Sri Lanka would be exposed to the risk of claims from the firm managing a suspended Chinese-backed real estate project if the government fails to obtain approvals needed by the project within 60 days, a government document showed on Thursday.

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.

In a cabinet paper requesting a six-month extension for the project, Ports Minister Arjuna Ranatunga said the attorney general had brought to his attention that the obligation to obtain the required approvals “for the reclamation works rests with the government”.

Ranatunga’s cabinet paper comes after CHEC Port City Colombo (Pvt) Ltd, the local company handling the project, proposed two alternative clauses to its original agreement signed last year that would allow the project to be extended by six months.

In the paper, Ranatunga said “if such required approvals cannot be obtained within a period of sixty days as required ... by the project company, the government would be exposed the risk of receiving claims from the project company for losses suffered by the project company as a result of not being able to commence the reclamation work”.

Last month Finance Minister Ravi Karunanayake said Sri Lanka is offering a compromise that could allow the port city project to restart, and renegotiating the deal.

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.

India has raised concern over 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.

Government officials have said they may not allow the land purchase, which was agreed by China-friendly former president Mahinda Rajapaksa.

China Communications Construction Co Ltd (CCCC) (601800.SS), which funds the port city project, estimated when it was suspended in March that the shutdown would result in losses of more than $380,000 a day.

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.

Source: Reuters