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ECT: Hanging from a geopolitical noose 

10 Feb 2021

  • The fluctuating fates of Asia’s most wanted port of call 

  The development activities of the Colombo Port’s East Container Terminal (ECT), which in the past few months caused great controversy and many protests, have now come to a critical juncture as far as the ECT is concerned, with the Government’s decision to renege on an agreement entered into with India and Japan for the development of the ECT of the Colombo Port’s South Harbour dating back to 2019.    The Cabinet decision that ended protests over ECT    Last week, the Cabinet of Ministers announced its decision to renege on the aforementioned agreement with India and Japan and to operate the ECT as a wholly State-owned Container Terminal of the Sri Lanka Ports Authority (SLPA), in the face of mounting opposition raised by a large number of trade unions, especially those associated with the Colombo Port.    The Cabinet said that it had approved a proposal to appoint a negotiating committee on 26 October, 2020, in order to evaluate an investment proposal submitted by an Indian investor in accordance with provisions of the agreement.    The Cabinet further said that it had approved the proposals tabled by the Minister of Ports and Shipping Rohitha Abeygunawardena, in accordance with the recommendations furnished by the aforesaid negotiating committee.    Afterwards, the Cabinet had, in addition to scrapping the said agreement, reached a decision to take necessary steps to develop the Colombo Port’s West Container Terminal (WCT) on the basis of operating and developing as a public-private partnership (PPP) and to return it within 35 years, together with parties (companies) nominated by the Indian and Japanese Governments and the SLPA.    The Cabinet said that this project will be carried out in accordance with the international agreements signed by the Sri Lankan Government with a view to develop the Colombo Port as a competitive Port in the South Asian region.    Cabinet decision: Trade unions’ response    The party that expressed the greatest opposition against the Government’s tripartite agreement with India and Japan for the development of the ECT was the Colombo Port trade union. In fact, some also claim that if it was not for the protests and discussions held by the trade union in the past few months, the Government would not have decided to scrap the said agreement.    To discuss the current opinion of the trade unions, The Morning spoke to several Colombo Port trade union leaders.    The Progressive Workers’ Association for Commercial Industry and Services (PWACIS) said that the Government has taken the right decision and that preliminary steps concerning the new plans for the Colombo Port are underway.    PWACIS Secretary Shamal Sumanarathna said that there is a lot to do still, including filling the required area with sand and importing transfer and gantry cranes. He added: “Other than these activities, all other operations of the Colombo Port are in progress as usual, and all disputes have been resolved. As a result of the protests by the trade unions, it was possible to get the Government to agree to handle the development of the ECT through the SLPA. The rest is up to them, and we will take necessary steps as and when the future development activities take place. The ECT will be owned entirely by Sri Lanka, and the SLPA has approximately $ 250 million in reserves.”    When queried as to whether the Colombo Port trade unions are in agreement with the Government’s decision to enter into an agreement with foreign investors for the development of the WCT, Sumanarathna said that despite their opinion, the Government has to act in accordance with the loan agreement entered into with the Asian Development Bank (ADB) in 2007 for the development of the ECT, since the Government has still not paid off the entire amount that was borrowed.    “Violating such international agreements may cause issues to the Government,” he stressed, adding that trade unions, therefore, do not wish to raise any opposition in that connection for the time being.    Meanwhile, Co-Convener of the Trade Unions to Protect the ECT Sanjeewa Weligama further explained the above mentioned loan agreement with the ADB. “According to the agreement entered into in 2007 with the ADB, two out of the three Terminals that come under this project should adopt the PPP method. Regardless of how the development activities take place, Sri Lanka will have only 15% of the shares. Out of the three Terminals, namely -- the Colombo International Container Terminal (CICT), the ECT and the WCT -- the CICT is a PPP, the ECT will be entirely owned by the SLPA and the remaining WCT will have to proceed as an 85-15% PPP. The WCT will be developed as per a decision taken in accordance with the international tender process, similar to the process adopted in the case of the CICT. Based on this decision, it will be determined with whom Sri Lanka will enter into an agreement, be it Japan, India, or any other party. As per the usual practice, Sri Lanka will enter into an agreement with the party that offers the highest bid. To get rid of the 85-15% partnership ratio requirements, the Sri Lankan Government will have to pay in full the loan taken from the ADB. Then only will Sri Lanka have the right to develop the WCT in its entirety. The agreement with the ADB is based on a loan it granted Sri Lanka. A decision has been taken to appoint a technical committee to look into the future plans concerning the Colombo Port. Six requests have been put forward in this connection, and the relevant Cabinet paper was prepared according to these requests. As the Trade Unions to Protect the ECT, we suggested that three of our representatives be appointed as members of this technical committee that is yet to be appointed.”    Japan, India concerned about SL’s unilateral decision    The Sri Lankan Government’s unilateral decision to renege on the 2019 Sri Lanka-Japan-India tripartite agreement on the development of the ECT – entered into by the former United National Front-led Government’s Minister of Ports and Shipping Sagala Ratnayaka – has sparked tension among the Indian and Japanese authorities.    