GS-2: Effect of policies and politics of developed and developing countries on India’s interests
India-Sri Lanka: Colombo Port
Context: On September 30, 2021, the Gujarat-headquartered Adani Group signed a Build Operate Transfer (BOT) agreement with Sri Lankan company John Keells Holdings and the Sri Lanka Ports Authority (SLPA) to jointly develop the Colombo West International Container Terminal (CWICT) at the strategically advantaged Colombo Port.
As per the 35 year-long BOT agreement inked by the three parties, the Adani Group will have majority, 51%, stakes, while John Keells would hold 34%, and the SLPA, 15%.
The more than $700-million investment is said to be the largest foreign investment in the island nation’s port sector.
Colombo Port is located amidst one of the busiest shipping routes in the world.
Primarily a container port, the Colombo Port has handled over 5 million TEU of containerised cargo. It has five functional terminals.
What is the backstory?
Sri Lanka, led by different governments, has been keen to further develop its port and emerge a formidable regional hub, but roping in private foreign investor Adani Group directly was not Colombo’s first choice.
In May 2019, the Maithripala Sirisena-Ranil Wickremesinghe government signed a tripartite agreement with the governments of India and Japan, to jointly develop the partially-functional East Container Terminal (ECT) at the same port.
For India, the deal meant a potential advantage, both commercially and strategically, especially next to the China-backed Colombo International Container Terminal (CICT), where China holds 85% stakes in a BOT agreement spanning 35 years.
Those making a case for an Indian presence at the port argue that over 70% of the transshipment business at the Colombo Port is linked to India.
What happened to the 2019 agreement?
In a cabinet decision on February 1, 2021, Sri Lanka unilaterally removed India and Japan out of the agreement, instead opting to develop the ECT with its own investment, citing persisting protests by port workers unions, nationalist groups and Buddhist monks vehemently opposing any foreign role in a strategic national asset.
Sri Lankan government’s move took New Delhi by shock, as there was no prior indication of Colombo backtracking on the deal.
The cancellation of the ECT deal caused considerable diplomatic strain between all three countries
How did the WCT deal come to be?
Shortly thereafter, early in March 2021, a cabinet decision was taken to develop the West Container Terminal (WCT) at the Colombo Port along with India and Japan.
India had “nominated” Adani Ports and the deal was pitched as a “compromise”.
Recently, Adani Group signed an agreement with John Keells and SLPA to commence development work.
Japan is yet to decide on its involvement in the WCT project, according to diplomatic sources.
Whether it was the former ECT deal or the current WCT agreement, it remains unclear how the Adani Group became the chosen investor from India.
Until now, there is no indication of a competitive bidding process or of the selection process. or the rationale used to select the investor.
Colombo has repeatedly referred to the Adani Group as a “nominee” of the Indian government, although India sought to deny it had nominated anyone for the project.
Is there opposition?
While some political commentators and social media users have questioned the deal, the opposition to the WCT is not comparable to that against the ECT.
Curiously so, because Adani Group now holds majority stakes with its local partner John Keells, while SLPA holds just 15% in the WCT project, unlike in the ECT deal when SLPA had 51% controlling stakes.
Analysis of the development
Colombo’s number 1 customer is the Indian shippers and the carriers who give connectivity to the region and the world via Colombo. A partner from India is, therefore, a welcome development to Sri Lanka to build new relationships in the maritime and logistics sector with India
The presence of multiple global players in Sri Lankan ports would also help balance different geopolitical actors and ease current tensions.
However, there has been questions on whether Sri Lankan government followed due process in selecting the contractor — whether it is Chinese, American or Indian. There are allegations on the “deviations” from a competitive bidding process, lack of transparency and lack of sound data-driven decision-making,
