India is looking to strike a hard bargain with Sri Lanka and would want a government-to-government agreement for a terminal presence in Colombo port for strategic and security considerations. The port is a regional transhipment hub through which a large portion of India’s export-import cargo containers are transhipped.
On February 1, the Sri Lankan cabinet scrapped a tripartite memorandum of cooperation (MoC) signed in May 2019 with Japan and India to jointly develop the East Container Terminal (ECT) at Colombo Port in the wake of strong protests from port unions.
Sri Lanka, instead, is believed to have offered the proposed West Container Terminal (WCT) project to India and Japan.
But, India is insisting on the sanctity of the agreement on ECT and want Sri Lanka to “give in writing” its offer to allow India take WCT instead of ECT, a government source briefed on the matter said.
If there is no government-to-government agreement, the WCT has to be put to public tender as per Sri Lankan government rules and procedures in which many global terminal operating giants including a state-owned Chinese firm would be keen to participate, bid aggressively and walk away with the deal.
This could stall India’s bid to have a presence in Colombo port forever as both ECT and WCT would then be no longer available.
“The public tender route to gain a presence in Colombo port is a highly risky proposition for India,” a port industry source said.
Second, India wants a similar equity arrangement as in the case of Colombo International Container Terminals Ltd (CICT) where China’s state-run China Merchants Port Holdings Company Ltd holds 85 per cent stake, and other similar terms and conditions for WCT.
This would give operational autonomy and freedom to carry on the terminal business, without being treated as a public company under Sri Lankan laws and hence subjected to government audit and public procurement rules.
ECT was initially structured as 85:15 venture with India and Japan sharing the 85 per cent stake amongst themselves, while Sri Lanka Ports Authority holding 15 per cent equity. Sri Lanka later changed it to 51:49 citing opposition from port unions, an amendment which India was not willing to accept.
“With the Sri Lanka Ports Authority holding 51% stake in ECT, it becomes very difficult for the India-Japan team to operate the terminal because it will be treated as a public company under Sri Lankan laws,” said the industry source.
“It will then be subjected to government’s audit and procurement will have to follow the public tender guidelines set by Sri Lanka, crimping the India-Japan consortium’s ability to operate the terminal freely,” he stated.
While both ECT and WCT would be similar capacity terminals, WCT has an added advantage in terms of deeper depth at 20 metres, allowing bigger capacity container ships to dock.
The only point in ECT’s favour is that it can be put to operations faster by installing ship-to-shore cranes as the berth is partly built.