Script by Pallab Bhattacharya, Journalist
Sri Lanka’s announcement reneging on a 2019 deal with India and Japan for developing and operating the strategic East Container Terminal (ECT) in Colombo port has understandably created a sense of disquiet in relations between Colombo one hand and New Delhi and Tokyo on the other. After the cancellation of the agreement on the ECT, Sri Lanka is reported to have offered the development of Western Container Terminal at the same port.
India and Japan have made no secret of their disappointment over the cancellation of the agreement signed during erstwhile Maithripala Sirisena-Ranil Wickremesinghe government to develop and operate the ECT under a trilateral framework. Officially, however, External Affairs Ministry spokesman Anurag Srivastava said India “sincerely believes that the development of infrastructure in Sri Lanka in areas such as port and energy, with foreign investment from India and Japan, will be a mutually beneficial proposition.” Over two-thirds of trans-shipment of goods at the ECT is linked to India and the project has the potential to enhance Sri Lanka’s status as a key trade and connectivity link. Japan has been a keen supporter of Sri Lanka’s growth story.
Certainly, not all is lost on the deal. The Indian High Commissioner in Colombo is in talks with the Sri Lankan government including on the importance of adhering to international commitments. In fact, India’s first response to the development was that Sri Lanka should not be taking a decision unilaterally on an existing tripartite agreement in which the majority 51 per cent stake is to be with the host country and the remaining 49 per cent with the Indian and Japanese investors. The Indian envoy has held separate meetings with Sri Lankan President Gotabaya Rajapaksa, Prime Minister Mahinda Rajapaksa and Foreign Minister Dinesh Gunawerdene to convey India’s position that Sri Lanka must abide by the agreement. The Japanese Ambassador too has met the top Sri Lankan leadership to discuss the matter. More than two-thirds of trans-shipment at the ECT is tied to India and it has the potential to enhance Sri Lanka’s status as a key trade and connectivity hub in South Asia.
It remains to be seen if India accepts the alternative offer for WCT which, according to some media reports, is economically a more viable project than the ECT. Some in the Sri Lankan establishment hope that the issue will die down soon with the offer of the West Terminal. But the issue does not just relate to the East or the West Terminal.
At a much larger level, what is at stake in Sri Lanka’s credibility as a recipient of foreign direct investment in key infrastructure areas at a time when the island nation’s Covid-hit economy and tourism are struggling to recover from the effects of the pandemic. It was just three months ago that the Sri Lankan cabinet had iterated its resolve to implement the ECT project with foreign investors. Any U-turn from that stand is bound to hit foreign investors’ confidence in policy consistency of the Sri Lankan government.
For India, the ECT project is strategically important because it is next to the terminal operated by China. India’s involvement in setting up infrastructure projects across a range of sectors, including rail, port and energy, is part of a response to China’s Belt and Road Initiative in South Asia. External Affairs Minister S Jaishankar had recently visited Colombo in January in connection with the ECT.
It should be noted that India and Japan are among the Indo-Pacific partners and also members of a Quadrilateral grouping also involving the United States and Australia which are planning to provide South Asia with viable, transparent and financially sustainable alternatives for development avoiding the pitfalls of the debt trap of BRI. In fact, the rising debt crisis in Sri Lanka sparked by Chinese loans forced the island nation to sell the Hambantota port back to China Merchants Port Holdings.
Prime Minister Narendra Modi’s government has invested quite heavily seeking to effect a turn-around in India-Sri Lanka ties by announcing a new credit line, currency swap agreement and rushing Covid-19 assistance and vaccines. National Security Adviser Ajit Doval and Jaishankar had separately visited Sri Lanka and Modi hosted President Gotabaya and Prime Minister Mahinda. All these had the cumulative effect of drawing Gotabaya and Mahinda Rajapaksa out of China’s sphere of influence. Two countries began to reinvigorate trade and investment ties in the last two years before the coronavirus pandemic struck. In July last year, India extended a 400 million US Dollar currency swap facility to Sri Lanka to assist that country with post-pandemic economic recovery.