ECT to India Official
By Sulochana Ramiah Mohan
Amidst continuous protests staged by the Port Trade Unions and academics, Sri Lanka had to look outwards to reduce the tension between Indo-China relations and last week, the Government officially announced it is awarding India’s Adani Group a 49 per cent stake of the East Container Terminal (ECT), one of the three deep ports Sri Lanka owns, explaining that they had all the more reasons to do so.
But there was neither transparency nor clear policies on awarding ECT to foreigners from the inception and that triggered controversies.
The findings of the five-member committee appointed by President Gotabaya Rajapaksa to review the ECT is still to see the light of day.
However, the Cabinet Memo on the ECT, undersigned by Minister of Ports and Shipping Rohitha Abeygunawardena on 20 January, 2020, assured strict adherence to guidelines and recommendations in the Memorandum of Cooperation (MoC) between India, Japan and Sri Lanka. The public have so far not been kept informed of the contents of these mega agreements signed with India and China.
The incumbent government also expressed that they have no funds to develop the ECT which needs around USD 500 million that the government wanted to lease for 35 years.
According to the Minister of Ports, the SLPA's foreign debt stands at USD 327.8 million, largely by Yen dominated currencies raised in the past several years and annual debt service by the SLPA is around 19% of its income.
President Rajapaksa, when he met 23 port trade union representatives at the Presidential Secretariat last week, stressed on "regional geopolitical concerns," and said he could not hold off on the port deal so that it could be run solely by the Sri Lanka Ports Authority (SLPA).
Although the debate was that Sri Lanka should not ‘sell’ national assets to outsiders, it came very late, after several of the mega projects were given to one particular player in the region – China.
It resulted in Sri Lanka getting pulled into the geopolitics of the South Asian Region.
By contrast, India, our immediate neighbour, felt uneasy when China came in a big way to the South Asian region to boost Sri Lanka’s development when it came to a halt due to the war. India had been far too close to Sri Lanka sharing political, bilateral and culturally affiliated matters.
India did not feel that China’s footing in Sri Lanka would get to be so strong.
India and its allies, the United States of America, Japan and Australia, who are blowing hot and cold on China, wondered why Sri Lanka’s checks and balances with China was different from the rest of the countries that work closely with Sri Lanka.
When the Hambantota Port was developed by China, India rejected the offer to undertake the Port. At the end of the day, India, like the hare in the famous moral story of the race between the tortoise and the hare, rested on their laurels.
These countries’ interest in Sri Lanka which meant laying low with habitual and mutual bilateral ties being used to keep us happy, but ever since China not only started construction work of Port City in Sri Lanka but also claimed the biggest port in Hambantota on a 99-year lease, triggered tension even on a friendly nation such as Sri Lanka that was solemnly welcoming all countries and sticking to the non-aligned status quo it has always held.
Indian Foreign Minister Dr. S. Jaishankar expressed the idea that non-alignment is an old concept today and that India will never be a part of an alliance system.
But when it comes to the ECT, for several decades India has been a key player in allowing the Port of Colombo to handle its transshipments.
As the President revealed, 66% of the transshipments going through the Colombo Port is from India. The core issue now is that the South Asian region is developing and maritime trade is growing faster than before, where even small ships are being scrapped to welcome big ships to ports to reduce sea traffic.
Larger vessels carrying large containers usually go to a few ports during their voyage. Stopping at all ports does not make sense commercially for large ships. Due to the lack of deep ports in South India, bulk containers coming to India are unloaded at Colombo and large ships continue to ply. They are then picked up by small Indian ships and transported to India. This has been the practice for decades and the Colombo Port depends on the earnings from this.
Other ports in the country like in Kankesanthurai, Hambantota, Trincomalee also run on the revenue of the Colombo Port which is also paying the salaries of their workers. India has been free in offering such support under its free foreign policy which it has not offered to many other countries in the Indian Ocean Region.
