The opportunity cost of dithering over ECT

As the government rethinks the politics of India, Japan involvement ahead of the Provincial Council polls

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By P. K. Balachandran

COLOMBO – The Gotabaya Rajapaksa government, which had almost decided to give the operation of Colombo’s Port’s Eastern Container Terminal (ECT) to a consortium comprising the Sri Lanka Ports’ Authority (SLPA), Japan and India, now seems to be dithering on the matter again.

There is speculation that this is due to an intention on the part of the government to hold the Provincial Council elections in the next few months in which the controversial ECT issue could be raised by ultra-nationalist parties and other elements to the discomfiture of the ruling Sri Lanka Podujana Peramuna (SLPP). The SLPP, led by the Rajapaksas, is also portraying itself as a nationalistic force opposed to “bartering away national assets to foreign entities”.

With one year of its rule already gone, the SLPP is not as popular as before, because of the economic consequences of the coronavirus epidemic. Lockdowns and daily threats of lockdowns, have affected employment and earnings, putting a lot of stress on the common man.

In this context, the issue of foreign involvement in the ECT (which has been around for years to the embarrassment of successive governments) will only add grist to the opposition’s mill, it is feared.

On Tuesday (22), SLPA Chairman, Maj.Gen (R) Daya Ratnayake, denied the cabinet had approved a proposal to allow India to develop the ECT. He said two committees have been appointed to evaluate its development, including the already forwarded proposals and investment opportunities for local companies. Based on the recommendations of those committees, the government will make a final decision, he told the media. The SLPA chairman also said there was scope for local companies to express their interest.

In May 2019, the former Yahapalanaya government entered into a tripartite Memorandum of Understanding (MoU) with Japan and India to build the ETC. Under that agreement, Japan was to provide a loan of U$ 500 million and India was to do the construction. Gen. Ratnayake said a private sector-led development model was the best, as a 100% SLPA-funded initiative would be costly for the government. He cited the South Asia Gateway Terminals (SAGT) and Colombo International Container Terminals (CICT) as successful Public-Private Partnerships. The Chairman also said the government was not planning to obtain any loans to develop ECT, acknowledging that Sri Lanka was not in a position to pay back such loans.

Asked about the proposed involvement of the Indian company, the Adanis, Ratnayake justified it,  pointing out that 61% of the total 82% transhipment business is generated from India. “If an Indian company gets involved, we can retain and expand our current businesses by attracting large shipping lines and volumes from India. There are a lot of ports in our region and there is severe competition,” he pointed out.

However, Ratnayake made it clear that no final decision has been made in this regard, in view of the fact that two committees are looking into all aspects of the proposal.

According to him the MoU signed by the previous Yahapalanaya government envisaged a huge loan (from Japan at a low rate of interest). The present government is looking for an investment not a loan to fund the project. He clarified that Japan is still an interested party in the ECT project.

Ratnayake pointed out that it was necessary to get the ECT going to help Colombo get the regional hub status. But efforts to make it operational since 2015 had largely failed to take off. The MoU signed by SLPA with Japan and India in 2019 envisaged the SLPA would retain 100% ownership of ETC. But the Terminal Operations Company (TOC), which would be responsible for all operations in the terminal, would be jointly owned by Sri Lanka, Japan, and India. Sri Lanka would maintain a 51% stake in the company, while Japan and India would hold minority stakes of 34% and 15% respectively.

Development of the ECT was to be financed by Japan through a 40-year loan between US$ 500 million and US$ 800 million, at 0.1% interest with a grace period of 10 years. There were other proposals too.

In 2015 itself tenders were called for the ECT. But all bidders were disqualified by the Cabinet Committee on Economic Management (CCEM) presided over by former Prime Minister Ranil Wickremesinghe.

Meanwhile, in the run up to the November 2019 presidential election and the August 2020 parliamentary elections, the ECT issue figured on nationalist platforms, with the SLPP continuing to pledge it would keep all national assets within the national fold.

However, it was not easy to hold on to this view rigidly, partly because of pressure from India, which wanted to have a hold on the Colombo port for geo-strategic reasons particularly because the adjacent Colombo International Container Terminal (CICT) was being run by a Chinese company. India is also trying to involve Sri Lanka in the security of the Indian Ocean Region and has got Colombo to host the Maritime Security Secretariat. India also argues it has legitimate stakes in Colombo port as Indian transhipment accounts for a huge amount of its business.

After the Rajapaksa government decided to opt for Foreign Direct Investment (FDI) and not loans, Japan, which was to give a loan to build the ECT, said it would be an investor.

Even as the decks were being cleared for the commencement of work on the ECT, the coronavirus epidemic struck crippling work in all the terminals of the Colombo port. The ECT also saw a workers’ agitation against the proposal to involve foreign parties, especially India.

Commenting on the government’s dilly dallying on the ECT, Rohan Maskarola, the CEO of Shippers’ Academy Colombo, said the opportunity cost of dithering over the ECT has been over 10% of transhipment growth.

He is quoted in a local day as saying: “ECT is entering the seventh year without proper direction and decision. If we had the ECT operational, the current Colombo congestion and crisis would have been minimized or averted. The transhipment volumes would have not dropped by 5%-6%. Instead, probably, with trade recovery, we could have grown by about 4% as Singapore too was having congestion.

“So the opportunity cost that I see is over 10% of transhipment growth if the ECT was functioning. Even now, it will take another year or so if we start moving ahead with the legal and structural framework to set up the terminal for business to really take off.”

He told this writer another reason why the ECT has to be developed fast is that it is located close to other (also well-run) terminals. It helps vessels save time.

According to Japanese sources, the Indian party (perhaps the Adanis) should not find it difficult to find the money for its participation because the ECT will be a profitable venture.

 -P K. Balachandran is a senior Colombo-based journalist who in the past two decades, has reported for The Hindustan Times, The New Indian Express and the Economist

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