Amid the ongoing farmers’ protest and an eight-month-long standoff with the Chinese at the LAC, the news from Colombo — of Sri Lanka going back on the 2019 agreement with India and Japan to build the East Container Terminal at the Colombo Port — should raise alarm bells in some quarters of the Narendra Modi government. While Sri Lanka’s unilateral decision has been frowned upon by New Delhi and Tokyo alike, Colombo appears to be planning some kind of balancing act to placate all stakeholders after its U-turn.
Colombo has reportedly decided to carry on with the East Container Terminal (ECT) project on its own through Sri Lanka Ports Authority. Subsequent to this announcement, the Sri Lankan cabinet is said to have offered a proposal to India — to develop the West Terminal at the Colombo Port on the same lines as the ECT project. As far as India and Japan are concerned, it is not known if they would accept the new offer.
But given the sensitive nature of New Delhi-Colombo relations, it would be prudent for India to approach the subject cautiously. The Sri Lankan government has cited large scale protests against private investment in the port project as the reason for going back on the deal. The excuse, however, does not seem convincing enough. As per the deal, the Terminal Operations Company responsible for running all ECT operations was to be jointly owned by the three countries. While Sri Lanka was supposed to have 51 per cent stake, the joint venture partners (India and Japan) were to have 49 per cent share in the company.
In contrast, Sri Lanka has dealt differently with the Chinese. When the Hambantota Port was handed over to China, Colombo signed a pre-agreement with the China Merchants Port Holdings to buy an 80 per cent stake in the deep-sea port situated just about 250 km southeast of Colombo. The Export-Import Bank of China provided a loan of over $1 billion for the port project, which was being constructed by China Communications Construction Company Ltd. No “massive large scale protests” were reported then. Even when the ECT and Colombo International Container Terminal (CICT) were announced, there were no protests of the kind that the Sri Lankan government is reporting now.
Politics over port
Meanwhile, some opposition groups and leaders in Sri Lanka have started to make it a political issue. Former minister in the Ranil Wickremesinghe government and economist Harsha de Silva is reported to have opposed the cancellation of the deal.
But New Delhi can draw very little comfort from such feeble voices in support of the now canceled deal because the political situation right now does not favour the opposition in Sri Lanka. It is better to deal with the present government directly. New Delhi will have to rethink if raising the issue of the killing of Tamil Nadu fishermen by the Sri Lankan navy would really pay dividends. These killings are a serious matter, no doubt, but they have also remained a contentious subject, producing no tangible results in improving bilateral relations.
Again, the Tamil versus Buddhist narrative has never succeeded in Sri Lanka and even during the 30 years of civil strife, not a single case of Tamil or Hindu versus Buddhist conflict was reported. Unfortunately, there are radical elements and vested interests among both sections who would want to rake up such issues.
What New Delhi, Colombo can do
What New Delhi can do, in fact, is pay attention towards improving relations with regional power centers and leverage its economic and soft power strengths to optimise diplomatic output even as its global grandstanding is on.
It will be in the best interest of the Sri Lankan government also to keep economic and infrastructure deals out of the purview of the clergy. One of the unions of port workers is reported to have roped in influential Buddhist monk Elle Gunawansa to join them. The monk blessed the protesters and issued a warning to the government. Another Buddhist monk and academic, Medagoda Abhayatissa Thero, has attacked the development of the ECT as an attempted invasion of India.
Colombo should also be aware that if it continues to backtrack on commitments, no foreign government or finance agency would like to make huge investments in Sri Lanka, already reeling under the debt burden of the Chinese. Besides, the return on investment (ROI) is appallingly low in lean business projects in Sri Lanka.
Sri Lanka’s Economic history has witnessed many ups and downs. The J.R. Jayawardene government, which came to power in 1977-78, introduced a new Constitution — jettisoning the Socialist economic model and adopting free market economic plan, supported by a powerful executive presidency. With these reforms, Colombo was hoping to bring in massive foreign investments. But things didn’t go as planned due the three-decade-long civil war spearheaded by the LTTE. After the Mahinda Rajapaksa regime finally eliminated the LTTE, renewed efforts were made to rope in investors. Except India and majorly China, not much of investment flowed into the country for another decade since 2009.
It was in this background that the idea of making massive improvements to the Colombo port was finalised — some time during the last year of the Rajapaksa government’s previous tenure.
ECT and its significance
The ECT project was meant to aid and assist the Colombo port to bring in more business and develop into a deep sea transshipment hub. The existing Colombo International Container Terminal (CICT), a joint venture between China Merchants Holdings and Colombo Port Authority, has to a very large extent developed into a viable regional transshipment hub. China Merchants Holdings has invested $500 million so far in the 2.4 million TEU (Twenty-foot Equivalent Unit) terminal facility. In order to recover the cost and earn profit, the terminal project requires the operation of the 440 meter berth and develop an additional 760 meter berth and add ten million TEU, in say three years. The idea of the ECT was floated with all these specifications in mind.
Although five large corporations, including three from India — Tata Realty & Infrastructure, Shapoorji Pallonji and Container Corporation of India — and two private bidders showed interest, the tender was withdrawn. The Adani Group was not in the picture then.
Now it is all back to square one. Yet, there is still time, and also hope for the tripartite agreement to be revived for the mutual benefit of all parties concerned.
Seshadri Chari is the former editor of ‘Organiser’. Views are personal.