And to make it a global hub Sri Lanka needs to entertain international players that would give the investor-friendly vibe to other countries. The confidence created by such larger international operators has boosted Sri Lanka economy, especially in the recent past.
China is aiming to be one of the biggest economies in the world and so is India that is just 23km away from Sri Lanka’s northern point.
Recently, Media Minister Keheliya Rambukwella noted that having branded hotels like Shangri La in Colombo attracted other international hotel chains to invest in property on the Galle Face front.
India is also gearing to expand its maritime trade and is building new ports as well, although it claims the construction of the Vizhinjam international seaport, the State’s dream project, will be delayed. The public-private partnership (PPP) project worth INR 7700 million started in December 2015. According to the contract between the Government and Adani Group, the port should be ready now.
Rejecting Adani could isolate PoC
The idiocy would be rejecting India that has the biggest share in transshipment at the PoC. The result could be double jeopardy when it removes its shipments as well as getting its biggest ports ready and inviting other ships to those ports diverting all business away from the PoC.
India can afford to waive port requirements to attract port business and make Sri Lanka hit rock bottom but that is not how maritime businesses are run.
By awarding the ECT to the Adani Group it should be understood that they are not going to rip off the country, as it’s a global chain and have a reputation of running mega projects, especially since the deal is purely a PPP.
Inside sources say it would be a 35-year tripartite agreement between India, Japan and the SLPA and the local agent would be John Keells Holdings which would operate as a sub-contractor.
The Adani Group will have to set up a special purpose vehicle with John Keells on mutually agreed terms and will be the terminal operator with the SLPA.
Currently, the South Asia Gateway Terminal is also run by the John Keells Holdings conglomerate.
Also, the myth that when the ECT is handled by Adani all the transshipments would reach this terminal only cannot be possible. It would be for each shipping line to negotiate and decide on depending on the tariffs and rates offered. Business at the port will continue as usual with the JCT, SAGT and the CICT in the present context.
The ECT, once built, will need to be marketed. In any case, it will take some time to install new cranes and extend the pier etc before it could begin operations.
The good part of this is, 51% of the stake in the ECT will lie with the SLPA while the balance 49% will belong to Japan and India. The final draft of how the ECT would be handled with the latest input is yet to be revealed.
The inside sources also said that recruitments will be conducted locally by Adani and John Keels. Also, the management cadre will be from the Adani Group, similar to the CICT which has a Chinese management.
The need to run the ECT has been anticipated a long time ago as there is serious congestion at the PoC at present and the ECT was commissioned during a port crisis recently and shipping experts have urged the authorities to keep the ECT operative to meet the demand and reach the status of being a hub in South Asia.
The Adani Group, which has its business in 10 leading ports in India, cannot be matched by any other ports in the region. Since it would manage the terminal in Colombo, undoubtedly business will flourish. If there is any issue faced by the SLPA, Japan, a country that does not condone corruption, is sure to put a stop to it and make sure the ECT is run in a proper manner.
The Cabinet Memo on the ECT being handed over to Adani, has made some recommendations. It also says it is necessary to adopt a strategy that will maintain Sri Lanka, Japan and India relations, consider the MoC framework not on the basis of the loan but as foreign investment to the development of the ECT and recover the expenditure incurred by the SLPA and invest that in JCT and fast track the development of the Port of Colombo (PoC).
Adani Port and Special Economic Zone (APSEZ) Ltd, handles 30% of India's container traffic and they operate six container terminals covering the major industrial hubs across the East and West coast of India which handle more than 5 million TEUs annually.
The GoSL wants India to honour the MoC and support foreign direct investment in the ECT. A change in the share structure can be done only with the prior approval of the government, the Memo states.
According to the Cabinet memo, the ECT rental value upfront for 35 years could also be recovered upfront and royalty could be collected annually like how it is handled with the Chinese-run CICT.
India’s interest is to expand its stronghold in the region and to be better than China and the two terminals, CICT and ECT, would compete to be the best and this kind of competitiveness will surely benefit Sri Lanka in the long run.