Investment in the port is key to the new Silk Route but challenges Indian shipping’s prospects
Resolution of the impasse between Sri Lanka and China on the construction of a Chinese-funded port city at Colombo is not only indicative of the pragmatic policy posture of the Sri Lankan government, but also an important first step towards the materialisation of the maritime silk route initiative (MSRI) proposed by China.
The new port city in Colombo, envisaging $1.4 billion investment by China on the Sri Lankan coast, had run into problems after the current Sri Lankan government headed by president Maithripala Sirisena assumed office little more than a year ago and held back the project. Though the officially cited reason was re-assessment of the environmental impact of the project, alleged irregularities in the award of big-ticket construction projects during the Mahinda-Rajapakse government, was arguably the main reason for the re-look. Some strategic thinkers also felt the decision indicated the new government’s unwillingness to be seen as a close partner to China, a feature which had become distinctly noticeable during the earlier government’s tenure.
The decision to go ahead with the project with hardly any major amendments except incorporating the condition of long-period leasing of land on which the city would be built, reflects the Sri Lankan government’s efforts to work closely with China. The decision could well have been influenced by the extensive Chinese involvement in Sri Lanka’s ongoing infrastructure development. China has been the largest investor in Sri Lanka’s post-conflict infrastructure development. The investments have been based on loans that have usually come at high costs, creating fiscal stress for the country. Nonetheless, the Sri Lankan dependence on Chinese investment continues to remain critical in the absence of other sources of infrastructure funding. Notwithstanding the cost, the Chinese investment in Sri Lankan infrastructure has also been generating dividends. The best example is the Colombo port. The Colombo International Container Terminal (CICT)—a joint venture between China’ Merchant Holding International and the Sri Lanka Port Authority, in 85:15 proportion of equity sharing—has been a remarkable success. On efficiency parameters, the port is now among the top 50 ports in the world, and is the leading port in the South Asia region. The key success of the port has been to develop as a major trans-shipment hub on the Indian Ocean. By being a deep-water terminal and with the capacity of handling the largest containers, the port has become a berthing favourite for ultra-large and very-large container carriers, which account for significant parts of container volumes in the port. The new port city will build on the success of the Colombo port. By creating new capacities, including on-land maritime real estate like a marina and new housing, the port city can well make Sri Lanka one of the busiest hubs on the Indian Ocean. The prospects have significant implications for the MSRI and India.
As far as the MSRI—the grand Chinese maritime connectivity plan of linking the Far East with North Europe—is concerned, Sri Lanka is a vital cog by virtue of its strategic location. The Far East-to-North Europe maritime route is one of the busiest shipping routes in the world. Colombo’s development as a major trans-shipment hub on the route, allowing ships quick turnaround time, makes it a much sought-after destination for stopovers. This is evident from the increasing number of major shipping lines on the Asia-Europe route, which have begun berthing at the Colombo port. The liners include prominent shippers like CMA Marco Polo, Edith Maersk and Elly Maersk, all of whom have containers of the ultra-large and very large categories. The increasing integration of the Colombo port in the Asia-Europe traffic is also evident from its greater use by the Chinese and Korean shipping liners.
The growth of Colombo port as the region’s major shipping hub increases its utility further for Indian businesses. Till very recently, Indian cabotage laws did not allow foreign vessels to move between ports on the Indian coastline for dropping cargo, if Indian flagships were available for the purpose. As a result, foreign vessels, after offloading in a particular Indian port, needed to turn out of Indian waters and come back to the coastline again, after berthing at a foreign port. The Colombo port has been providing this facility to liners headed for India’s east coast, as well as to some traffic on the west, though the latter is largely catered by Dubai. With Indian cabotage laws partly relaxed, more foreign ships are now able to drop off cargo in multiple Indian ports. But India’s coastline still lacks deep sea-water ports that will enable it to draw large container vessels that the Colombo port draws now. Till such ports come up, the dependence of Indian businesses on Colombo for trans-shipment will continue and is likely to increase as the latter takes on greater traffic.
India’s amended cabotage rules will not serve their purpose unless its coastline develops port capacities commensurate with Colombo, Dubai or Singapore. Creating such capacities will require large investments. The most willing investors in this regard are the Chinese, who are likely to be viewed sceptically given the security concerns attached with their investments. In the meantime, however, Colombo port’s uninterrupted growth from Chinese investments will formalise the advent of the MSRI and will enlarge the port’s capacity to challenge the economic prospects of India’s shipping industry.
The author is senior research fellow and research lead (trade and economic policy) at the Institute of South Asian Studies in the National University of Singapore. E-mail: firstname.lastname@example.org. Views are personal