Losing Colombo port deal should help India focus

February 18, 2021 5:00 AM

The mandate of Vizhingham (upcoming port in Kerala) is to aggregate Indian exim cargo and, thus, provide a counter to Colombo. If we are serious about atmanirbharta as a concept, we must ensure that such cargo is handled in India instead of in a foreign port.

Following the 2020 elections in Sri Lanka, however, the new government went back to the drawing board and changed a number of things. (Representative image)Following the 2020 elections in Sri Lanka, however, the new government went back to the drawing board and changed a number of things. (Representative image)

By Michael Pinto

Finally, even the combined efforts of the ministry of external affairs (MEA) and a high-level visit from India’s external affairs minister could not swing the Colombo port terminal deal India’s way. If the minister’s advocacy was for a project that would only be awarded to the best offer among several competitive bidders, and India’s was not the best, one could understand this failure. Instead, it was to comply with the terms of a Memorandum of Cooperation (MOC) that Sri Lanka signed in 2019 with India and Japan, per which the three countries would develop the East Container Terminal (ECT) in the Colombo port as a major centre for handling containers. Although details of ownership had not been spelt out in the MOC, it was expected that it would follow the 85:15 pattern followed when China was allotted the contract to develop the Colombo Cargo Container Terminal (CCCT). Following the 2020 elections in Sri Lanka, however, the new government went back to the drawing board and changed a number of things.

At first, the idea was that the project would be implemented by the three partners, in the ratio of 51% for the Sri Lanka Port Authority (SLPA) and India & Japan sharing the remaining 49%. This, even though Japan was expected to come up with a soft loan of $ 500 million for 40 years at an interest rate of 0.1% and India was expected to implement the project. A little later, even this changed and the project was now to be developed exclusively by Sri Lanka. The ostensible reason for reneging on the MOC was that the trade unions in Sri Lanka were adamantly opposed to allowing the ECT to be developed by foreigners. Instead, there were feelers that India and Japan could develop a new project called the West Container Terminal (WCT). There were even statements that the Indian partner, the Adani Group, was favourably inclined to the WCT that had all the advantages of the ECT and could come with an enhanced equity share of 85:15.

Broadly, this is where the matter now stands. But the alternative offer is not quite on all fours with the ECT project. For one, the project cost is likely to be much higher since the site will have to be developed from scratch. For another, it will come up much after the ECT project is operational and there may not be enough business in Colombo port to fill the extra capacity created. In such cases, the last entrant invariably suffers.

India is justified in feeling that it has been let down by the Sri Lankan government. There was, after all, a MOC that committed the Sri Lankans to accepting India and Japan as partners in the project. The excuse of opposition from trade unions rings false. If such projects are to be reserved for local investment, a sort of Sri Lankan atmanirbharta vision, then the allotment of the entire CCCT to China should have seen even greater opposition since 85% of the project went to the foreign partner. Besides, how does Sri Lanka’s willingness to accommodate India in the development of the WCT square with its opposition to their involvement in the ECT?

While some righteous indignation may seem inevitable, India must look at this development not as an injured party that has been badly let down, but from the perspective of what it can salvage from the whole episode. The official spokesman of the MEA stated that India’s longstanding interest in participating in the ECT is because nearly 70% of the goods handled in Sri Lanka either come from India or are destined for it. India’s domination of the traffic handled in Colombo is correct, but how does this lead to the conclusion that India must run one out of a host of other terminals in Sri Lanka?

The real problem that the official spokesman’s statement does not highlight is that, instead of handling our own cargo inside the country, we are quite content to allow it to be handled outside. It is this that must be reversed. Why must our cargo be aggregated in Colombo? Why not at a port in India? The answer usually has been that our ports are far from the main shipping lanes and, therefore, do not attract mother vessels. These vessels usually call only at ports that do not require them to deviate very far from the main shipping lanes. This, too, is true, but our response to this has been to set up a hub port in Vizhingham in Kerala that, as far as location is concerned, can give Colombo a run for its money.

The irony is that the port at Vizhingham is being developed by the Adani group and is expected to be commissioned before too long. Yet, it is the Adani group that was supposed to implement the ECT project. How can it do both things? The Vizhingham port is touted as India’s answer to Colombo and will compete with it in attracting transshipment cargo. If the same person invests in both projects, how will he deal with the fact that the two are in competition with each other? To which one will he accord priority? The mandate of Vizhingham is to aggregate Indian exim cargo and thus provide a counter to Colombo. If we are serious about atmanirbharta as a concept, we must ensure that such cargo is handled in India instead of in a foreign port. The message to Indian policymakers should be: Forget ECT and the Colombo port, develop your own hub port that will attract Indian cargo as well as cargo from other countries and snap your dependence on foreign ports.

The entire episode has thrown up positions that are strikingly at odds with the avowed goals of the parties. India should be keen to develop its own hub port so that it no longer has to rely on Colombo to fulfill that role. Instead, it is trying desperately to invest in a port in another country where the bulk of its cargo goes. By doing so, it loses out on the chance to handle it in one of its own ports. Sri Lanka, on the other hand, should be eager to see that India does not develop its own hub port, but will always have to rely on Colombo for transshipment. The best way to achieve this is to offer attractive terms for India to invest in the ECT so that the preeminence of the port of Colombo in the area remains unchallenged. The odd thing is that each country is doing exactly the opposite.

The author is Former secretary (shipping), Government of India

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