India-Sri Lanka relations seem to have hit an uneven path in recent months. Ambiguity regarding the future of joint ventures between India and Sri Lanka has the potential to impact the bilateral relationship that was nurtured carefully towards productive security and economic engagement in the past few years.
Sri Lankan Government’s decision not to develop the Colombo East Container Terminal (ECT) is a setback to enhancing joint investments in mutually agreed areas. India would want the implementation of the Trilateral Agreement signed in 2019 between India, Sri Lanka and Japan to develop the ECT (estimated cost of $ 500 million).But, there is only a remote possibility that Sri Lankan government will reverse its decision. Instead, Sri Lanka offered West Container Terminal to India and Japan. Various factors may have influenced the decision taken by the Sri Lankan government. First, despite the assurances given to implement the Agreement after the formation of the Sri Lanka Podujana Peramuna (SLPP) Government in August 2020, deep suspicion regarding India’s investment in the South of the country and related political calculations continues to hamper India’s investments at strategic points.
Second, the Sri Lankan government’s decision not to go ahead with the project can be situated within a larger foreign policy framework. After the 2019 Presidential elections, the foreign policy contours of the SLPP government were mentioned in the Government’s national policy framework document titled ‘vistas of prosperity and splendour’ that was released in December 2019. The policy document mentioned that Sri Lanka would follow ‘friendly and non-aligned foreign policy to ensure the ownership of strategic assets and economically important natural resources’. It also highlighted the need to “revisit the harmful bilateral trade agreements signed in past five years and prevent any agreements harmful to the domestic economy”.
Third, India’s keen interest to engage with Sri Lanka in strategic and economic terms along with the robust development cooperation framework has been facing hurdles due to geopolitical and geo-strategic interests and calculations.
Sri Lanka’s past and present positions regarding economic and strategic joint ventures with India can be placed within the above context.
In April 2017, during the visit of former PM of Sri Lanka Ranil Wickramasinghe to India, both the countries came to an understanding on ‘Cooperation in Economic Projects’. Some of the areas of cooperation that the MoU envisioned are: regasified Liquefied Natural Gas (LNG) fired 500 MW capacity LNG power plant; Floating Storage Regasification Unit (FSRU) in Colombo/Kerawalapitiya;50 MW Solar power plant in Sampur; development of upper tank farm as a joint venture; port, petroleum refinery and other industries in Trincomalee; Industrial/Special Economic Zones in identified locations in Sri Lanka; Container Terminal in Colombo Port as joint venture; road and railway sector development, agriculture and livestock development.Some of the issues involved are discussed below.
Past Issues of Investment
The proposals to upgrade and operate Mattala Rajapaksa International Airport in 2018 and to develop the Sampur power project are examples of how India’s proposed investments were affected by political policy decisions. Sri Lanka in 2019 decided to upgrade the Mattala airport near Hambantota Port (port is being developed by China) in southern Sri Lanka itself and not with the investment by India. In July 2020, the PM of Sri Lanka, Mahinda Rajapaksa claimed that India had accepted his request not to develop the airport as a joint venture, and hence Sri Lanka ‘was able to save the airport’. This statement was made before the parliamentary elections in 2020 August.
India-Sri Lanka joint venture agreement 500 MW Sampur Coal Power Plant/Trincomalee Coal Power Plant (US$ 500 million project) signed in October 2013 also could not take off due to environmental, displacement concerns and Sri Lanka’s decision to switch to renewable energy. The project had a ‘distinction of being one of the largest single India-assisted projects to be implemented in Sri Lanka in 2014’. India responded to the concerns raised in Sri Lankan media regarding the coal power project and said that the ‘project fully covers environmental aspects’. Sri Lanka again proposed to develop, at the same place Liquefied Natural Gas (LNG) plant with the help of India in 2016, but uncertainty regarding the development of the plant continues despite the potential to address Sri Lanka’s energy requirements. Nearly, sixty percent of Sri Lanka’s energy supply is imported such as LPG, crude oil, coal, aviation fuel and gasoline requirements’.The 2017 bilateral understanding regarding ‘cooperation in the economic projects ‘also talks about a 50 MW solar power plant in Sampur.