Following the announcement of the Government’s decision, the Indian Government’s first response was that Sri Lanka should not be taking a decision in a unilateral manner. The Indian media claimed that the Sri Lankan Government offering a fresh deal for the development of the WCT instead of the ECT could be viewed as an attempt to compensate India for the revoked agreement.    Quoting an Indian official, The Indian Express said: “Commercially, the WCT offer is better for India as it gives a 85% stake for the developers of the WCT against the 49% in the ECT. Even if this is the better deal for the investor including Adani, the final decision has to come from the Indian Government. And geo-politically too, the WCT is almost the same if they consider the security aspect and the necessity to have a Port Terminal in Sri Lanka. And the WCT is no smaller in size or depth compared to the ECT. If the Indian response remains uncertain to this proposal, I am sure that it was not communicated (from the Sri Lankan side) properly to India. There is no difference between the East and West Terminals except for the fact that the development of the ECT is partially completed while the development of the WCT has to start from scratch.”    According to the Indian media, India’s Ministry of External Affairs Spokesperson Anurag Srivastava had stated that the Indian High Commissioner in Sri Lanka is holding discussions with the Sri Lankan Government regarding the importance of adhering to international commitments. According to foreign media reports, it is uncertain as to whether the Indian Government would accept the new proposal Sri Lanka has put forward.    A report published by the Indian media outlet The Hindu Business Line suspected that China could be behind Sri Lanka’s decision to scrap the aforementioned tripartite agreement. It also said: “Sources tracking the project in India believe that China put the ‘spanner’ in the works, and that aside from its strategic interests, China has a commercial interest to stall India’s participation in a container loading facility in the Colombo Port.”    The Morning attempted to contact the Indian High Commission and the Japanese Embassy in Colombo in a bid to obtain an official statement in this connection, but to no avail.    However, speaking to The Sunday Morning, the Japanese Embassy had earlier stated that the Japanese Government is yet to take a decision with regard to the Sri Lankan Government’s decision to scrap the 2019 tripartite agreement and the offer of a new deal to jointly develop the WCT with India. The Japanese Embassy had further expressed its disapproval regarding the fact that the Sri Lankan Government took this decision unilaterally.    Colombo Port and ADB-funded Port expansion project    The Colombo Port Expansion Project (formerly the Colombo Port South Harbour Development), launched on the basis of a loan of $ 300 million granted by the ADB, comprised the development of three Terminals, namely, the South Terminal, East Terminal and the West Terminal.    According to the agreement Sri Lanka entered into when taking the ADB loan, it was required that out of the three proposed Terminals, two should be operated under a PPP. The South Terminal was developed in partnership with the China Merchants Holdings International which led to the formation of the CICT, and the ECT was to be the second Terminal operated under a PPP.    The ADB, in the project description, said: “The Colombo Port Expansion Project provides for dredging and breakwater construction sufficient to accommodate three Terminals, which will be constructed sequentially. The project includes the establishment of a new marine operations centre, the relocation of a submarine oil pipeline, the provision of navigational aids, and the construction of shore utilities. The project will be developed on a PPP basis. The Harbour infrastructure works, i.e. dredging, breakwater construction, and other works, will be implemented by the SLPA. The first two Terminals will be operational in 2010 and 2015 respectively, and constructed by operators chosen through open competitive bidding under a build-operate-transfer concession agreement. The first concession bid will be for one Terminal.”    Colombo Port’s future: development plans    As the issues pertaining to the development of the ECT have died down to a certain extent and the WCT has emerged as the new hottest topic concerning the Colombo Port, The Morning spoke to the relevant authorities and trade unions in order to obtain more information about their future steps.    According to the Ministry of Ports and Shipping, steps are underway to appoint two committees to look into the future steps in connection with the WCT. He added that these two committees comprise a Ministry-appointed committee to hold the necessary talks with all the relevant parties including India, Japan, and another committee.    The Secretary to the Ministry U.D.C. Jayalal told The Morning that necessary requests in this connection have already been made to the Ministry of Finance. When questioned about the nature of the partnership Sri Lanka is likely to enter into concerning the WCT, Jayalal said that it is expected that the WCT will be developed in accordance with the same 85-15% partnership, which was adopted in the case of the CICT, where Sri Lanka retained 15%.    However, he stressed that there is a possibility that this percentage may change.    Speaking on the future of the ECT, Sumanarathna added: “The current plan is to complete the development of the entire Terminal in one go within a period of three years. This will lead to the addition of around 2.5 million 20-foot equivalent units (TEUs) capacity.” He also said that the development activities of the WCT will cost at least $ 900 million, which compels Sri Lanka to look for external investors.    The Colombo Port, as an extraordinarily important strategic Port in the South Asian region, is now at a decisive juncture.    On the one hand, Sri Lanka has to take decisions pertaining to the Colombo Port more wisely as it involves a gigantic share of Sri Lanka’s national income while on the other hand, Sri Lanka will have to maintain all ties with China, India, and Japan more carefully, as the Colombo Port is likely to become a place of mutual interest for all these countries.    Regardless of the countries that are coming forward to invest in the Colombo Port or the nature of these investments, the Government has an increased responsibility to see to it that Sri Lanka benefits from all these joint projects.


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