Benefits of India - Sri Lanka partnership in harbor linking and port connectivity

One of the many aspiring goals of Sri Lankan leaders has been to transform the country into ‘the Maritime and Shipping Hub of Asia’ by utilising its strategic location in the Indian Ocean. Many steps have been taken by the successive governments towards achieving this goal including the expansion of the Colombo Harbour, one of the most busiest harbours in not only Asia but also the World, operationalization of the Hambantota Free Port and development of other ports including the Kankesanthurai (KKS) and Trincomalee Harbours.

India and Sri Lanka are separated through the 53-km long Palk Strait between the Tamil Nadu of India and the Jaffna District of the Northern Province of  Sri Lanka.  Due to the shallowness of the strait no large vessel can pass through it and therefore, all the vessels have to go around Sri Lanka if they are to reach the Eastern Coastal Ports of India. This provides an immense advantage to Sri Lanka and the Port of Colombo. Most of the revenue collected at the Colombo Port is through transshipment to India. The Colombo Port has handled over 5 million TEU (twenty-foot equivalent unit) of containerised cargo. It has five functional terminals. Developing Colombo Port and enhancing overall port facilities in Sri Lanka is therefore especially beneficial to India. 

In the meantime, Sri Lanka inked an agreement in 2019 with Japan and India to develop the East Container Terminal (ECT) of the Colombo Port. However, due to strong opposition by Trade Unions and activists, Sri Lanka in early 2021 scrapped the deal unilaterally leading to sour relations with India and Japan. Afterwards, the contract to develop the ECT was handed over to the Sri Lanka Ports Authority (SLPA). The terminal, which is spread over an area of 75 hectares, is 1,320 meters long. Once completed, the SLPA will inherit a fully-fledged terminal equipped with 12 STC cranes that handle operations from ships to the land and 40 Rail Mounted Gantry (RMG) Cranes.

However, as if to cushion the impact of scrapping the deal without honouring it, Sri Lanka then offered a project to build anew the West Container Terminal (WCT) of the Colombo Port to India and Japan, to which only India responded somewhat positively. Accordingly, on September 30, 2021, the Adani Group headquartered in Gujarat, India signed a Build Operate Transfer (BOT) agreement with Sri Lanka’s largest listed company John Keells Holdings and the Sri Lanka Ports Authority (SLPA) to jointly develop the WCT at the Colombo Port. As per the 35 year-long BOT agreement, the Adani Group will have majority of 51% stakes, John Keells 34% and the SLPA 15%. If Adani Group can secure transshipment business at Colombo Port by developing WCT, it would be pivotal as Indian cargo containers account for a huge chunk of Colombo’s transshipment volumes

Adani Ports & SEZ Limited (APSEZ) which manages several ports in India is known for operating the Mundra Port, the largest private port of India located in Kutch District, Gujarat. 

Meanwhile, in June this year, Sri Lankan Government announced that the Indian Government has provided USD 45 million in financial assistance to develop the Kankesanthurai (KKS) Harbour in Jaffna.

Once the port development is completed, it is planned to begin direct freight operations from India to KKS Harbour since the distance from India to KKS Harbour is less than that of between India and Colombo. This is also expected to save transportation costs and it would also allow bringing in food and fertiliser to KKS from India in a hassle free manner.

Following the signing of a Memorandum of Understanding (MoU) and an Agreement on July 21 between India and Sri Lanka for the rehabilitation of the KKS Harbour, the work on the wreck-removal and salvage portion of the project was inaugurated. Commenting on the development, the Indian High Commission in Colombo said India has allocated USD19 million as a fully grant-funded project for the wreck removal work in Kankasanthurai.  

In June this year, Sri Lanka also announced that it plans to develop Trincomalee as an “industrial harbour” and will soon float tenders. It was reported that India, which has already made a substantial investment in Trincomalee, is likely to be interested in the proposal both as a commercial project and as a strategic investment.

Earlier this year, Lanka Indian Oil Company (LIOC), a subsidiary of Indian Oil Company, and Ceylon Petroleum Corporation (CPC) signed an agreement to develop a massive oil storage tank farm built at the Trincomalee Harbour during the British rule. The oil storage facility is equipped with its own jetty. The LIOC and the CPC have formed a special purpose joint venture called Trinco Petroleum Terminals Ltd for the development of 85 tanks at the tank farm.