What will India do? For now, it is all a matter of speculation. Will it retaliate by reducing the transhipment of Indian goods via Colombo?
by Rajan Philips
The first consequential announcement that the ECT deal is kaput came from Prime Minister Mahinda Rajapaksa. Early last week he was reported to have assured the port workers that the East Container Terminal (marked East on the map) “will neither be sold to any country nor handed over to any country for administration.” The PM’s announcement came as a surprise to everyone, most of all to the Indian High Commission in Colombo. It was not clear if, when and how India and Japan were formally advised of the government’s decision. It was clear, however, that the Prime Minister was trying to diffuse a gathering political storm at home and was not worrying about diplomatic niceties.
Both local politics and diplomatic caution were clearly lost on the Indian High Commission spokesperson who blurted out the same day that he wanted “to reiterate the expectation of the Government of India for expeditious implementation of the trilateral Memorandum of Cooperation (MOC) signed in May 2019 among the Governments of India, Japan and Sri Lanka for the development of ECT with participation from these three countries.” It was hardly the way to express India’s position given the context in which the Sri Lankan Prime Minister had announced his government’s decision. Indian diplomacy can still learn a lot from the Chinese about being suave in dealing with smaller countries with worrisome politics. That difference first showed up way back when in Bandung, between Jawaharlal Nehru’s impatience and Zhou Enlai’s charm.
Never mind. By Wednesday, Prime Minister Modi (Nehru’s current antithesis) was calling the Sri Lankan PM to felicitate Sri Lanka’s 73rd Independence anniversary. He was the first foreign leader to do so, beating Xi Jinping to the wire. The Chinese President later sent a message of felicitations to President Gotabaya Rajapaksa. Mr. Modi may have taken the high road in his call with the Sri Lankan PM, without harping on the ECT deal cancellation, and leaving it to his High Commissioner in Colombo to formally register a protest with the Sri Lankan government. High Commissioner Gopal Baglay has reportedly done just that, and has called on the President and the Prime Minister separately in a double registration of India’s protest.
What will India do?
What will India do? For now, it is all a matter of speculation. Will it retaliate by reducing the transhipment of Indian goods via Colombo? Indian goods account for the largest volume (70%) of cargo in Colombo, and according to Indian commentators “Colombo tranships more Indian goods than all of India’s own ports.” Sri Lankan commentators have noted that without the Indian volume, Colombo will not be able to maintain its current port-status in the world – 25th largest container port and 19th best-connected.
The new port in Vizhinjam, Kerala, has been touted as a response to this regional imbalance, and as a new deep water (20-24 metres) port Vizhinjam is anticipated to be India’s first Mega Transshipment Container Terminal. Coincidentally or not, the private developer of the port is none other than Adani Ports apparently India’s leading private sector port developer and operator. The USD 930 M port is being developed as a Public-Private BOT undertaking with the Kerala State government as owner and the Central government providing USD 110 M gap funding support. Prime Minister Modi is also reported to have mused about a new transhipment port in the Great Nicobar Island, which too could be a threat to Colombo’s current status.
How will the Vizhinjam port affect Colombo? According to former Prime Minister Ranil Wickremesinghe, who joined the ECT fray with his own little statement, the now defunct 2019 ECT Memorandum of Cooperation (MOC) that his team had negotiated included a condition that committed India to treat the Kerala and Colombo ports equally without giving preference to the new Kerala port. Will India continue to do that? Or will it divert and reduce Indian transhipment through Colombo? Could it be that India cannot do anything about its cargo that now passes through Colombo because it suits India’s own distribution requirements. For example, increasing the country’s cargo handling in Kerala, at the expense of Colombo, might require significant expansion in the ground transportation infrastructure within India. So, Sri Lanka might be left with the better of both worlds. Keep the ECT as a sovereign enterprise and still receive the same volume of Indian transhipment cargo.
