Sri Lanka Writes Off Strategic Colombo Port Deal With India & Japan

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Syllabus: GS 2

Synopsis: Sri Lanka’s has pulled out of a 2019 Colombo Port deal with India and Japan. The agreement was for developing the strategic East Container Terminal (ECT) at the Colombo Port.


India and Sri Lanka signed a Memorandum of Understanding(MoU) for cooperation on economic projects in 2019. A container terminal at the Colombo Port was one of the projects under MoU.

However, Sri Lanka has pulled out from the deal after opposition from trade unions.

What was the agreement?

  • The ECT deal was important as between 60 and 70 percent of transshipment that takes place through it is India-linked.
  • As per the agreement, India and Japan would have 49 percent ownership of the ECT. Whereas Sri Lanka would have a 51% stake.
  • A 40-year loan at an interest rate of 0.1% from Japan was expected to fund the development of the ECT.

What went wrong?

  1. India-Sri Lanka relations are cordial in general. But India’s involvement in the civil wars of Sri Lanka still affects India’s interest there.
  2. Colombo Port Trade Union has strongly opposed the 49% stake of India and Japan. They are demanding 100% ownership of Sri Lanka of the ports,
  3. Big projects by India have always faced opposition in Sri Lanka. Due to this, India brought Japan in at least two of the projects listed in the MoU.
  4. But the relationship between Japan and Sri Lanka has also changed over the years, because of Colombo’s closeness to China. Therefore, including Japan in the project didn’t prove to be fruitful.
  5. The protests ended after the announcement of the Sri Lanka government. Now, the ECT would be developed and operated as a “wholly-owned container terminal of the Sri Lanka Ports Authority (SLPA).

What happens now?

India has asked Colombo not to take a unilateral decision on an existing tripartite agreement. Japan has called the decision regrettable.

As a compensation offer, Sri Lanka has given a proposal to India and Japan for the development of the west terminal in partnership.

  • Sri Lanka assures that the West terminal is commercially better than the east terminal. The developers could hold up to 85 percent stake instead of 49 percent stake in the West terminal.
  • The unions agreed to this proposal to invite India and Japan to participate in the development and operation of the west terminal.
  • However, India has not yet responded to the offer.
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