India signed an agreement to set up hybrid power projects on northern Sri Lankan islands Tuesday in a deal seen as a strategic victory in its competition with China for influence in the Indian Ocean.
India’s External Affairs Minister Subrahmanyam Jaishankar, who was visiting Colombo, witnessed the signing along with Sri Lankan Foreign Minister Gamini Peiris, the Indian embassy said.
In December, China announced it was suspending its own plan to build power plants on three Sri Lankan islands due to security concerns.
An Indian official said Tuesday he couldn’t confirm if the plants in the new agreement are to be built on the same islands earmarked for the Chinese project. The power source and other details about the projects weren’t available.
India considers Sri Lanka, just across the narrow Palk Strait off India’s southeastern coast, to be within its sphere of influence. The island nation is in the middle of a key sea route connecting East and West and is important to China’s ambitious “Belt and Road” global infrastructure initiative.
India and China are rivals for influence in the region and have border disputes that have flared in recent years.
“It is kind of a substantial victory for India,” said Lynn Ockersz a senior journalist and foreign relations analyst in Sri Lanka. He said it would put India in a position to influence Sri Lanka regarding policy decisions that might affect it.
The cancelled Chinese power plant project would have been near India’s southern coast.
Jaishankar was taking part in the BIMSTEC summit, a meeting on economic cooperation between Bay of Bengal nations Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand.
India also signed agreements on a maritime rescue coordination center and a fisheries project in Sri Lanka.
Sri Lanka faces daunting problems with debt and is enduring its worst economic crisis in recent memory with shortages of medicine, fuel, fertilizer, and milk powder. Daily power outages are lasting for hours.
The debt crisis partly stems from infrastructure projects that were financed with Chinese loans but are not making money. Sri Lanka’s foreign reserves are dwindling while it needs to repay $7 billion in foreign debts this year, most of it to investors who bought international sovereign bonds.
Colombo has approached both India and China for help. India provided a $1 billion credit line to buy essentials and $500 billion to buy fuel. China is considering a request for $2.5 billion in economic assistance but has been non-committal about restructuring billions in debt.
China and Chinese businesses have invested heavily in building a sea port, airport, roads, and a port city on reclaimed land near Colombo harbor, which Sri Lanka’s government aims to develop into a financial city.
Sri Lanka’s government previously scrapped a plan to allow China outright ownership to land on the Colombo Port City. It instead provided 62 hectares (153 acres) on a 99-year lease.