Chinese hand seen behind blocking India’s bid to develop ECT at Colombo port

China is said to have succeeded in blocking India’s efforts to gain a presence in Colombo port, a regional container transhipment hub, as the skirmishes along the border and the Centre’s pushback against Chinese goods and investments spills over into a strategic port project that India is keen to build, ironically, to check growing Chinese presence in the region.

Earlier this week, the Sri Lankan cabinet is understood to have scrapped a tripartite memorandum of cooperation (MoC) signed in May 2019 with Japan and India to develop the East Container Terminal (ECT) at Colombo Port in the wake of strong protests from port unions. Instead, Sri Lanka is believed to have offered the proposed West Container Terminal (WCT) project to India and Japan.

The first phase of the 2.5 million twenty-foot equivalent units (TEUs) capacity ECT terminal was completed in May 2015 involving a single berth of 440 metres, alongside water depth of 18 metres, but is yet to start operations.

Sources tracking the project in India believes that China put the “spanner” in the works.

Aside from its strategic interests, China has a commercial interest to stall India’s participation in a container loading facility in Colombo port. China’s state-run China Merchants Port Holdings Company Ltd holds an 85 per cent stake in the 3 million TEUs-capacity Colombo International Container Terminals Ltd (CICT), a joint venture terminal runs with Sri Lanka Ports Authority (SLPA).

SLP is the state-owned operator of commercial ports in Sri Lanka.

Unprecedented resistance

“The unprecedented resistance to India’s investment in Colombo raises concerns on whose behest all this is being triggered,” an Indian official overseeing the project said. “Such a fully orchestrated and coordinated campaign against Indian involvement in Colombo terminal has to be funded by somebody, it cannot be homegrown,” he stated.

General (Retd) R M Daya Ratnayake, Chairman, SLPA, was not available for comment.

Sri Lanka’s ‘take it or leave it’ offer to India and Japan for developing WCT has put the government in a quandry. A government-to-government MoC will help Sri Lanka bypass rules on public procurement which are done through open tenders only.

“If a MoC is not there, even the West Container Terminal cannot be offered to a pre-selected single party or group. It should then go under public tenders in line with our rules and procedures,” a Sri Lankan official briefed on the project said.

“So, an MoC is needed to offer the WCT without going through a public tender process to companies nominated by India and Japan,” he said.

The move to backtrack on developing ECT jointly with India and Japan “met the expectation of the general public that it should be run as a state-owned facility,” he said.

Sri Lanka also cited Japan’s insistence to extend a loan to the ECT project and not bring the money as an investment to justify calling off the MoC as the terms of the pact had changed.

As per the MoC signed by the previous Sri Lankan government, the Japanese government had to provide a loan to the project basis which the project was structured as a 51:49 joint venture.

However, the party running the government in Sri Lanka decided not to accept a loan from Japan to check the country’s rising debt profile and wanted the money as an investment in the project.

However, the Indian official countered this claim saying that “Japan has insisted on coming in as an equity investor in the project”.

Ball is now in India’s court

“The ball is now in India’s court; I think the WCT is a very good answer to India’s strategic and security needs in the region,” the Sri Lankan official stated.

Outlining the merits of WCT for India, the official said that both ECT and WCT were similar capacity terminals. The only difference is that the ECT is partly completed and can be put into operation quickly by erecting used cranes or in 18-20 months if new cranes are ordered now.

The WCT has to be built from scratch and could take at least three years to start operations.

With 85 per cent stake in WCT, the India-Japanese consortium will be able to run the terminal with full autonomy; unlike in ECT where SLPA will be a majority shareholder with 51 per cent stake.

“With 51 per cent majority stake held by SLPA, the ECT will be treated as a public company under Sri Lankan laws and come under the scrutiny of the government auditor and procurement would have to follow the public procurement guidelines. This will hamper the private firms from operating freely,” the official said.

Besides, the WCT has a 20-metre water depth, while all the existing three terminals at Colombo have a draft of 18 metres.

“Over the next few years, when the ship capacity requires depth beyond 18 metres, the WCT will be the only terminal which can take more than 18-metre draft ships,” the official added.