Trincomalee Oil Tank Farm Issue
Both the countries showed interest in developing Trincomalee Oil Tank Farms and renewed discussions to operate unused eighty four tanks in Trincomalee upper farm in 2017. But the discussion could not take off due to differences over the operational aspects as well as opposition from trade unions of Sri Lanka. In 2017, the Ceylon Petroleum Corporation workers ended their strike, only after the then Prime Minister (PM) Ranil Wickramasinghe’s assurance that the proposal was to ‘lease oil tanks to India and his government was not selling the state assets’.At present, the Lanka Indian Oil Corporation (Lanka IOC), a subsidiary of Indian Oil Corporation (IOC), runs the fifteen tanks on the lower farm.
Various media reports and statements point to Sri Lanka’s keen interest to utilise the strategic value of Trincomalee natural harbour in the Indian Ocean, possibly without further involvement of India. In June 2020, Sri Lanka’s Power and Energy Minister Mahinda Amaraweera, spoke about ‘reclaiming of oil tanks run by the IOC’. This was reiterated on 17 February 2021 by the Energy Minister of Sri Lanka Gammanpila, who said that Sri Lanka will soon re-acquire unused tanks in the upper farm.Statements by the Energy Minister of Sri Lanka can be linked to the recommendations of the Committee of Public Enterprises of Sri Lanka (COPE) in 2017. The Committee recommended the ‘takeover of oil tanks from Lanka IOC and also questioned the legality of the agreement signed between India and Sri Lanka in 2003’. India however, dismissed these reports and emphasized that the ‘two governments are exploring mutually acceptable modalities for jointly developing and operating the facility in accordance with the bilateral understanding reached in 2017’. Trincomalee’s strategic location is too important for India to ignore.
The development of the Trincomalee Oil Tank Farm as a joint venture was mentioned as far back as in the 1987 Indo-Sri Lanka Agreement. Sri Lanka had then agreed to meet ‘India’s security concerns including, not allowing Trincomalee or any other port in Sri Lanka for military use by any country and agreed to restore and operate Trincomalee as a joint venture’. Whether Sri Lanka will honour the understanding arrived at by the two past governments in the future is not clear.
The ECT Issue
On 13th January 2021, the President of Sri Lanka Gotabaya Rajapaksa met the twenty- three trade union leaders of Sri Lanka and assured them that ‘the ECT will not be sold or leased’.He also said, his government is planning to develop the terminal as ‘investment project that has fifty one percent ownership by the Government of Sri Lanka and the remaining forty nine percent as an investment by India’s Adani Group and other stakeholders’. But, the present government’s unwillingness to go ahead with the ECT agreement was evident by mid-2020. President Gotabaya Rajapaksa appointed a five-member Committee to report the concerns regarding the ECT in July 2020. The Committee recommended operation of the port wholly by the Sri Lanka Port Authority (SLPA) and a ‘possible public-private partnership for operating and developing Colombo’s West Container Terminal (WCT) with the help of India and Japan’. On February 1, 2021, the PM of Sri Lanka Mahinda Rajapaksa tweeted that he had met the trade union workers and assured them that his government “adheres strictly to its policy of retaining assets belonging to the government”. The trade union leaders of the SLPA had been demanding no foreign power management of the port. They argue that the terminal generated profits worth $ 273 million in 2019’, and if the port operations are transferred to another country the SLPA would lose $12 million per month.
