India-Sri Lanka Ties Are Fraying And Colombo’s WCT Offer Doesn’t Help

While Colombo keeps India on tenterhooks on key projects, China's growing presence is adding to the tensions.

Sri Lanka has pushed India out of key projects in recent months. 

Image: Aroop Mishra/The Quint

The Gotabaya Rajapaksa-led Sri Lankan government may believe it has mollified India by offering it the West Container Terminal (WCT) of the Colombo Port for development in lieu of the cancelled tripartite pact to develop the strategic East Container Terminal (ECT). But its offer of the WCT has not cut much ice with India.

New Delhi continues to be miffed with Colombo’s decision, taken in February, to boot India and Japan out of the project, especially in the backdrop of China’s deepening inroads into the island nation. Signalling its unhappiness, New Delhi, in the months since, has been repeatedly raking up the issue with Colombo during bilateral discussions.

The WCT Requires More Investment & Time

India had been keen to develop the ECT as nearly 65 per cent of the trans-shipments through this terminal are headed for India. Therefore, Indian presence at this terminal was deemed a strategic necessity.

Further, while the ECT is an “active terminal” whose development meant expanding the existing quay, this isn’t the case with the WCT, which is a greenfield project, therefore requiring far more investment and time.

The new WCT is to be developed by a consortium comprising India’s Adani Ports and Special Economic Zones Ltd (Adani Group subsidiary), Sri Lankan conglomerate John Keells Holdings PLC and the Sri Lanka Ports Authority.

The ECT, though, isn’t the only matter that has strained bilateral ties. There are also simmering differences between the two neighbours over the future ownership of 99 oil tank farms in Trincomalee on the Northeastern coast of Sri Lanka.

WW II-Era Oil Tank Farms

In February this year, the Sri Lankan government’s announcement that it would “re-acquire” these World War-II era oil tanks created considerable disquiet in New Delhi, which wants to develop Trincomalee as an energy hub while also protecting its strategic interests.

With its natural harbour and close proximity to the Indian coastline, Trincomalee is of immense strategic importance to New Delhi.

There are worries that India’s exit from the oil tank farms could give a third country, possibly China, another foothold in India’s periphery.

Indeed, there is a perception within strategic circles that despite declarations by the Gotabaya Rajapaksa government that it would adopt an “India first” approach in its security matrix, Sri Lanka is overlooking its neighbour’s interests. China, meanwhile, continues to make deep inroads into Sri Lanka, the Indian Ocean island nation that straddles vital sea lanes.

While India was ejected from the ECT following pressure from powerful ports trade unions objecting to foreign investments in its development, the China-funded Colombo Port City project is chugging along smoothly. This despite fears within and outside Sri Lanka about its sovereignty being compromised by China’s “colonisation” machinations.

A part of China’s Belt and Road Initiative (BRI), what has added to India’s worries about the $1.4 billion Sri Lankan project is the passage of the controversial Colombo Port City Economic Commission Bill in May this year. Among other things, the Bill allows foreigners to become part of its governing structure. It is feared that this would allow Chinese nationals to be part of the port city’s management.

Twists and Turns

Dismayed by the Sri Lankan government’s pro-China tilt, India on its part has been playing hardball with President Gotabaya’s request for a $1 billion bilateral currency swap. The request has been “under examination” for over a year now.

There are also hints that the relationship has to be “mutually beneficial” if India is to agree to this currency swap. With Sri Lanka’s economy battered by the COVID-19 pandemic, faced with dwindling forex reserves and increasing debt, President Gotabaya Rajapaksa had sought the bilateral currency swap in May last year.

Sri Lanka has also sought an additional $400 million currency swap under the SAARC rubric, having earlier got $200 million under the same framework. There has to be a cooling-off period of six months before the second tranche can be given. This cooling-off period ends later this month. It remains to be seen if the additional currency swap comes through.

As for the oil farms, these have been in India’s “physical possession” since 2003, though Sri Lanka has been dragging its feet on signing the lease. Over the years, while India has been urging its neighbour to sign the lease deed, Sri Lanka Energy Minister Udaya Gammanpila sprung a surprise on India by declaring that Sri Lanka would reacquire them.

Bridging the 'Trust Deficit'

Of the 99 oil tank farms, 14 lower tank farms are being used by the Lanka IOC (LIOC), a subsidiary of the Indian Oil Company (IOC). The remaining 85 are not in use as they’re in poor condition and require massive refurbishment.

India has repeatedly expressed its willingness to collaborate with Sri Lanka to develop these oil farms, even suggesting a joint venture by way of collaboration. But the Lankan government is yet to bite the bullet, having faced protests from oil workers’ unions to such a step.

The issue here, again, is whether a foreign power should continue to have stakes in a national asset.

Seeking to iron out his country’s differences with New Delhi, Sri Lanka’s High Commissioner-designate to India, Milinda Moragoda, has prepared a document aiming to bridge the “trust deficit”. The document mentions the need to lend speed to pending projects, including the WCT and oil tank farms. It remains to be seen whether it can bridge the chasm and help revitalise New Delhi-Colombo ties.

(The writer is a senior Delhi-based journalist. She can be reached @ParulChandraP. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)