By Shihar Aneez

Sri Lanka is offering a compromise that could allow a major Chinese-backed real estate project to restart after months of delays, Finance Minister Ravi Karunanayake told Reuters on Monday.

The minister's comments come a week before a parliamentary election in which the ruling party has an edge over an opposition led by Mahinda Rajapaksa. The China-friendly ex-president, who was ousted in January, is attempting a comeback.

The $1.4 billion Colombo port city project was suspended by President Maithripala Sirisena's new government in March because it was found not to have the proper permits and approvals.

The project, emblematic of China's strategy of developing a maritime Silk Road from Asia to Europe, has alarmed Sri Lanka's larger neighbour India which sees it as a threat in its backyard and has been sympathetic to Sirisena's reformist rule.

One stumbling block has been the planned acquisition by Chinese developers of 20 hectares of freehold land for the waterfront project, which lies a stone's throw from the business district of Sri Lanka's largest city.

Karunanayake said the government was in the process of renegotiating the deal that would, if it wins the election, "help bring in a final understanding that will help bring a win-win situation".

"Freehold will certainly be changed into a mutually holding type of a situation, so that there is no person that will control land in another country," he said. "You don't need to have a company holding national lands for perpetuity."

Since coming to power at the start of the year, the Sirisena administration has suspended most foreign-backed infrastructure projects that, it says, were overpriced and financed on onerous terms harmful to Sri Lanka's national interests.

Work on two Chinese-funded highway projects has started recently without major changes, a signal that Sirisena's government would if re-elected seek to revive other schemes as long as a compromise can be reached on cost.

The port city project is funded by China Communications Construction Co Ltd (CCCC) and locally handled by CHEC Port City Colombo (Pvt) Ltd.

The project to build apartments, shopping malls, a water sports area, a golf course, hotels and marinas is now a fenced-off tract of boulders dumped by what used to be a sandy beach. When work was suspended, CCCC estimated the shutdown would cause losses of more than $380,000 a day.

The project would give the Chinese company 108 hectares of land in the form of payment, 20 hectares of it outright and the rest on a 99-year lease.

Reuters