In May 2019, India, Japan and Sri Lanka signed a Memorandum of Cooperation (MOC) to jointly develop the East Container Terminal (ECT) of the Colombo Port. The joint initiative was estimated to cost between $500 million and $700 million. The MOC is of high significance for India since over 70 percent of the transshipment business here is linked to India. India had earlier been trying for this deal for over one year without success. Hence, the MOC was a landmark.
As per the MOC, the Sri Lanka Ports Authority (SLPA) is to retain 100 percent ownership of the ECT, while the Terminal Operations Company conducting its operation is to be jointly owned. Sri Lanka is to hold a 51 percent stake in the project while the joint venture partners (India and Japan) hold a 49 percent stake. Japan was expected to provide a soft loan over a 40-year period at 0.1 percent interest, which the SLPA described as one of the best loan terms Sri Lanka has obtained. The ECT is about three kilometers from the Port City on the Colombo sea front which is being developed on reclaimed land with Chinese assistance.
During his visit to India in 2019, Sri Lanka President Gotabaya Rajapaksa had said on November 30 that India and other countries in the region must invest more in Sri Lanka if they want to provide an alternative to Chinese investments. He also assured India that on the main issues of Sri Lanka’s ties with China and Pakistan, there would be no problem that creates suspicions amongst Indian authorities. On November 29, 2019, India had announced an additional $400 million for development projects in Sri Lanka. Japan has been one of the biggest donors to Sri Lanka over past decades as well as investment partner. Notably, Japan had helped in development of the Jaya Container Terminal at the Colombo Port in the 1980s and has been supporting its operations since then.
On February 1, 2021, reports emanating from Colombo revealed that Sri Lanka had pulled out from the MOC signed with India and Japan with regard to the ECT in 2019. The Sri Lankan government has said the ECT will be operated 100 percent by the SLPA which is in sharp contrast to the MOC wherein SLPA has full ownership of ECT but the Terminal Operations Company handling operations is by the joint partners. Following this development, the Indian High Commission in Colombo has issued a statement with its spokesperson saying, “I would like to reiterate the expectation of 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 development of the ECT. The commitment of the Government of Sri Lanka has been conveyed several times in the past, including at the leadership level. …. All sides should continue to abide by the existing understandings and commitment.”
The magnitude of Chinese investments in Sri Lanka including in Colombo and Hambantota are mammoth. Chinese nuclear submarine and warships mostly dock at the Colombo South Container Terminal (CSCT) deep-water facility built, controlled and run by the China’s Merchants Ports Holdings Company Ltd through an aid project costing $650 million, not at the SLPA berths in Colombo mandated to accommodate military vessels. That such berthing of military vessels at the CSCT is a violation of protocols matter little to China since Colombo does not object. The CSCT is a ‘Chinese enclave’ within a Sri Lankan administered harbour. It is well known that China having debt-trapped Sri Lanka, the Sri Lankan government officially transferred Hambantota Port to Beijing for 99 years on July 25, 2017. The harbour of Hambantota Port (also known as Magampura Mahinda Rajapaksa Port) was formally declared opened by President Mahindra Rajapaksa (now Prime Minister of Sri Lanka November 18, 2010. Hambantota Port is part of China’s 21st Century Maritime Silk Road.
Beijing is Sri Lanka’s biggest source of foreign direct investment as well as providing expansion loans for multiple projects like the Colombo Port Terminal, Hambantota Port, Sri Lanka’s first four-lane expressway, a new National Theater and the like. But all this is with a price which China knows well how to extract in strategic terms. In 2020, Sri Lanka owed China $4.8 billion in loans. China-Sri Lanka defence ties have grown stronger since China helped Sri Lanka massacre and subdue the LTTE. China is helping to modernize and expand the Sri Lanka Armed Forces by supplying rocket launchers, shoulder-fired surface-to-air missiles, deep penetration bombs and rockets, mortar ammunition, night vision devices, artillery, tanks, jets, naval vessels, radars, and communications equipment.
The China National Aero Technology Import-Export Corporation is helping the Sri Lanka government in constructing an Aircraft Maintenance Centre. In 2007, China provided Sri Lanka $1bn to become the island’s biggest donor, giving tens of millions of dollars’ worth of military equipment. In 2016, China announced military aid to Sri Lanka to help them purchase Chinese military equipment. China has gifted a naval frigate “P625” to Sri Lanka.
With regard to cancellation of the tripartite MOC on the ECT by the Sri Lankan government, the question is why the Sri Lankan government has taken this sudden step? The Hambantota Port no doubt is leased to the Chinese for 99 years but Chinese are also handling and operating the CSCT. Why then the sudden decision that the ECT will be operated only by the SLPA, when under provisions of the the MOC, operations of the ECT are to be conducted by the Terminal Operations Company – the joint venture partners. This is not only going back on the agreement but a deliberate snub to India and Pakistan. Such an action could unlikely be taken by the Sri Lankan government on its own. There is obvious pressure from China on Colombo to do so since Beijing does not want India and Japan to operate the ECT.
China wants India subjugate to a China-centric Asia and abhors closeness of both India and Japan to America. But there could be another reason why Sri Lanka’s announcement cancelling the India-Japan-Sri Lanka MOC on the ECT came on February 1. With the military coup in Myanmar, Beijing may have perceived that its plans to make Myanmar a vassal state like Pakistan through the China-Myanmar Economic Corridor may not be that easy as under the National League for Democracy (NLD) led government.
China may have signaled the Rajapaksa brothers to rescind the MOC on the ECT immediately. Hopefully, President Gotabaya Rajapksa will reverse this decision and abide by the commitment made in 2019. If he does not, it will prove that his assurances during his visit to India in November 2019 that there would be no problem that creates suspicions about Sri Lanka’s relations with China and Pakistan were noting more than a political bluff.