Unwise double standards on East Container Terminal

Protest against ECT being awarded to Adani group of India

By Harim Peiris

Earlier this week, the Government officially announced that it would not proceed with the proposal to develop the East Container Terminal (ECT) of the Colombo Port, as a joint venture between the Sri Lanka Ports Authority (SLPA) and the Adani Group of India. The announcement by the government, through the Prime Minister no less, raises important questions marks and doubts over the vistas of prosperity and the claims of technocratic policy making and efficient governance, we were all promised by the Government at preceding elections.

Private investment into
the Colombo Port

Firstly, a quick look at the Colombo Port would demonstrate that we already have the private sector operating terminals in the Colombo Port, namely the South Asian Gateways Terminals (SAGT), a John Keells Holdings investment and more recently, under the previous Rajapaksa Administration the Colombo International Container Terminal (CICT), a venture with the China Merchants Port Holdings. In both SAGT and CICT, the stake of the Sri Lanka Ports Authority (SAGT) is only fifteen percent (15%). In contrast the proposed joint venture for the ECT with the India’s Adani Group, was to have a majority (51%) Sri Lankan stake, through the Sri Lanka Ports Authority (SLPA) and the Adani group and other project managers, the balance minority stake only.

Further in the case of the CICT, the China Merchants Port Holdings, is a Chinese Government entity and so the investor is not a foreign private investor, but a foreign sovereign entity. The same Chinese Government entity, the China Merchants Port Holdings (China Merchants) also owns 85% of the Hambantota Port. So, the principal of private sector and foreign investor participation in Sri Lankan ports, is a clearly established Sri Lankan State policy, going back over twenty years, the SAGT having commenced operations in 1999.

Policy clarity and efficient governance

Foreign direct investment (FDI) is the name of the game for Sri Lanka, to both see significant foreign exchange inflows into Sri Lanka and also to significantly improve our infrastructure which will directly contribute to increased growth in our GDP. Both of these are areas where Sri Lanka lags behind our peer group in South and East Asia. Sri Lanka’s GDP growth of the past eight years or so, have been lower than our war era GDP growth and shipping, especially transshipments is a significant potential growth area, for which port capacity and operating efficiency are crucial.

Regarding foreign direct investment (FDI) as well, Sri Lanka lags behind her peer group, especially through equity investments. Further FDI into infrastructure, is harder to attract, than say service industry investments, because infrastructure investments are not only significantly larger, in hundreds of millions of dollars, but also because the projects are long term in nature. Accordingly, the investment by the Adani group would have been a huge foreign direct investment by a private (not government) Indian company and a precursor and confidence booster for other Indian investments. Sri Lanka, geographically positioned as we are, should endeavour to benefit ourselves from the economic growth and success story next door.

A crucial and essential feature of both public policy and governance is that there be both clarity and certainty. In that respect, honouring commitments and especially written agreements become crucial in the conduct of both international relations and commercial activity. The adherence to contracts and agreements is an essential feature of international, local and every common law tradition in the world.

It is in that context, that the previous Sirisena / Wickremesinghe Administration though extremely critical of the Port City and other grandiose projects of dubious utility value, honoured those contracts and proceeded with the projects because of binding nature of the agreements. It was therefore entirely predictable, the immediate Indian Government response to the Government’s announcement, through its High Commission in Colombo, when it announced that the Indian Government expects adherence and implementation of the tripartite Memorandum of Cooperation (MOC) signed between Sri Lanka, India and Japan, our largest bilateral donor by far, for the development of the ECT.

Reneging on contracts, tearing up the rule book and thumbing our nose at our closest (and giant) neighbour India, together with offending our largest bi lateral donor by far, Japan is very unwise and hardly likely to lead us to vistas of prosperity. Not only has Japan been a firm and reliable friend of Sri Lanka for over half a century, they have been Sri Lanka’s largest bilateral donor. The Japanese also have considerable sway over the Asian Development Bank, which has been one of the largest, long term concessionary lenders for infrastructure to Sri Lanka. Their proposed loan for the ECT was at a half percent compared with the hefty premium to Libor that all the Chinese loans came at. Compare half percent to say, four or five percent for a half a billion dollars. The math does not add up. This is also after the government unilaterally cancelled the Japanese light rail project, which was meant to address the rather obvious need for mass rapid transit in the Colombo district, beyond our colonial era railways.

The Government position seems very strange. We have declined foreign direct investment and torn up an agreement with our largest neighbour India and our largest donor Japan. We find the East Terminal in the Colombo Port strategic but not the Western terminal, or the SAGT or the CICT or even the Hambantota port, just the East Terminal. We can forgive those who suspect a hidden hand and it is not too hard to see from where. Monopolistic or oligopolistic behaviour is rational for the monopolist or the oligarch. The problem is when the Government is subject to their pressure.

In contrast to the Government, the main opposition Samagi Jana Balawegaya (SJB) of Opposition Leader Sajith Premadasa, has very wisely taken a well-balanced position on the ECT, saying a public private partnership is the best way forward.

(The writer served as Advisor, Ministry of Foreign Affairs from 2016-17)