2020.12: Asantha Senevirathna, Sino-Indian Rivalry and the Port of Colombo: Geopolitical Implications for Sri Lanka

The port of Colombo in Sri Lanka, strategically located in the Indian Ocean, is an important junction in one of the world’s busiest sea routes.[i]  The port recently has attracted the interests of both China and India. Between 2006 and 2019 the Chinese government invested US$ 12 billion in Sri Lanka’s infrastructure development, particularly maritime-related infrastructure projects, as part of its flagship Belt and Road Initiative (BRI).[ii]

Among these China-funded projects are Sri Lanka’s first expressway, a coal power plant, and a new seaport and airport in Hambantota.  In 2017, a Chinese state-owned company, China Merchants Port Holdings (CM Port), brought a seventy percent stake worth US$1.12 billion in Hambantota port on a ninety-nine year lease.[iii] Colombo Port City (CPC) is the largest ever foreign investment project in Sri Lanka with an initial investment of US$ 1.5 billion and an estimated total cost of US$ 15 billion by the time it will be completed in 2041.[iv]  At present, land reclamation for the CPC has been completed and utilities are being installed. In 2019, the Sri Lankan government and China Harbor Engineering Company (CHEC), also a state owned enterprise in the PRC, opened reclaimed land to foreign investment.[v]

Colombo’s port was expanded in 2008 when three new terminals were built. In 2011, a Hong Kong-based Chinese state-owned firm, China Merchants Port Holdings Company Limited (CMHI), signed a thirty-five year build-operate-transfer (BOT) agreement with the Sri Lanka Ports Authority (SLPA) to develop, construct, and operate a new Colombo International Container Terminal (CICT). This terminal will be the first deep water terminal in South Asia capable of handling the largest vessels afloat.[vi]  From a Chinese state perspective, the port of Colombo is a vital link in its global supply chain. Their investments in this port will guarantee big economic returns considering the recent growth patterns of the Colombo port. These investments will also allow China to increase its political influence in the region. The Alphaliner Monthly Monitor ranked the port of Colombo as the world’s top container growth port among thirty container ports during the first half of 2018, while the Drewry Port Connectivity Index ranked the port the eleventh best-connected port in the world for 2018. During 2018 and 2019, port authorities reported an increase of 9.1 percent in container handling capacity.[vii]

From a geopolitical perspective, the Indian government views the port as vital to its security and commercial interests. At present, on average one-third of India’s total transhipments go through the Colombo port, and two-thirds of the port’s total transhipments are generated by India.[viii] Growing Chinese influence in Sri Lanka has caused Indian policymakers to take counteractions. Hence the Indian government has proposed that the Sri Lankan government consider making India a stakeholder in the operations of the Colombo port. The governments of India and Japan signed a Memorandum of Cooperation (MoC) with the Sri Lankan government in 2017 to operate Colombo’s East Container Terminal (ECT).  However, at present all the trade unions at the port of Colombo oppose this deal and argue that the ECT should be operated by the Sri Lanka Port Authority (SLPA).  The position of these trade unions (including recent strikes) highlights that the proposed deal with India is different from the government’s deal with China. In the latter case, the Colombo International Container Terminal (CICT) was built by China Merchants Port Holdings Company Limited under a build-operate-transfer agreement, while the India-Japan agreement (an operate-transfer agreement) does not require either country to financially invest in a new terminal.     

At present, the recently elected Sri Lankan government of Gotabaya Rajapaksa is faced with addressing Chinese and Indian strategic concerns about the port of Colombo. The new government has not yet decided how to operationalize the new East Container Terminal, or address the conflicting demands of the port’s trade unions and the Indian government. Given this background, it seems better for the government to come to an arrangement to operate this new East Container Terminal (ECT) under a partnership between a private Sri Lankan company and the Sri Lanka Port Authority while working out a build-operate-transfer agreement on the proposed West Container Terminal (WCT) with a private Indian company.  Colombo’s port has immense growth potential in the twenty-first century. Sri Lankan government officials should have a strategic plan that will transform the Colombo port into a prime global maritime hub. To do so, the government should take opportunities provided by both China and India and make them partners in port operations while carefully analyzing their strategic regional interests.

Asantha Senevirathna   is a lecturer in the department of strategic studies at General Sir John Kotelawala Defence University in Sri Lanka. He can be contacted at  asanthas@kdu.ac.lk 

Notes

i South Asia Gateway Terminals (SAGT). (n.d). Port of Colombo. https://www.sagt.com.lk/port-of-colombo.html

ii Hundlani, D. & Kannangara, P. (2020, May 07). The Belt and Road in Sri Lanka: Beyond the Debt Trap. Discussion. The Diplomat. https://thediplomat.com/2020/05/the-belt-and-road-in-sri-lanka-beyond-the-debt-trap-discussion/

iii Ranaraja, Y. (2020, January 21). Is Hambantota International Port better off with China?. Seatrade Maritime News. https://www.seatrade-maritime.com/opinions-analysis/hambantota-international-port-better-china

iv Bendix, A. (2018, September 15). Sri Lanka is building a $15 billion metropolis meant to rival cities like Hong Kong and Dubai. Business Insider. https://www.businessinsider.com/sri-lanka-port-city-dubai-2018-9

v Port City declared open for investment. (2019 December 19). Daily Mirror. http://www.dailymirror.lk/business__main/Port-City-declared-open-for-investment/245-179258

vi Colombo International Container Terminals (CICT). (n.d.). The Deepwater Terminal. http://www.cict.lk/

vii LMD. (n.d.). Container Capacity at Colombo Port. https://lmd.lk/container-capacity-at-colombo-port/

viii CIMC Events. (n.d.). India anchors SL confidence in Colombo port. https://www.cimc.lk/media-centre/news/94-india-anchors-sl-confidence-in-colombo-port