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Nationalism and geopolitics stall Colombo port’s development, though mega trends stand to help

Public policy - shipping policy included - has always been complex and contradictory in Sri Lanka, formerly Ceylon, the island nation off the southern tip of India.

Even its post-colonial name - Democratic Socialist Republic of Sri Lanka - illustrates this. If it is democratic, then its people are free to choose what system of government they prefer. But they are also constitutionally obliged to remain socialist and thus are denied the choice democracy would ensure.

Sri Lanka's highly democratic ways often leaves the separately elected president from one party at odds with the prime minister, who often heads the party of opposition.

While blessed by its location along the world's biggest and most prosperous trade lane, the nation is fraught with rival Indian and Chinese foreign policy conflicts set against the legacy of a bitter 26-year civil war in which the Hindu northern Tamils were defeated in 2009 by the southern Sinhalese majority, leaving 75.000 to 100,000 dead.

On the bright side is the Port of Colombo's ideal location as a transshipment hub for India, Bangladesh and Pakistan, whose ports offer affordable short-sea services to Colombo for passing ships going to Europe and increasingly to North America, as US terminals are dredged to accommodate the mega ships that have become common today.

So with a capacity of 7.2 million TEU and dredged to 15 metres, the Port of Colombo was ready for action, already in the world’s top 25 ports.

But Chinese and Indian geopolitics were soon to kick in with their own troubles. China had already established a presence in Colombo port (besides the Hambantota port in South Sri Lanka) by building and running the highly productive Colombo International Container Terminal (CICT).  But India and Japan wanted a stake too. Their eye was on the yet-to-be developed Eastern Container Terminal (ECT) in the same port.

India’s case is that 60 to 70 per cent of Colombo port’s business is accounted for by Indian transshipments and therefore, India should have a stake in the running of the port, reported Colombo-based NewsInAsia.

But the unstated, though equally important case, is that India needs to stem China’s intrusions into Sri Lanka’s economy and that a presence in Colombo port (at the ECT) will enable it to watch the Chinese who are ensconced in the CICT next door.

Since China considers the CICT and the Hambantota port as being part of China's Belt and Road Initiative, while India expects Sri Lanka to be part of the US-India-Japan-Australia "Quad" defence alliance.

For the "Quad" to be meaningful, India or Japan will have to have a place in Colombo port. India has already made Sri Lanka host of a Secretariat to co-ordinate the activities of the Indian Ocean trilateral maritime defence system involving Sri Lanka, the Maldives and India.

But Sri Lanka has become wary about assigning assets like ports to foreign entities after the controversial leasing out of the Hambantota port in 2017 to Hong Kong-based, but state-owned China Merchants Ports on a 99-year lease for US$1.2 billion. The incumbent Sri Lankan regime headed by the Rajapaksa family is highly nationalistic and suspicious of foreign involvement in projects with national security implications.

During its presidential and parliamentary elections campaigns in November 2019 and August 2020 respectively, the nationalist Sri Lanka Podujana Peramuna (SLPP) part, headed by the Rajapaksas, had pledged to develop and run the ECT without handing over the task to foreign entities.

But government plans were based on shaky finances. Strapped for cash, the government also faced mounting congestion in Colombo port that had to be relieved by expansion. The situation was made worse by a 30 per cent fall in the workforce due to the Covid crisis.

There have been times when there was a backlog of 50,000 TEU with 23 ships waiting to enter the harbour on an average, said Rohan Masakorala, CEO of Shippers’ Academy Colombo.

"Vessels were also by-passing the port and shippers had begun to feel the absence of the ECT,"  Mr Maskarola said. "If we had operationalised the ECT, the current congestion and crisis would have been minimised or averted. The transshipment volumes would have not dropped five to six per cent. Instead, with trade recovery, we could have grown by four per cent. The opportunity cost has been over 10 per cent."

Unlike the three other terminals in Colombo port, the ECT has had difficulties. It was conceived seven years ago, but the first move to set it up with foreign partner was made in 2015. The then pro-Western and pro-Indian government led by Prime Minister Ranil Wickremesinghe decided to give its development and running to a consortium comprising the Sri Lanka Ports Authority (SLPA) and an Indian company.

The government said the involvement of a foreign shipping company or ports operator was necessary to get business for Colombo port. However, all bidders were disqualified by the cabinet committee under pressure from nationalist President Maithripala Sirisena.

But with mounting congestion in the port and India’s anxiety to get a footing in Colombo, the Wickremesinghe government entered into a deal involving the SLPA, Japan and India to build and run the ETC.

Under that agreement, Japan was to provide a soft loan of $500 million and India was to do the construction. The port was to be owned by the Sri Lanka Ports Authority (SLPA), but run by an operating company in which the SLPA would hold 51 per cent of the stake, India 15 per cent and the rest would be held by Japan.

That was in May 2019. By November, nationalist Gotabaya Rajapaksa was elected president and in August 2020 his party swept into parliament with a two-thirds majority.

Concerned that the pro-China Rajapaksa regime would come under China’s control, India increased pressure on it to implement the May 2019 deal. But an SLPP-inspired port workers’ union struck work demanding the cancellation of the arrangement.

When Covid crippled work in all the terminals of the Colombo port, the government came under increased pressure from shippers and traders to implement the May ECT deal urgently.

With provincial elections, expected in the first half of 2021, more turmoil is expected, aggravated by the Covid crisis and its resulting increased unemployment.

Nationalist SLPA chairman Daya Ratnayake has denied that the government has approved a proposal to allow an Indian company, the Adanis Group, with 10 ports and terminals including Mundra Port India's biggest private port, to develop the ECT, only saying they would to "evaluate all the proposals".

Yet keeping the door open to India, Mr Ratnayake pointed out that 61 per cent of the total 82 per cent transshipment business was generated from India and said: ‘If an Indian company gets involved, we can retain and expand our current businesses by attracting large shipping lines and volumes from India. We should remember that there are a lot of ports in our region and there is severe competition.’

Shippers, who did not want to go on record, told NewsInAsia that government is clearly trying to postpone a decision for political reasons.

It is hard to say how Sri Lanka will muddle through to take advantage of the increasing numbers of opportunities that their location on the Asia-Europe trade route, except to say that it so often does navigate through such difficulties and that it will likely do so again.

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Do the prospects of the Port of Colombo improve with the Sino-American trade war, by putting greater emphasis to the Asia-Europe trade lane? Does re-shoring away from China to southeast and south Asia have an impact on Colombo's fortunes?

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