Reuters International

By Ranga Sirilal and Shihar Aneez

COLOMBO (Reuters) - Sri Lanka's government on Friday agreed a new version of its $1.4 billion (1.08 billion pounds) real estate agreement with China after changing the terms and blocking the outright sale of land - part of a project covering a square mile right next to the capital's port.

Since coming to power in January 2015, President Maithripala Sirisena's administration has suspended most Chinese infrastructure projects that, it says, were badly priced and financed on onerous terms harmful to the national interest.

The reclamation project, Sri Lanka's largest foreign direct investment (FDI) project, was suspended two months after Sirisena defeated China-friendly Mahinda Rajapaksa, saying the proper procedure had not been followed. It had been signed in front of China's President Xi Jinping when he visited the island nation in 2014.

China Communication and Construction Co Ltd has dropped its claim against the government for $143 million in compensation for delaying the project by almost one year in return for extra land being added to the project.

Under the new agreement, the government plans to develop an international financial and business district in Sri Lanka within the port city and call it "Colombo International Financial City".

Chinese firm CHEC Port City Colombo, which is overseeing the 269-hectare project, said it will create about 83,000 jobs and attract more than $13 billion in FDI from outside investors including India, Singapore, Malaysia and China.

"The tripartite agreement has many features that are beneficial to Sri Lanka that was lacking in the 2014 agreement," the Megapolis ministry said in a statement, referring to the three signatories: CHEC, Sri Lanka's Urban Development Authority and the Megapolis and Western Development Ministry.

India uses Colombo's port for more than 70 percent of its shipping and had raised concerns about the proposal to sell a 20-hectare plot freehold to China's CHEC.

The Chinese firm will now get 110 hectares of reclaimed land on a 99-year lease and the Sri Lanka's government will keep complete ownership of 159 hectares.

Tang Qiaoliang, president of parent company China Harbour Engineering Company (CHEC) Ltd, said the project will be sought after as a base for corporate headquarters to take advantage of Sri Lanka’s strategic location.

(Writing by Shihar Aneez; Editing by Louise Ireland)

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