According to Sri Lankan media, the government also had concerns regarding the private company from India, Adani Group, which was entrusted to develop the ECT. The Sri Lankan PM said the Indian company which was to manage the ETC ‘had refused to accept a report submitted by a committee appointed to explore concerns over the ECT’. Amidst the policy differences over the ECT issue, Sri Lanka paid the US $ 400 million currency swap to India, but it insisted that ‘the move was not linked to the ECT decision and rather honoured the obligation of paying back on time’. Sri Lanka’s narrative on the decision taken regarding the Colombo ECT is also based on present government’s focus on inflow of Foreign Direct Investment (FDI) under the Build, Operate and Transfer (BOT) concept. In recent months, investors like New Fortress Energy, Nathaniel Rothschild, Insaaf Mohideen from Silicon Valley visited Sri Lanka to explore possibilities of investment. Meanwhile, there are differences of opinion within Sri Lanka regarding the ECT issue. Opposition party Samagi Jana Balawegaya (SJB) opposed the decision and ‘blamed the government of following a China-centric policy’. The former PM Ranil Wickramasinghe opined that withdrawal from infrastructure projects with India was a serious mistakeThe Janatha Vimukthi Peramuna (JVP) came out in support of Sri Lankan government’s decision.India would want the Trilateral Agreement to be implemented because it would benefit the Colombo Port’s transhipment business, of which sixty percent is with India. India also saw it as a win-win opportunity because the port would attract foreign investment to Sri Lanka, as per Sri Lanka’s priority of ‘investments over loans’.Amidst the concerns regarding joint ventures, the cabinet of Sri Lanka accepted the proposal to develop the West Container Terminal of Colombo port as a joint venture (public-private partnership)on 2 March 2021, with the help of India and Japan. India and Japan are yet to take a decision on the issue. India, meanwhile, refuted the claim by the Sri Lanka government that the offer of India’s participation in the WCT has the approval of Indian High Commission, Colombo.
Paradoxically, there seems to be milder resistance in response to China’s investments within Sri Lanka. Sri Lanka denied the China angle in cancelling the ECT project with India saying‘China would not interfere in India-Sri Lanka relations’.Just after the ECT decision, according to media reports a ‘Chinese company won the bid to develop three renewable energy projects with an estimated cost of $12 million in Delft Island, Analativu and Nainativu’in Jaffna area’.The cabinet of Sri Lanka will take a final decision on the matter in coming months. If the government of Sri Lanka decides to go ahead with China as the developer, India will have to watch out for the security implications of the project as the Delft Island is only forty eight kilometres from the Rameshwaram coast in Tamil Nadu.
The China factor in India-Sri Lanka relations that emerged significantly during the government headed by Mahinda Rajapaksa did not mellow down even during the previous unity government as expected by India. President Gothabaya Rajapaksa after assuming office in 2020 emphasized that Sri Lanka will follow ‘India first approach in strategic and security issues’, which was assuring for strengthening bilateral cooperation. Despite this posture, recent developments are indicating to the contrary.
The prevailing antipathy in Sri Lanka towards India’s role in developing its strategic assets is not new. The present foreign policy contours of the government in Sri Lanka also point to a possibility of uncertainty regarding India’s investments, despite the possible mutual economic benefits. The positive aspect amongst these developments at the bilateral level is that both the countries have not closed doors for dialogue and negotiations which may help in addressing each other’s concerns.
 Tweet by Prime Minister Mahinda Rajapaksa on 1 February 2021, https://twitter.com/PresRajapaksa/status/1356174990056554499?ref_src
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Trincomalee oil tanks were built by the British during the World War II, to help the Royal Navy and Air Force against Japanese advances in the region.The British utilised the Trincomalee harbour, one of the world’s largest natural harbour for commercial and strategic purposes. Each tank has the capacity to store 12,000 tones of oil.
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 Withdrawal of projects with India, Japan & U.S. is a mistake : Ranil, Ceylon News, 25 Feb 2021, https://ceylontoday.lk/news/withdrawal-of-projects-with-india-japan-u-s-is-a-mistake-ranil
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 Meera Srinivasan, China had no role in Sri Lanka’s decision on ECT’, The Hindu, 10 February 2021, https://www.thehindu.com/news/international/china-had-no-role-in-sri-lankas-decision-on-ect/article33804071.ece
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 Interview with Foreign Secretary Sri Lanka, Admiral Jayanath Colombage, 19 September 2020, https://www.youtube.com/watch?v=N8w6DfoLMmE&trk=organization-update-content_share-embed-video_share-article_title. Accessed on 20 February 2021.
Written by Dr. Samatha Mallempati, Research Fellow, Indian Council of World Affairs, Sapru House, New Delhi and published originally in www.icwa.in and being reproduced with due permission from Indian Council for World Affairs, Sapru House, New Delhi duly acknowledging their copy rights.