With a capacity of 7.2 million TEUs, an annual cargo tonnage of nearly 40 million tons, and a dredged depth of over 15 meters, the port of Colombo in Sri Lanka is among the world’s top 25. Its strategic location on the main East-West shipping lane is a major attraction. And given the absence of good ports in India, Colombo is also the main transhipment hub for Indian cargo.
“But Sri Lanka’s attractiveness is not an unmixed blessing. It has spawned challenges,” says Adm (Rtd) Jayanath Colombage, Sri Lanka’s Foreign Secretary.
Sure enough, Colombo port has become a bone of contention among Asian powers, China and India. China has already established a presence in Colombo port (besides the Hambantota port in South Sri Lanka) by building and running the highly productive Colombo International Container Terminal (CICT). India and Japan, on the other hand, are seeking a stake in the yet-to-be developed Eastern Container Terminal (ECT) in the same port.
India’s stated case is that 60 to 70% of Colombo port’s business is accounted for by Indian transhipment and therefore, India should have a stake in the running of the port. But the unstated but equally important case is that India needs to stem China’s intrusions into Sri Lanka’s economy and that a presence in Colombo port (at the ECT) will enable it to watch the Chinese ensconced in the CICT next door.
Since China considers the CICT and the Hambantota port as being part of Xi Jinping’s flagship project, the Belt and Road Initiative (BRI), India is aiming at getting Sri Lanka to be part of the US-India-Japan-Australia “Quad”.
For the “Quad” to be meaningful, India or Japan will have to have a place in Colombo port. India has already made Sri Lanka host a Secretariat to co-ordinate the activities of the Indian Ocean trilateral maritime defense system involving Sri Lanka, the Maldives and India.
Sri Lanka’s Reservations
But Sri Lanka has become extremely wary about handing over national assets like ports to foreign entities after the controversial leasing out of the Hambantota port in 2017 to a Chinese state-owned company on a 99 year lease for a mere US$ 1.2 billion. The incumbent Sri Lankan regime headed by the Rajapaksa family is highly nationalistic and suspicious about foreign involvement in projects with national security implications.
During its Presidential and parliamentary elections campaigns in November 2019 and August 2020 respectively, the Sri Lanka Podujana Peramuna (SLPP) headed by the Rajapaksas, had pledged to develop and run the ECT without handing over the task to foreign entities.
But the government’s grandiose plans were based on a very weak financial foundation. It was strapped for cash. Government was also facing mounting congestion in Colombo port which had to be relieved by the expansion of the port urgently. The situation was made worse by a 30% fall in the workforce due to the COVID 19 pandemic which had begun affecting Sri Lanka in March 2020.
Till very recently, there was a backlog of 50,000 TEU with 23 ships waiting to enter the harbor on an average, said Rohan Masakorala, CEO of Shippers’ Academy Colombo. “Vessels were also by-passing the port and shippers had begun to feel the absence of the ECT”, Maskarola pointed out.
“If we had operationalized the ECT, the current congestion and crisis would have been minimized or averted. The transshipment volumes would have not dropped by 5%-6%. Instead, with trade recovery, we could have grown by about 4%. The opportunity cost has been over 10%,” he told the local media.
Unlike the three other terminals in Colombo port, the ECT has had to traverse a very hard road. It was conceived seven years ago but the first move to set it up with foreign collaboration was made in 2015. The then pro-Western and pro-Indian government led by Prime Minister Ranil Wickremesinghe decided to give its development and running to a consortium comprising the Sri Lanka Ports Authority (SLPA) and an Indian company.
The government rightly felt that involvement of a foreign shipping company or ports operator was necessary to get business for Colombo port. However, all bidders were disqualified by the Cabinet Committee on Economic Management (CCEM), presumably under pressure from the country’s nationalistic President Maithripala Sirisena.
Nevertheless, in May 2019, with mounting congestion in the port and India’s anxiety to get a footing in Colombo port, the Wickremesinghe government entered into a tripartite Memorandum of Understanding (MoU) involving the SLPA, Japan and India to build and run the ETC. Under that agreement, Japan was to provide a soft loan of US$ 500 million and India was to do the construction. The port was to be owned by the Sri Lanka Ports Authority (SLPA) but run by an operating company in which the SLPA would hold 51% of the stake, India 15% and the rest would be held by Japan.
But in November 2019, nationalist leader Gotabaya Rajapaksa was elected President and in August 2020 his party, the SLPP, headed by nationalist Mahinda Rajapaksa, was swept to parliament with a two-thirds majority.
Concerned that the pro-China Rajapaksa regime would come under China’s control, India increased pressure on it to implement the May 2019 MOU. But an SLPP-inspired port workers’ union struck work demanding the cancellation of the MOU. Eventually, Prime Minister Mahinda Rajapaksa, got the workers leaders to withdraw the strike on the assurance that the nation’s sovereignty would not be sacrificed.
When the coronavirus epidemic crippled work in all the terminals of the Colombo port, the government came under increased pressure from shippers and traders to implement the May 2019 MOU on ECT urgently.
However, at this stage, a new political compulsion came into play – the Provincial Council elections, expected to be held in the first half of 2021.
With an election to face in the midst of an economic downturn and increasing unemployment due to the ravages of COVID, the SLPP felt that it could not be seen backtracking on its promises including its nationalistic rhetoric. A decision on the controversial ECT had to be put off.
On December 22, SLPA Chairman Maj.Gen (Rtd) Daya Ratnayake denied that the government has approved a proposal to allow an Indian company, the Adanis, to develop the ECT. He said that the cabinet has appointed two committees to evaluate all the proposals made in regard to the ECT. “A decision would be taken only on the recommendations of those committees,” he assured.
But keeping the door open to India, Ratnayake pointed out that 61% of the total 82% transshipment business was generated from India and said: “If an Indian company gets involved, we can retain and expand our current businesses by attracting large shipping lines and volumes from India. We should remembers that there are a lot of ports in our region and there is severe competition.”
Shippers, who did not want to go on record, said that government is clearly trying to postpone a decision for political reasons.
However, according to Japanese diplomatic source, there are some issues in regard to the MOU which are yet to be resolved. The proportion of the stake each of the foreign or local parties will take is yet to be finalized, the source said. Further, there could be more parties to share the stake, as the SLPA chairman indicated.
*P. K. Balachandran is a senior Indian journalist working in Sri Lanka for local and international media and has been writing on South Asian issues for the past 21 years.