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Fifth Tone | Perspective on Cancellation of East Coast Terminal Pact | C3S Interview with Col. R. Ha

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C3S Interview:002/2021

Japan and India signed the Memorandum of Cooperation to develop East Coast Terminal (ECT) with the former Sri Lankan President Maithripala Sirisena’s government in May 2019. It was planned that India and Japan together would hold a 49% stake in ECT, while Sri Lanka Port Authority (SLPA) would hold 51%. However, on 2nd February 2021, President Gotabaya Rajapaksa’s government was forced to renege the 2019 agreement after the strong opposition from trade unions across the country and from within the ruling Sri Lanka Podujana Peramuna alliance to the decision.

In this context Ms. Shivani Sunder, Research Intern, C3S held an interview with Col. R Hariharan, VSM (Retd.), Retired Officer of Intelligence Corps, Government of India and Mr. Somi Hazari, MD Shosova Group of Companies, Senior Advisor (India), Transnational Strategy Group LLC.

Q 1. What was the strategic interest for India and Japan to sign a joint port deal with Sri Lanka?

Mr. Somi Hazari: To my mind as high as 75 % of The Cargo handled by Colombo is Transshipments from and to India. It is in our strategic interest to keep these lanes open and under our direct/indirect control. This was also envisaged to keep the growing influence of China in the area, mainly Sri Lanka.

Col. R. Hariharan: It is wrong to view the ECT deal only in the binary of Indo-Pacific strategy of India and Japan versus China. Both India and Japan have enjoyed cordial and friendly relations with the island nation, ever since it achieved independence. They have been providing financial aid and assistance to Sri Lanka’s development projects, including infrastructure. Even the Hambantota port infrastructure development project was first offered to India, and when it showed no interest, China stepped in.

Both India and Japan are major users of Sri Lanka’s port assets for maritime trade, particularly for carrier trade. India has a special political and strategic interest in Sri Lanka’s due to close land contiguity. The problem of granting citizenship to persons of Indian origin settled in Sri Lanka during colonial times and India’s support Sri Lankan Tamil political struggle for equal rights with the Sinhala majority were two issues that affected India-Sri Lanka relations. However, workable solutions for both the issues were found with the signing of the Shastri-Sirimavo Pact on citizenship issue and the Indo-Sri Lanka Agreement 1987, recognizing Tamil minority aspirations. Both the countries enjoy across the board goodwill in Sri Lanka’s mainstream political, commercial and social spectrum. It is helped by India’s pervasive influence on the social, religious, cultural and political life of Sri Lanka. In spite of this, across Sri Lanka’s social and political spectrum, there is a latent anti-India feeling, exacerbated due to India’s overbearing “big brother” attitude towards the island nation at times. India’s military intervention in Sri Lanka from 1987 to 90 soured the relations as many Sri Lankans resented it. India adopted a low profile after Indian troops got embroiled in fruitless conflict with the LTTE separatists.

Of course, PRC also enjoys a lot of goodwill in Sri Lanka, ever since it signed the Ceylon-China Rubber-Rice Pact in 1952. This trade pact was hailed as the cornerstone of independent Sri Lanka, because it freed the country’s dependance upon colonial British and European traders. Sri Lanka-PRC relations became closer, after the LTTE resumed its insurgency with renewed vigour, after Indian troops pulled out.

Japan played an important mediatory role in bringing Sri Lanka and the LTTE, which paved the way for participation in the Norwegian peace process in 2002. However, the effort failed, and the war continued till President Mahinda Rajapaksa defeated the LTTE in 2009. During this phase of the conflict, China was the main source of weapons supply to Sri Lanka, as both India and Western powers were reluctant to do so. After the LTTE was eliminated, Sri Lanka faced a lot of allegations of war crime committed by its troops during the war. China as a permanent member of the UN Security Council had regularly baled out Sri Lanka whenever the country faced allegations on these issues in the UN and the UN Human Rights forum. This created a lot of goodwill for China as a dependable ally, creating the climate for rapid, multifaceted growth of China-Sri Lanka relations.

China outplayed India and Japan in providing financial assistance for developing major infrastructure projects, promoted and showcased by President Mahinda Rajapaksa in the post-war years. They have now seemingly become part of the Belt and Road Initiative (BRI) and China’s 21st Century Maritime Silk Road, making Sri Lanka an important strategic partner of China in the Indian Ocean Region.

The dynamics of strategic interest of India and Japan in Sri Lanka has to be viewed in this broad background, for a better understanding.

Q 2. How is the cancellation of the ECT deal favourable for China’s presence on the island?

Mr. Somi Hazari: This cancellation only has one winner, which is China. It is clear that Sri Lanka has acted at the behest/command of China. China does not want India in Sri Lanka, and the Rajapaksa Government is ensuring that the Chinese have their way. China already has the Port City, which is being built by reclaiming parts of the sea on the Beachfront of Colombo.

Col. R. Hariharan China is already involved in a big way in Sri Lanka port carrier terminal infrastructure. The Colombo International Container Terminal (CICT), a joint venture company between the state-owned China Merchants Port Holdings Ltd (CMPH) and the Sri Lanka Ports Authority (SLPA). The CICT is the only deep-water terminal in South Asia capable of handling the largest container ships in the world. The CMPH holds 85% share in the CICT while the SLPA holds the balance of 15%. This gives China enormous clout in controlling the movement of strategic maritime traffic through the port.