More speculatively, how will India and Japan respond to what the Indian media is calling Sri Lanka’s “compensatory offer” of the West Container Terminal (WCT) to be developed as a Public Private Partnership undertaking. As can be seen in the map above, the contentious East Terminal is partially developed, whereas the West Terminal (that will be to the left of CICT in the map) will be an entirely new undertaking involving a full construction component. Colombo government sources have apparently touted it as a bigger and better deal for India and Japan. According to the same media reports, sources in Colombo have indicated that the Indian response to the WCT offer has been “ambiguous” and “almost rejecting.” Indian officials, on the other hand, are said to have countered that there had been “no formal communication about WCT” from the Sri Lankan side. I have not seen any formal government announcement about the compensatory WCT offer by Sri Lanka.
As well, to Indian media queries about the likelihood of a future political opposition to WCT down the road, the Sri Lanka government sources have reportedly ruled out “chances of any further trouble on the cabinet-proposed West Terminal offer.” Can anyone be so sure that the ECT history will not be repeated for a future WCT deal? If an apparently smaller ECT is so crucial to be kept under 100% Sri Lankan control, how could the bigger WCT be given to foreigners in the future, and that too to the Adani group that is allegedly in cahoots with the Modi government?
Port Development
The first major development in the Colombo harbour was the late 19th century (1872-85) construction of the Southwest Breakwater. It was directly undertaken by the colonial government without hiring contractors to keep costs within estimates and loans repayable. Both were accomplished successfully. The loan repayment was made entirely out of the port revenue. The cost of construction was kept lower than normal because the labour used was convict labour supplied cheap by the Prisons Department, which collected less than minimum wages as its revenue and fed the convicts with “wholesome food”. The convicts were preferred apparently because of their “superior physical strength … and a certain degree of regimentation.” It was also because of the short supply of regular “coolies,” local or Indian, and their alleged lack of physical strength and regimentation. The harbour expansions thereafter were few and far between. Notable milestones are the conversion to a “sheltered harbour” in 1912, and the completion of the Queen Elizabeth Quay and expansions in 1954.
Much container cargo has trans-shipped through the Colombo port in the intervening years, but all of the current container terminals were added only after 1985. Three of them under the protection of the old breakwaters – the Jaye Container Terminal (JCT), Unity Container Terminal (UCT) and the South Asia Gateway Terminal (SAGT) – were developed between 1985 and 1999. The South Asia Gateway Terminal is the expansion of the old Queen Elizabeth Quay and is the first and perhaps the most successful Public-Private Partnership undertaking in the Port and in Sri Lanka.
The subsequent expansion of the port facilities has been under the umbrella of the South Harbour Development Project, the technical studies for which were completed in 2006. The South Harbour expansion is a significant addition to port’s terminal and operational capacities. The expansion is based on the construction of new breakwaters and the development of three new container terminals, viz., The Colombo International Container Terminal (CICT, already built, and known previously as the South Container Terminal); the now famous East Container Terminal; and the now-touted-compensatory West Container Terminal.
But the procurement process for developing these facilities has been getting murkier and murkier with every passing cargo ship. Not everything was transparent in the selection of the consortium for the CICT facility, although the main consultant and the contactors apparently did a good job of work, at least according to the project evaluation report of the Asian Development Bank, which has been the prime lender for the South Harbour undertakings. And nothing was made transparent about the negotiations and the eventual agreement for the ECT. Why?
The answer may lie in the internal decision making processes of the government of Sri Lanka. Rather, the answer is in the lack of any process for the procurement of public goods and service, big or small, local, or foreign. Things get complicated when public undertakings are large and involve foreign participation. Add to the lack of process in procurement, the lacuna of parliamentary scrutiny and overall transparency. In fact, there is no better and more compact example for the deteriorations in process, scrutiny, and transparency in the matter of public undertakings in Sri Lanka than what you can find in the saga of the development of the port of Colombo and its terminals.
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