Economic concerns and strategic necessities
Posted on November 2nd, 2020

By P.K. Balachandran/Daily Express/ Courtesy

Colombo, November 1: India and Sri Lanka are both anxious to start work on the East Container Terminal (ECT) project in the Colombo port for pressing economic and geo-strategic reasons. The Sri Lankan side feels India’s participation is necessary for its security and also to uphold its policy of maintaining equidistance from powers seeking a foothold in the strategically located island.

Economic concerns and strategic necessities
The layout of Colombo Port’s terminals shown above, thanks go Daily Express and

Sri Lanka Ports Authority (SLPA) has already started work on the partially built-up ECT site with one ship having been handled so far. Cabinet spokesman Keheliya Rambukwella said the Sri Lankan Cabinet had recently decided to appoint a Negotiating Committee to go into an Indian proposal to Build, Operate and Transfer the ECT, while Maj. Gen (Rtd) Daya Ratnayake, Chairman, SLPA, explained the Committee will review the Memorandum of Cooperation (MoC) signed in May 2019 between Sri Lanka, India and Japan and work out the details of the deal.

However, while Rambukwella said no decision on the international partner or partners has been taken yet, Gen. Ratnayake maintained the MoC of 2019, which states India and Japan will be the international partners, stays, with no indications to the contrary from the government.

As per the MoC, the SLPA would be the owner of the ECT and the Terminal Operations Company (TOC), which would conduct all ECT operations, would be jointly owned, with Sri Lanka having a 51% stake, and the joint venture partners having 49%. A 40-year loan at 0.1% interest was to be extended by Japan to fund the project.

A press release from the then government said: The envisaged Japanese loan carries one of the best loan terms Sri Lanka has obtained. The 51% stake is also one of the best in SLPA joint ownership endeavours. SLPA’s majority ownership in the new TOC represents a significant step in prioritizing national interests.”

India and Japan consider their presence in the Colombo Port a strategic necessity in view of China’s presence in the adjacent Colombo Container Terminal (CCT) with 85% stake in it. India has an additional reason to seek a foothold in Colombo Port as 80 to 85% of the throughput at Colombo port is accounted for by Indian transhipment.

However, while the then Prime Minister Ranil Wickremesinghe decided to give the project to India and Japan for strategic reasons (to balance China and India) the ultra-nationalist president of that time, Maithripala Sirisena, scuttled the deal saying Sri Lanka should not barter away strategic national assets like ports to foreign entities. Sirisena reflected an atavistic fear of India prevalent in the majority Sinhala community. As a result, the ECT project came to a grinding halt and Colombo port continued to face problems of congestion, which is now said to be acute.

When Gotabaya Rajapaksa became president in November 2019 and his Sri Lanka Podujana Peramuna (SLPP) secured a two-thirds majority in the August 2020 parliamentary elections, the government started reviewing projects with foreign collaboration including the ECT with the aim of implementing the implementable ones. The Indian Prime Minister Narendra Modi was also pressing the Rajapaksas (President Gotabaya and Prime Minister Mahinda) to implement the pending non-grant Indian project proposals numbering about a dozen.

India was also concerned about the Rajapaksa government’s lurch towards China in granting projects. In March this year, Sri Lanka and the China Development Bank signed an agreement for a financing facility of US$ 500 million for development efforts. In October, during Chinese politburo member Yang Jiechi’s visit to Colombo, China announced a grant of US$ 90 million for education, medicare and water supplies.

Is Japan in or out?

There appears to be lack of clarity on Japan’s participation in the ECT project. A member of the Cabinet, who spoke off the record, said only India is in the project and there will be negotiations with an Indian company suggested by the Indian government. The Sunday Times of November 1 identified the company as the Adani group.

The Cabinet member said that Japan is out of the reckoning because it is only offering a loan and is not making an investment in the project. Sri Lanka wants investment and not loans. Japan has offered a loan and not investment,” he said. It appears that India too is wondering if Japan is in or out. But a Japanese diplomat insisted that Japan is very much in and that the money Japan is to arrange is an investment and not a loan. Gen. Ratnayake also said the MoC of 2019 stays implying that Japan is in the reckoning.

Lankan President keen on India’s participation

Amidst the confusion, it is reliably learnt that President Gotabaya Rajapaksa is keen the ECT be given to India for the sake of good relations with the giant neighbour, which he believes is vital for the security of Sri Lanka. There is also a feeling among senior leaders of the ruling SLPP and the government now that India should not be antagonized and also that there are dangers in putting all the eggs in the Chinese basket.

Though he has sharp differences with the United States on China policy, the Millennium Challenge Corporation Compact (MCC) and the Status of Forces Agreement (SOFA), President Rajapaksa is also keen on US investments in Sri Lanka in certain sectors like agriculture and ICT. He had conveyed this to the visiting US Secretary of State Mike Pompeo, who reciprocated saying the US would invest in the tourism sector.

To speed up matters in regard to the languishing Indian projects, especially the ECT, the India High Commissioner in Sri Lanka Gopal Baglay told a webinar late last month: In the present situation, at the present stage, perhaps the best way to deepen the India-Sri Lanka ties is to implement quickly the deep port project of East Container Terminal. If we do not move with time and implement these projects, not only will these projects and their concepts become outdated and, perhaps even challenged, but sometimes these may be overtaken by events. Time and tide do not wait for anyone.”

The webinar had been organized by think tanks ASEAN-India Centre, the Indian Council of World Affairs, the Asian Confluence and Sri Lanka’s Pathfinder Foundation.

Jaishankar due in Colombo

In the midst of all these developments, the Indian External Affairs Minister S. Jaishankar is to visit Sri Lanka shortly. Sources say the Indians have sought a date in early November before the Sri Lankan government gets busy with the budget session of Parliament. But it could take place later in November too.

Jaishankar’s visit is expected because of the fast changing geo-strategic scenario with the sharpening of India’s border and economic conflict with China; the US Secretary of State Mike Pompeo’s visit in which he made no secret of his sharp anti-China agenda; and the visit of Chinese Communist Party Politburo member and former foreign minister, Yang Jiechi, where he pledged significant political and economic support to the friendly Rajapaksa government.

Lankan funds for Chinese-run terminal

On October 27, Ada Derana Biz, quoting the Government Information Department, said that the Lankan cabinet had approved a proposal presented by the Prime Minister cum Minister of Finance, Mahinda Rajapaksa, to enhance the capacity of the Chinese-run Colombo International Container Terminals (CICT), with a fund induction of US$ 90 million.

Considering the prevailing demand for the activities of that terminal as well as the future prospective business opportunities, it has been decided to extend the said project without performing further construction, but enhancing the capacity of its container yard.”

Accordingly, the Cabinet of Ministers has rendered their agreement for the proposal tabled by Prime Minister as the Minister of Finance for the introduction of new equipment by investing US$ 90 million, renovation of the existing equipment as well as for the implementation of productivity-boosting work of the terminal, and for publishing the orders for the provision of applicable tax relief as per the provisions of Strategical Development Act in the Government gazette,” the report said.

New Chinese envoy’s take

China’s new Ambassador to Sri Lanka, Qi Zhenhong, has said he would like Sri Lanka and China to promote a strategic cooperative partnership.”

In a statement issued on arrival in Colombo, Qi said: Let’s join hands to implement the consensus reached by leaders of our two countries, promote our strategic cooperative partnership, build the Belt and Road Initiative and other cooperation with extensive consultation and joint contribution, so as to bring tangible benefits to our two people and better ensure peace, stability, development and prosperity in this region.”

(For the layout of Colombo Port’s terminals shown above, thanks go Daily Express and

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