The government of Sri Lanka appears to have buckled to geopolitical pressure and the threat of a substantial lawsuit by saying it is now prepared to pay the Chinese company that shipped fertiliser found to be contaminated.

A court in Sri Lanka had issued an interim order preventing the People's Bank of Sri Lanka (PBSL) from making a US$4.9 million payment under a letter of credit (L/C) for the cargo of organic fertiliser from Qingdao Seawin Biotech (QSB). The economic and commercial office of the Chinese Embassy in Sri Lanka responded by blacklisting PBSL.

Financial pressure

The government is now reportedly preparing to pay US$6.7 million to resolve the dispute that has left the cargo of fertiliser stranded offshore Sri Lanka aboard the vessel transporting it for several weeks.

The decision to pay QSB comes after the Chinese company said it would sue Sri Lanka for around US$49.7 million for rejecting its fertiliser..

It is not clear whether the L/C for US$4.9 million that has been blocked by an extended order issued by the Sri Lankan court until 23 December will feature in the resolution of this matter.

Political pressure

"We cannot afford to damage diplomatic relations over this issue," according to Sri Lanka's agriculture minister Mahindananda Aluthgamage who says the state-owned importer, Ceylon Fertiliser Company (CFC), will be working to resolve the dispute.

Analysis of the dispute by former PBSL assistant manager, Wimalarathna Banda, concluded that the court order and the subsequent blacklisting of PBSL appears to have been a power struggle and a political issue that the Sri Lankan and Chinese governments should resolve without the bank incurring financial losses (DC World News, 6 December 2021).

Not backing down

While the Sri Lankan government is prepared to resolve the dispute it is apparently not backing down on its assertion that the shipment of fertiliser stranded offshore Sri Lanka is contaminated.

Aluthgamage says that the resolution will include the shipment the authorities still maintain is contaminated being returned to China where a fresh cargo of fertiliser will be loaded and shipped to Sri Lanka.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.