India Build Power Plant in Sri Lanka

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INDIA, New Delhi  Monday signed an agreement to build a large power project in Sri Lanka, a move that reflects New Delhi's eagerness to counter China's growing influence in the region. India, a traditional political and economic ally of its southern neighbor, is worried about increasing Chinese investment in the island nation and this is prompting India expand its economic cooperation with Sri Lanka, according to foreign-policy experts. Under the deal, state-run Indian power producer NTPC Ltd. 532555.BY -0.25% and Sri Lanka's Ceylon Electricity Board would jointly build the 500-megawatt coal-powered plant with an investment of at least $500 million.

All the agreements, including on the purchase of power and supply of coal, have been signed, said Economic and Commercial Counselor Manish of the Indian High Commission in Colombo. The agreements were signed in the presence of India's foreign minister, Salman Khurshid, and his Sri Lankan counterpart G.L. Peiris, said Mr. Manish, who uses only one name. The proposal to build the plant had been made in 2006. But the project had been hit by disputes over several issues, including power-purchase pacts.

All the issues have now been settled, Mr. Manish said. The move to revive the project signals "awakening within the India government" of the inroads China has made in its neighborhood, Bharat Karnad of New Delhi think tank Centre for Policy Research said.  China has been working on strengthening its economic and political ties with Sri Lanka ever since it supported Colombo in its operations against Tamil guerrilla forces. China is present in Sri Lanka's infrastructure space and has built port and power projects and is looking to tap more opportunities. Bilateral trade between China and Sri Lanka totaled 2.6 billion in 2012, according to data on the website of Sri Lanka's Department of Commerce. Of this, Sri Lanka's exports to China accounted for $108 million. India's trade with Sir Lanka totaled $4.6 billion. This included $625 million of exports from Sri Lanka.

According to media reports, Sri Lanka and China are set to sign a free-trade agreement, which could further boost businesses between the countries. India is uncomfortable with the growing military and trade influence of China, with which it has long- standing border disputes. An official at India's High Commission at Colombo, however, said the deal over the power project wasn't in response "to any media-perceived threat to India from China," but was a step forward in New Delhi and Colombo's economic partnership. Sri Lanka's external affairs ministry didn't immediately respond to an email seeking comment. Monday's deal for the project gets traction also as a power project built in 2011 by a Chinese company in northwestern Sri Lanka broke down last year, leading to blackouts in the country and causing local anguish over the quality and standard of Chinese power equipment.

Meanwhile, another foreign-policy expert said China's increasing ties with Sri Lanka won't pose any immediate threat to India's interests. "The geographic proximity is a reality and Sri Lanka just can't ignore India," said Srikanth Kondapalli, a professor at New Delhi's Jawaharlal Nehru University. Monday's agreement with Sir Lanka follows another deal under which India began supplying electricity to Bangladesh starting this weekend.