The Port of Colombo was deliberately distressed in order to justify a private partner for the East Container Terminal.
The struggle waged by Sri Lanka Ports Authority (SLPA) unions to maintain full ownership and management over the East Container Terminal (ECT) in the Port of Colombo has grabbed local headlines over the last few weeks.
However, the ensuing commentary by political pundits and economic analysts on both sides of the debate have rarely engaged with the substance of the arguments put forward by the unions, relying instead on a handful of slogans, tropes and clichés.
This article attempts to summarize the arguments made by 23 SLPA unions which oppose the realization of an MOU signed in 2019 to allow an Indian company to acquire a 49 percent stake in the ECT alongside financing from Japan for the terminal’s development.
Proponents of the MOU have argued that since over 70 percent of transshipments at the Port of Colombo are from India, the country has “no choice” but to allow India a commercial stake in the port. The implications are twofold. First, that India would have an incentive to develop a terminal which its own trade depends on. Second, that India could redirect traffic to its own ports in retaliation for reneging on the MOU.
SLPA unions have thoroughly debunked this argument by pointing out that the government of India does not own shipping lines, nor do any of the major Indian corporations including Adani. The Indian government has no real way to coerce shipping lines to change their routes without offering extensive concessions at Indian ports to compensate for the additional cost of redirecting traffic away from Colombo.
India’s lack of a shipping line consequently makes it less desirable as a partner for port operations, since it cannot attract traffic additional to what the port would have received under local management.
Another argument made by proponents of the MOU is that the Port of Colombo risks losing its hub status if the ECT is not developed in time to increase capacity, especially for the largest modern ships. However, unions have countered that the ECT was scheduled to begin operations in 2015 until the then government cancelled an order for gantry cranes and stalled development. The Port of Colombo was therefore deliberately distressed, and a crisis manufactured in order to justify a private partner.
Finally, there appears to be some confusion over why the ECT in particular is a cause for protest for unions, especially since some are willing to cede the West Container Terminal (WCT) to a foreign private investor. This is due to the fact that part of the ECT has already been developed by the SLPA in anticipation of receiving dividends after operation.
The breakwater for the East, South and West Terminals was financed by a loan acquired from the Asian Development Bank (ADB), which the SLPA still has to pay back. Part of the ECT has already been developed by SLPA engineers with a loan taken from the Bank of Ceylon. The SLPA has therefore taken all the risk of investment, and privatization of the ECT would cut into its share of revenue, further distressing the company rather than placing it on a firm financial footing.
The second, and perhaps more crucial factor, is that the ECT is adjacent to the privately-operated South Asia Gateway Terminal (SAGT) which is due to return to SLPA management in nine years. Together, the ECT and SAGT can be combined to form a “box terminal”, with small feeder ships berthing on the SAGT side and larger container ships berthing on the ECT side. This would make the transshipment process far more efficient and profitable, providing a major source of foreign exchange for the country.
While the SLPA does have some management problems, which unions themselves will acknowledge if approached in good faith, much of the company’s financial problems can be attributed to a lack of investment. Comparing the performance of SLPA-controlled Jaya and Unity terminals to privately-operated SAGT and CICT is unfair given the fact that the former is saddled with outdated assets and has been denied a chance to operate a modern terminal capable to handling larger ships.
As an aside, it is worth mentioning that the MOU signed in 2019 was not based on an open tender, as was done when an 85 percent stake of the South Container Terminal was given to a Chinese company. Therefore even by liberal economic norms, the MOU lacks a transparent process to prove that a company like Adani could operate the ECT better than its competitors.