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Lanka again dithers on giving Colombo port’s East Terminal to India

Involvement Of India And Japan Is Seen As A Political Hot Potato In The Run-up To The Provincial Polls

TOP NEWS-28-12-2020

Colombo port’s Eastern Container Terminal (ECT) appears to be continually jinxed because of a geo-political compulsion to involve India in its development and operation when the Lankan nationalist sentiment is resolutely against it. 

To placate the Big Brother across the Palk Strait, the Gotabaya Rajapaksa government had almost decided to give the operation of the ECT to a consortium comprising the Sri Lanka Ports’ Authority (SLPA), Japan and India. But it is now dithering on the matter, like the predecessor government which, ironically, was run by a pro-Indian Prime Minister Ranil Wickremesinghe.

There is speculation that the current dithering is due to an intention of government to hold nine Provincial Council elections in the next few months. The controversial ECT issue is expected to be raised by ultra-nationalist parties and interest groups to the discomfiture of the ruling Sri Lanka Podujana Peramuna (SLPP). The ultra-nationalist Janatha Vimukthi Peramuna (JVP) has already flagged the issue. Since the SLPP, led by the Rajapaksas, portrays itself as a nationalistic force opposed to “bartering away national assets to foreign entities” it has a vital interest in maintaining a ultra-nationalistic posture.

The SLPP came to power with a bang, but it is facing anti-incumbency now because of the difficulties caused to the people by its harsh anti-coronavirus regimen. Lockdowns and daily threats of lockdowns, have affected employment and earnings markedly, putting a lot of stress on the common man. In this context, the issue of foreign involvement in the ECT will only add grist to the opposition’s mill. 

Delaying tactic 

On December 22, SLPA Chairman Maj. Gen (R) Daya Ratnayake denied that the cabinet has approved a proposal to allow India to develop the ECT. He said that two committees have been appointed to evaluate its development, including the already forwarded proposals and investment opportunities for local companies.

“Based on the recommendations of those committees, the government will make a final decision. There is scope for local companies to express their interest,” Ratnayake told the media. 

In May 2019, the former Wickremesinghe government entered into a tripartite Memorandum of Understanding (MoU) with Japan and India to build the ETC. Under that, the SLPA would retain 100% ownership of ETC. But the Terminal Operations Company (TOC), which would be responsible for all operations in the terminal, would be jointly owned by Sri Lanka, Japan, and India. Sri Lanka would maintain a 51% stake in the company, while Japan and India would hold minority stakes of 34% and 15% respectively.

Development of the ECT was to be financed by Japan through a 40-year loan of between US$ 500 million to US$ 800 million. The loan would be at a 0.1% interest rate with a grace period of 10 years. There were other proposals too. 

Asked about the proposed involvement of the Indian company, the Adanis, Ratnayake justified it pointing out that 61% of the total 82% transshipment business is generated from India.

“If an Indian company gets involved, we can retain and expand our current businesses by attracting large shipping lines and volumes from India. There are a lot of ports in our region and there is severe competition,” he said. 

However, Ratnayake made it clear that no final decision has been made in this regard in view of the fact that two committees are looking into all aspects. 

Jinxed project

In 2015 itself tenders had been called for the ECT. But all bidders were disqualified by the Cabinet Committee on Economic Management (CCEM) presided over by former Prime Minister Ranil Wickremesinghe.

Meanwhile in the run up to the November 2019 Presidential elections and the August 2020 parliamentary elections, the ECT issue figured on nationalist platforms. The SLPP especially pledged that it would keep all national assets within the national fold. 

However, it was not easy to hold on to this view rigidly partly because of pressure from India which wanted to have a hold on the Colombo port for geo-strategic reasons particularly because the adjacent Colombo International Container Terminal (CICT) was being run by a Chinese company.

India is also trying to involve Sri Lanka in the security of the Indian Ocean Region and has got Colombo to house the maritime security secretariat. India also argues that it has legitimate stakes in Colombo port as Indian transshipment accounts for a huge amount of its business. 

After the Rajapaksa government decided opt for Foreign Direct Investment (FDI) and not loans, Japan, which was to give a loan to build the ECT, said that it was and would be an investor.

Even as the decks were being cleared for the commencement of work on the ECT, the coronavirus epidemic struck, crippling work in all the terminals of the Colombo port. The ECT also saw a workers’ agitation against the proposal to involve foreign parties, especially India.

Cost of delay

Commenting on the government’s dilly dallying on the ECT, Rohan Maskarola, the CEO of Shippers’ Academy Colombo, said that the opportunity cost of dithering over the ECT has been over 10% of transshipment growth. 

“ECT is entering the seventh year without proper direction and decision. If we had ECT operational, the current Colombo congestion and crisis would have been minimized or averted. Transshipment volumes would have not dropped by 5%-6%. Instead, probably, with trade recovery, we could have grown by about 4% as Singapore too was having congestion.”

“So the opportunity cost that I see is over 10% of transshipment growth if the ECT was functioning. Even now, it will take another year or so if we start moving ahead with the legal and structural framework to set up the terminal for business to really take off,” Maskarola told a local daily. 

He told this writer that another reason why the ECT has to be developed fast is that it is located close to other (also well-run) terminals in the port. It will help vessels save time.

According to Japanese sources, the Indian party (perhaps the Adanis) should not find it difficult to find the money for its participation because the ECT is bound to be a profitable venture.