From East to West: Colombo’s ‘compromise’ with New Delhi in Port project

A general view of the Chinese-managed terminal of the Colombo port is seen from the Galle Face promenade in Colombo on February 2, 2021.    Photo Credit AFP

Both India and Japan expressed displeasure at the Sri Lankan government’s “unilateral” decision, reneging on a tripartite agreement signed by the former Maithripala Sirisena-Ranil Wickremesinghe government.

In terms of foreign relations, the government’s abrupt exit from an existing international agreement surprised, and even shocked, many. Domestically, too, the government faces several questions.

In a Cabinet decision on February 1 this year, Sri Lanka booted India and Japan out of a 2019 deal to jointly develop the East Container Terminal (ECT) at the Colombo Port, as trade unions and sections of the Buddhist clergy vehemently opposed foreign involvement in the strategic national asset. Further, some raised questions about the possible conflict of interest, given that the Adani Group operates about a dozen ports in India.

Both India and Japan expressed displeasure at the Sri Lankan government’s “unilateral” decision, reneging on a tripartite agreement signed by the former Maithripala Sirisena-Ranil Wickremesinghe government.

As an alternative, the Rajapaksa administration offered the West Container Terminal (WCT) at the Port to India and Japan for joint development on new terms, with higher stakes of 85 % for the foreign partners.

On March 1, the government approved a joint venture with the Adani consortium to develop the WCT, on a Build-Operate-Transfer basis for 35 years. But Sri Lanka’s change in course has been far from smooth.

Why?

Both India and Japan have distanced themselves from the decision New Delhi has termed Colombo’s statement, that the Indian High Commission had approved the Adani Group’s proposal to develop the WCT as “factually incorrect”. Japan is yet to name an investor, according to Sri Lanka’s Cabinet spokespersons.

What is Colombo’s response?
Asked about New Delhi’s reaction to Colombo’s March 1 Cabinet decision, spokesman Udaya Gammanpila said at the weekly media conference on Tuesday (March 9), that the Indian government had “nominated” the Adani Group to invest in the ECT. Therefore, the Sri Lankan government “assumed” that the Group was the nominee for the WCT project too, as it was “the very same investment”, and only a “change in investment location”. Noting that the Indian government has said it will not “officially involve” itself in discussions about the joint venture, Sri Lanka will continue its dialogue with the Adani Group, he said, adding: “It has already commenced.”

Are the ECT and WCT deals similar?
The Colombo Port has five terminals at present — South Asia Gateway Terminal (SAGT), Jaya International Terminal (JCT), Colombo International Container Terminal (CICT), Unity Container Terminal, and the ECT. The proposed WCT is to come up at the Port’s western end.

Although both the ECT and the WCT are located in the same Port, there are crucial differences in their proposed development.

The ECT is partially functional with a 600-metre quay wall, backyard, and gate complex. It awaits further development to augment operations and cargo transfers, at an estimated cost of US$ 700 -$800 million. The WCT, on the other hand, exists only as an idea with no physical infrastructure, such that its development would require greater investment and take more time to be profitable.

In the ECT deal, the Sri Lanka Ports Authority (SLPA) was to hold majority stakes of 51%, while Indian and Japanese investors were to hold 49% together. The more recent WCT deal that Sri Lanka’s Foreign Secretary called a “compromise”, envisages 85% for the Indian and Japanese investors, for 35 years, while the SLPA would hold the remaining, minority stakes. The arrangement is similar to the CICT, where China Merchants Port Holdings Company holds 85%.

What is Colombo’s rationale?
According to Cabinet spokesman Udaya Gammanpila, the “nationalist forces” as well trade unions “strongly” view the ECT as “a strategically important terminal” and maintain it should not be developed by a company with a conflict of interest. “But WCT is not considered as important as the ECT, therefore, their [Adani Group’s] experience in the port sector would be considered as a positive factor, not a negative factor,” he said on Tuesday.
Further, the government argues that it is the ECT that has a distinct advantage, in being located right next to the SAGT — a shallow terminal — allowing swift and economical cargo transfers. The WCT does not have the advantage, as the only terminal adjoining it would be the China-backed CICT.

How is the government’s decision viewed?
In terms of foreign relations, the government’s abrupt exit from an existing international agreement surprised, and even shocked, many. Domestically, too, the government faces several questions.

While the government claims that a “majority” of trade unions are on board with the new proposal, a section of unions see the WCT offer to India, as being as problematic as the former ECT deal, as their opposition was principally to foreign involvement in national assets.

The government’s political rivals including the main Opposition party Samagi Jana Balawegaya (SJB, or United People’s Front) and the leftist-nationalist Janatha Vimukthi Peramuna (JVP), are also opposing the decision, accusing the government of back-tracking.

Government spokesmen have sought to justify the move, by claiming that President Gotabaya Rajapaksa’s poll manifesto-turned-policy framework ‘Vistas of prosperity and splendour’ ruled out foreign investment only in the ECT.

However, the vision document states: “The Port of Colombo is a national asset, and it must be upgraded to handle transshipment business volumes, thereby doubling the TEU capacity. Priority will be given to the East Terminal development project by our government. We will conduct a feasibility study to construct a new cross berth terminal between East Container Terminal and SAGT. The West Container Terminal too would be developed with private sector participation,” making no mention of foreign investment.

What are the implications?
Industry representatives, who favoured private partnerships to develop the Colombo Port as an international hub, are unconvinced of Colombo’s policy switch. Rohan Masakorala, maritime shipping expert and CEO of the Shippers’ Academy Colombo, said it was “a big mistake”.

“Making the ECT a 100 % public terminal without a partnership with international consortiums or port operators is purely a political decision, not an economic one,” he said, adding that the move could cost the Colombo Port in its efficiency in the medium to long term. “It also gives potential investors here mixed signals, because the government’s position was volatile and not direction driven,” he told The Hindu.

The latest WCT proposal also begs the question that if there is no governmental agreement from India or Japan this time, why didn’t Colombo choose the investor through a competitive international bidding process? Observing that “ideally” Colombo should have gone for such a bid, Mr. Masakorala said: “But we walked into a situation that required damage control.”

Industry experts have for long maintained that if the Colombo Port is to become an international hub — given its strategic location along one of the world’s busiest shipping routes — it would need to collaborate with foreign shipping companies, port operators and logistics companies. Especially because 81% of the total cargo arriving at the Colombo Port is transshipment cargo, while only 19 % accounts for domestic cargo. Over 70% of the transshipment business is linked to the Indian market -- a reason that successive governments cited for Indian involvement in the terminal development projects.
Courtesy: The Hindu