scaled to $1.3 billion from $7.5 billion, while in Malaysia the government canceled $3 billion worth of pipelines and renegotiated a rail project in 2019, cutting that one’s cost by a third to $11 billion.

“Bilateral agreements once you’ve signed those, are serious agreements,” Cabraal said in his house adorned with pictures of local and foreign leaders. “At the same time, we’ve got to look after the national interests. And if one government had bartered it away, there is a necessity for the new government to find ways and means by which it can be done amicably.”

For its part, China Merchants, whose $93 billion of revenue dwarfs Sri Lanka’s gross domestic product, has been able to use its experience stretching from China to Europe to help kick start the Hambantota port, which once hardly attracted any ships.

China Merchants’ Hambantota joint venture also last month said it had entered into an agreement with Japanese shipping conglomerate Nippon Yusen KK, for vehicle transshipment through the port.

New Ports Minister Johnston Fernando wasn’t immediately available for comment.

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Business

Vodafone v/s India: Indian govt may have to pay Rs 85 crore if it decides not to appeal

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The Indian government may have to pay a total of Rs 85 crore, if it decides not to appeal against Friday’s ruling of the Permanent Court of Arbitration (PCA) in the Rs 22,100 crore retrospective tax dispute with Vodafone Group. The arbitration tribunal on Friday delivered its verdict in favour of Vodafone against Indian government’s retrospective tax demand of capital gains tax.

As per an IANS report on Saturday, Finance Ministry sources said that the court has asked the Indian government to pay only 4.3 million pounds, or about Rs 40 crore, which is 60 per cent of the tribunal’s administrative cost while the rest 40 per cent would be borne by Vodafone. Also, the government may have to refund the tax collected, which is about Rs 45 crore, only if it does not go for appeal against the award.

Therefore, the total outgo would be around Rs 85 crore only.

The Finance Ministry, in a statement, said that the government will make a decision on the further course of action, including legal remedies, among other options including legal remedies before appropriate fora.

The statement issued by the ministry read as: “The Finance Ministry has just been informed that the award in the arbitration case invoked by Vodafone International Holding BV against Government of India has been passed. The Government will be studying the award and all its aspects carefully in consultation with our counsel”.

Vodafone had moved the International Court of Justice (ICJ) in 2016 due to a lack of consensus between the parties’ arbitrators in finalising a judge for a tax dispute. Following this, a tribunal was constituted in June 2016 after Vodafone challenged India’s use of a 2012 legislation that gave it powers to retrospectively tax deals like Vodafone’s $11 billion acquisition of 67 per cent stake in Hutchison Whampoa in 2007.

The retrospective tax law had been enacted after a Supreme Court judgement went in Vodafone’s favour.

Vodafone had challenged the tax department’s demand of Rs 7,990 crore as capital gains tax (Rs 22,100 crore after including interest and penalty) under the Netherlands-India Bilateral Investment Treaty (BIT). In 2007, the Income Tax Department had slapped a demand notice seeking capital gains tax.

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Diesel rates marginally lowered in metropolitan cities for fifth day in a row, petrol unchanged

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Diesel prices continued to fall on Monday, making it fifth day in a row, even though globally crude prices remained steady. In the national capital diesel was priced at Rs 71.43 per litre, down from Rs 71.58 on Sunday.

Similar trend was witnessed in other major metropolitan cities. In Mumbai, diesel was being sold at Rs 77.87 on Monday, against the previous levels of Rs 78.02.

In Chennai and Kolkata diesel rates was at Rs 76.85 and Rs 74.94 on Monday, respectively.

Previously, diesel was priced at Rs 76.99 in Chennai and Rs 75.09 per litre in Kolkata.

In September, diesel rates have been dropped by Rs 2.13 per litre in Delhi this month while petrol price fall has been relatively slower at Rs 0.94 per litre in September.

The recent fall in prices comes in the wake of softening of global oil prices as an extended run of Covid-19 has depressed demand and created a glut in the market.

Prices of petrol, however, remained unchanged for the third straight day at Rs 81.14, Rs 87.82, Rs 84.21 and Rs 82.67 per litre across Delhi, Mumbai, Chennai and Kolkata, respectively.

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Vodafone Idea Board rummaging through all proposals to raise funds; meeting scheduled for September 4

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The Board of Directors of Vodafone Idea Ltd (VIL) are going to hold a meeting on Friday (September 4) to consider and evaluate all proposals for raising funds in one or more tranches by way of a public issue, preferential allotment or private placement among other options.

The announcement comes a day after the Supreme Court on Tuesday delivered its verdict on the staggering payment of Adjusted Gross Revenue (AGR) due issue. The apex court gave a 10-year timeline to the telcos to repay their dues, with an upfront payment of 10 per cent by March 31, 2021.

The company in a regulatory filing, said, “the Board of Directors of the Company is scheduled to be held on September 4, 2020, inter-alia, to consider and evaluate any and all proposals for raising of funds in one or more tranches by way of a public issue, preferential allotment, private placement, including a qualified institutions placement or through any other permissible mode and/or combination thereof as may be considered appropriate, by way of issue of equity shares or by way of issue of any instruments or securities including securities convertible into equity shares, Global Depository Receipts, American Depository Receipts or bonds including foreign currency convertible bonds, convertible debentures, warrants, and/or non-convertible debentures including non-convertible debentures along with warrants, which may or may not be listed.”

“A meeting of the Board of Directors of the Company is scheduled to be held on September 4, 2020, inter-alia, to consider and evaluate any and all proposals for raising of funds,” the company said in a regulatory filing late Tuesday.

As per government’s assessment, Vodafone Idea owed a total of Rs 58,254 crore to the Department of Telecommunications, (DoT). As per the government, the operator now owes balance AGR dues of around Rs 50,399 crore.

On Wednesday, shares of Vodafone Idea rose after plunging in the previous session weighed down by the Supreme Court verdict. Around 11 a.m., its shares on the BSE were trading at Rs 9.61, higher by 8.10 per cent from its previous close.

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