Sri Lanka Pushed India out of East Terminal Project

On 3rd February, 2021, the Sri Lankan government revoked a 2019 agreement with India and Japan to develop the strategic East Container Terminal (ECT) at the Colombo Port.

Background

• Sri Lanka, Japan and India signed an agreement to jointly develop the East Container Terminal at the Colombo Port in 2019.
• The MoC stated that the Sri Lanka will own 51 per cent stake. India and Japan will jointly own the remaining 49 per cent. However, Sri Lanka made a unilateral decision on an existing tripartite agreement.

Reasons Cited

• Pressure from Colombo Port Trade Unions: Sri Lanka was under intense pressure because the trade unions opposed port’s privatization and demanded cancellation of the 2019 agreement.
• Possibility of China’s Involvement: There were reports that the Chinese have played a role in inducing port unions to protest against India’s interest. China has invested over $8 billion in infrastructure projects in Sri Lanka. Colombo handed over its Hambantota port to Beijing in 2017 as a debt swap.

Importance for India

• Important Trade Route: For India, the ECT deal was important as between 60 and 70 percent of trans-shipment that takes place through it is India-linked.
• Strategic Location: The ECT is also considered more strategic than any other in Colombo Port. It is located next to the Colombo International Container Terminal (CICT) project, a joint venture between China Merchants Port Holdings Company Ltd. and SLPA.
• Regional Development: It is seen as a collaboration between two Indo-Pacific partners [India-Japan]. It could prove to be better funding and development in the South Asia region.

Possible Impact on India-Sri Lanka Relationship

• Over the past years, Indian government has invested much time and resources Sri Lanka- new credit line, currency swap agreement, COVID-19 assistance and vaccines.
• India’s first response was that the island nation should not be taking a decision in a unilateral manner on an existing tripartite agreement.