#SriLankaCrisis: Japan's Taisei seeks halt to airport expansion

Nikkei; Japanese engineering group Taisei will enter negotiations on a possible stoppage of an airport expansion in Sri Lanka after funding for the project was cut off, another sign of the country's deepening economic crisis.

Taisei in 2020 won a 62 billion yen ($464 million at current rates) contract to build a new multilevel terminal and viaduct at Bandaranaike International Airport near Colombo, Sri Lanka's largest city. It had expected to complete construction around 2023.

But the Japan International Cooperation Agency recently suspended over 70 billion yen of lending to Airport and Aviation Services (Sri Lanka), the state airport operator, which would have paid for the project.

Taisei will start talks with Airport and Aviation Services to suspend the project, and could request a release from its contract as early as the fall if the funding situation and other factors do not improve.

Sri Lanka's tourism industry was ravaged by the coronavirus pandemic, which in turn squeezed its foreign-exchange reserves. Combined with years of current-account deficits, the Sri Lankan Finance Ministry in April announced that it would stop foreign debt repayments until it can chart a path out of the crisis.

A Sri Lankan cabinet member had recently announced a halt in multiple JICA-funded projects, local media reported.

Former President Gotabaya Rajapaksa, whose family has been a dominant political dynasty in Sri Lanka for decades, fled the country in July amid protests over inflation and other economic difficulties. New President Ranil Wickremesinghe aims to restart bailout talks with the International Monetary Fund and seek aid from other international partners.

The Sri Lankan airport project is believed to account for tens of billions of yen of Taisei's 221.5 billion yen nonconsolidated overseas balance carried forward, a measure of the scale of outstanding projects, as of the end of March.

"We decline to comment on the progress of individual projects," a Taisei spokesperson told Nikkei.

A JICA spokesperson said the agency "cannot provide information regarding our borrowers."

There were 180 Japanese companies operating in Sri Lanka as of July, according to research company Teikoku Databank. Although the impact from Sri Lanka's crisis has been limited so far, "protracted uncertainties in the business environment caused by political instability could affect companies' strategies," Teikoku said in a report.