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Explained: Why Sri Lanka pushed India out of Colombo terminal project, what’s being offered as compensation

After the Sri Lankan decision reneging on the 2019 agreement, the country's cabinet has now approved a proposal to develop the west terminal of the Colombo port as a Public Private Partnership with Japan and India.

Written by Arun Janardhanan , Edited by Explained Desk | Chennai |
Updated: February 4, 2021 11:04:59 am
The Sri Lanka government sources rules out chances of any further trouble on the cabinet-proposed West Terminal offer.

After the strong opposition from trade unions across the country, the Sri Lankan government was forced to renege on a 2019 agreement with India and Japan to develop the strategic East Container Terminal (ECT) at the Colombo Port.

After Prime Minister Mahinda Rajapaksa’s statement that the operation of the east terminal would be done by Sri Lanka Ports Authority on its own, a cabinet meeting approved a proposal to develop the West Terminal at the Colombo Port as a Public Private Partnership with India and Japan, which was seen as a bid to compensate India. It is unclear whether India would accept the latest proposal even as the Sri Lankan government rules out chances of further troubles.

How has India reacted?

To Mahinda Rajapaksa’s statement that ECT development and operation will be done by Sri Lanka on its own, a news that was seen as embarrassing the Indian side, India’s first response was that the island nation should not be taking a decision in a unilateral manner on an existing tripartite agreement.

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What is Sri Lanka’s compensatory offer to India?

After the Sri Lankan decision reneging on the 2019 agreement, the country’s cabinet has now approved a proposal to develop the west terminal of the Colombo port as a Public Private Partnership with Japan and India. While two top sources in the Sri Lankan government said Indian response to the compensatory offer was “ambiguous” and “almost rejecting,” Indian officials said there was no formal communication about WCT till Tuesday noon.

“Commercially, the west terminal offer is better for India as it gives 85% stake for developers of the West Terminal against the 49% in ECT. Even if this is the better deal for the investor (including Adani), the final decision has to come from the Indian government. And geo-politically too, West Terminal is almost the same if they consider the security aspect and the necessity to have a port terminal in Sri Lanka… And West Terminal is no smaller in size or depth compared to the East Terminal… If Indian response remains uncertain to this proposal, I am sure it was not communicated (from the Sri Lankan side) properly to India. There is no difference between East and West Terminals except for the fact that development of the ECT is partially completed while the development of the West Terminal has to start from scratch,” the official said over the phone from Colombo.

What made Sri Lanka change its word on ECT?

Senior leaders of Prime Minister Mahinda Rajapaksa-led Sri Lanka Podujana Peramuna (SLPP) party said the pressure was immense on the President Gotabaya Rajapaksa to cancel the 2019 agreement.

Even as President Gotabaya stood by the agreement with India initially in spite of a strong opposition from Colombo port trade unions during their talks, “the pressure was brewing so much that… as if he was becoming so unpopular among the people,” said a senior cabinet minister. “They had quoted his own presidential manifesto that was contrary to this 2019 agreement. He did argue with them citing the agreement in which the Sri Lanka government owned 51% stake in the development and operational project of ECT. But it wasn’t enough to convince them,” the minister said.

As per the agreement signed by the former Maithripala Sirisena-Ranil Wickremesinghe administration, India and Japan together was to hold 49% stake in ECT.

What had finally made the government surrender before trade unions was the increasing support of many more sections in the society for the protests against privatisation.

While there were reports and allegations among diplomatic circle that the Chinese had played a role in instigating port unions protest against India’s interest, some 223 Sri Lankan unions from different walks of life, including trade unions and civil societies groups, declared support for the port trade unions demand to cancel the ECT agreement.

Impact on India-Sri Lanka relationship

For India, the strategic ECT project was important. Even the External Affairs Minister S Jaishankar had visited Colombo in January in this regard.

Many who are part of the Sri Lanka government as well as those who were known to the developments hope that the issue will die down soon with the offer of West Terminal. However, some critics of the Sri Lankan government anticipate many national and international impacts surrounding the latest decision on ECT.

While a senior SLPP minister said “Gota (President Gotabya Rajapaksa) is a man who never changes his word,” he added that “he had to agree to cancel the ECT agreement as it was almost reaching up to the level of shaking his Presidential chair.”

Other than the support of hardcore Mahinda-SLPP followers who voted for him in the Presidential polls, he was also backed by the Sri Lankan middle class blended with nationalist, racist views. While aggressive, radical, nationalists groups including Buddhist monks were among those who stood against ECT agreement to support the Colombo port trade unionists, that fact that general sentiments of the middle class population too were against Indian tie-up.

With the cancellation of the agreement, all these groups including unions of working professionals and a scattered middle class population have all gained an upper-hand, which is politically not favourable for both Prime Minister Mahinda and his younger brother, President Gotabaya.

Meantime, internationally an offended India can makelife tough for Sri Lanka, isolating the tiny island nation, geo-politically and on the economic front. The economic isolation will not help Sri Lanka at a time when the country is taking steps to revive the economy amid a pandemic.

Will there be similar protests and crises if India accepts the West Terminal offer?

The Sri Lanka government sources rules out chances of any further trouble on the cabinet-proposed West Terminal offer.

Last Thursday, 23 unions of the Colombo Port backed by over 220 unions across the country declared protests, which was to develop as an island wide strike challenging the government.

“There were talks held at this point and the Sri Lanka government authorities received the feedback that John Keells Holding PLC (JKH), largest public listed conglomerate in Sri Lanka and the Adani group, at the Indian side, may agree with WTC offer as a compromise formula with a promise that the private stake will be 85% in WTC instead of 49% at ECT,” said a top Sri Lanka Ports Authority (SLPA) official.

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Ahead of “unilaterally” cancelling the ECT agreement, the Sri Lanka government also managed to get the written consent of unions in this regard, in which 22 out of 23 Unions signed and gave a letter agreeing to support the government in its plans to develop the West Terminal with private investment. “This is commercially a better deal for Adani too. And unions had also agreed to mention both east and west terminal decisions in one cabinet paper,” said the SLPA official.

The fourth point in the consent letter of unions said: “We will support a good investment decision that the government would take in future in relation to the west terminal.”

ViyathMaga (Professionals for a Better Future), a network of academics, professionals and entrepreneurs, had played a key role in the final round negotiations between the unions and the government, which had led to the latest WTC proposal. Nalaka Godahewa of ViyathMaga, who was the former chairman of SLPA and the current state minister of Urban Development, told The Indian Express over phone from Colombo that Sri Lanka wasn’t pushing India away from the deal. “Instead, we being professionals, we volunteered to talk and find an agreeable ground through dialogues ensuring that it would respect the Indian interests as well. It is a win-win solution now,” he said, referring to the West Terminal proposal.

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