India is a major user of Colombo Port, which has three terminals including the CICT. As 69% of Indian marine cargo passes through the port, the development of ECT as a joint venture would provide a win-win situation for both India and Sri Lanka and cement their relations further and provide an alternate strategic option, not only India, but Indo-Pacific maritime traffic as a whole. So, the cancellation of India-Japan joint involvement in the ECT project can be considered a favourable development for China, by default.

Q 3. The new proposal to develop the West Terminal at the Colombo Port as a Public-Private Partnership with India and Japan is seen as a bid to compensate India. Does this offer benefit India?

Mr. Somi Hazari: Compensation is the word/service extended to “losers” This should not even be looked at. India assists Sri Lanka by way of Aid/Assistance/Cooperation/Currency Swaps to stabilize the Sri Lankan Rupee whilst China dumps large amounts as very expensive loans that can never be paid.

An example is Hambantota, wherein Sovereign rights over a large strategic port area have been handed over to China as the loan could not be serviced.

Col. R. Hariharan: It is too early to speculate on the West Terminal. The development of port infrastructure is a time-consuming process, and it can take years for it to materialize. We do not know whether Sri Lanka political situation would continue to favour India’s involvement in the West Terminal. I consider the offer only as a political sop to mollify India and Japan, and save the face of President Gotabaya Rajapaksa, after Colombo went back on the President went public on his support to offer the ECT project to India and Japan. Sri Lanka’s decision is a setback to both countries. More so, because Colombo’s “final decision” on the ECT came after India’s FM Dr Jaishankar had discussed the issue with the President during his visit early in January 2021.

Though, the Rajapaksa government swears it would always consider lowing from Colombo’s decision for Chinese firms to install ‘hybrid renewable energy systems’ in Nainativu, Neduntheevu, also known as Delft, and Analaitivu, all of them located off Jaffna Peninsula, in the Palk Bay only 55 km from India.

Only when Sri Lanka’s terms of the offer on the development of the West Terminal to India are firmed up, we can take a call on its merits. However, the merits of such projects should be examined on the benefits that accrue to both Sri Lanka and India, for building a win-win relationship between the two countries.

Even before the ECT controversy was resolved, Sri Lanka is using the Chinese first to develop hybrid renewable energy systems in three islets – Nainativu, Neduntheevu (Delft) and Analaitivu – Jaffna peninsula, about 40 km from India. It may be argued that there was nothing wrong in Sri Lanka using Chinese companies to finance and execute projects, because there are Chinese companies involved in strategic projects in India also. Actually, they dominate mobile phone manufacture and have made inroads in financial services and the automobile industry in India.

However, there are three issues with such an argument: Sri Lanka’s contradictory actions on the ECT issue has shown the possibility of China influencing the government to change a decision already made. This shows the extent of inroads China has made in the body politics of Sri Lanka. To add fuel to the fire, a fresh controversy has arisen over Sri Lanka’s decision to develop the Second World War vintage Trincomalee tank farm jointly with India. These episodic swings in decision making have created doubts about Sri Lanka’s credibility in dealing with India-sensitive issues.

Q 4. With the ECT deal as an example, do you think India’s ‘neighbourhood first’ policy was successful with Sri Lanka? If not, what areas should India focus on to strengthen its bilateral relations with the island to counterbalance China?

Mr. Somi Hazari: Time that India changed its soft approach to Sri Lanka on the issue of China edging out India’s interests. Sri Lanka has mastered the art of playing India vs China. India has to get Sri Lanka to adhere to International Agreements and put pressure on Sri Lanka to keep India’s interest and concerns in mind.

Sri Lanka’s airline ‘Sri Lankan’ is the largest foreign airline operating in India and is one of the airlines’ most profitable routes. The traffic to the Gulf/Middle East/Far East & London from India on Sri Lankan airlines is high and contributes significantly to the airline’s bottom line. China has to be taken on “Head On” maybe in some areas indirectly.

China is also guilty of abusing the Free/Preferential Trade Agreements of India by using these as a mere route to channelize their goods at reduced import duties. We need to spruce up our network to ensure that the above is kept in check appropriately.

For example, when the Historic India Sri Lanka FTA was first signed in 1998, the lists of the goods were only made public after 2 years in 2000.

First Copper was misused by Sri Lanka, which allowed market entry into India from CIS & other Countries at a fraction of the import duties. This was followed by Vanaspati – Hydrogenated Fat mainly from Malaysia & Indonesia. Other Commodities include Green Garlic/Electrical Items & others from China.

On the other hand, India can be magnanimous to Sri Lanka and address the long pending issues of NTB (Non-Tariff Barriers) faced by Sri Lankan goods & services in India, which will attract significant goodwill and trust from Sri Lanka.

Col. R. Hariharan: India-Sri Lanka relations have been multi-faceted, much before the ‘Neighbourhood First’ initiative became the watchword of India’s foreign policy in 2014. Their relations are umbilical, moored in the shared history of cultural, religious, political, financial and trade convergences. In spite of periodic hiccups in the relations, both countries have always bounced back to build upon the positive aspects of their relationship. So, I expect both India and Sri Lanka to do the same over a period of time.

India’s strategic relations are indivisible with Sri Lanka’s national security as they are based on geo-strategic reality of proximity and Indian Ocean security. Both countries are aware of this reality. So, India’s foreign policy efforts in Sri Lanka have far greater goals, beyond the “counterbalance” of China. In the coming years, as China increases its footprint not only in Sri Lanka, but IOR and South Asia, we can expect India and Sri Lanka to consciously maintain their relations in good repair as they need each other as a friend.

(Interview conducted by Ms. Shivani Sunder, Research Intern, C3S. The views expressed are the interviewee’s own and does not reflect the views of C3S.)

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