Colombo: A top state-owned bank in Sri Lanka on Friday paid USD 6.9 million to a Chinese company to settle a longstanding dispute triggered over its fertiliser shipment that was rejected by Colombo after it was found to be contaminated.

The announcement comes after the Colombo Commercial High Court dissolved an order preventing the payment to Qingdao Seawin Biotech for the imported fertiliser. The order was dissolved on the basis that the Chinese company and the Sri Lankan government had reached a settlement on the issue.

State-owned Ceylon Fertilizer Company had secured the court order to block the payment to the Chinese company over the shipment of organic fertiliser which was found to be contaminated following its tests carried out by the National Plant Quarantine Service.

The order prevented the People’s Bank of Sri Lanka from making payments under a Letter of Credit opened in favour of the Chinese company.

Friday’s decision came after the settlement conditions were agreed upon. Sri Lanka refused to accept the shipment while agreeing to pay after intense lobbying by the Chinese, officials said.

In November last year, the People’s Bank of Sri Lanka was blacklisted by the Chinese embassy here following the escalation of the row after the court blocked the payment to the Chinese company.

China’s Ministry of Commerce said the default had caused huge losses to Chinese enterprises in international trade with Sri Lanka.

Responding to a tweet from the Colombo-based Chinese embassy on the decision, People’s Bank in Sri Lanka had said it was only following a court order, restraining the bank from paying the Chinese company.

Once the legal barriers in effect are removed, the LC payment will be effected promptly as per the usual trade practices, the bank had said in a statement.

China’s blacklisting of the Sri Lankan bank, and the public clash between officials on both sides, had come amid growing concerns over an acute agriculture crisis grow in Sri Lanka, following President Gotabaya Rajapaksa’s decision in May last year to abruptly switch from chemical to organic fertilisers.

The decision triggered protests from farmers. The farmers said the fertiliser ban would result in reduction in harvest, leading to a food crisis this year.

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