Sri Lanka’s decision to pull out of an agreement with India and Japan for developing and operating a container terminal at Colombo Port, citing public sentiment against foreign involvement in the project, was foretold. Colombo had been vacillating over the past two years. A “memorandum of co-operation” was signed in 2019 between the Sri Lanka Ports Authority, India and Japan, but the project met with opposition from port unions from the start. President Gotabaya Rajapaksa’s assertion that there would be no sale and that the Adani group would be investing in the project as a joint venture seemed only to have strengthened the protests. India and Japan have both expressed their annoyance at the cancellation of the agreement. Colombo should pause to consider how such unilateral decisions affect its sovereign credibility at a time when it needs support from the international community to shore up its finances. The government needs to repay debts of over $6 billion over the next year. India had provided a $400 m currency swap in 2020. Sri Lanka has requested Delhi for a further $1bn swap and a moratorium in debt repayments owed to India. The government’s assertion that SLPA will develop the ECT on its own is a bit of bluster as the wholly state-owned ports authority is cash strapped, and will need to look for foreign investors. The ill-fated ECT agreement will send out cautionary signals.
For India, there are important takeaways from this project. China builds in Sri Lanka without problems, but Indian involvement in infrastructure projects seems to raise the most hackles despite the cultural affinity of two millennia that the political leadership never fails to talk up at bilateral meetings. Delhi wanted the ECT deal badly, because two-thirds of its operations are linked to India; and perhaps more importantly, China runs the Colombo International Container Terminal just next to it. There will be some turbulence in bilateral ties, but Delhi should desist from making too much of it. Delhi should choose its future projects in Sri Lanka more carefully without appearing to be desperate in its rivalry with China.
Now that there is no ECT deal to worry about, Delhi can press the pedal on other diplomatic issues between the two countries, especially towards ensuring that the 13th Amendment of the Sri Lankan Constitution, which was part of the India-Sri Lanka Accord to give Tamils their political rights in north-eastern Sri Lanka, does not go the same way as the ECT agreement. Indeed, it should seek to fully operationalise at the earliest the clause in the 1987 agreement for developing the Trincomalee tank farm, which has been expanded in recent years to include an oil refinery and other related projects to turn into an “energy hub” for the region. And it should work with the Sri Lankan leadership on issues of post-war accountability, justice and reconciliation with the Tamil community.