China is strengthening itself in Colombo port with the April 21 agreement with the Sri Lankan government to build, operate and transfer a warehousing hub within the port. The China Merchants Port Holdings Company (CMPH) will have an 85% stake in the warehouse facility and will operate it for 50 years.
The CMPH already has an 85% stake in the Colombo International Container Terminal (CICT), a star-performer among Sri Lankan and South Asian terminals. The CMPH also has the Hambantota port in South Sri Lanka, in which it has an 85% stake and enjoys a 99- year lease. According to CMPH chairman Miao Jianmin, the company has so far invested over US$ 2 billion in Sri Lanka to become the single larger foreign investor in the island nation.
Another Chinese company, China Harbor Engineering Company (CHEC), is partnering with Access Engineering Ltd (AEL) of Sri Lanka and the Sri Lanka Ports Authority (SLPA) to build the Eastern Container Terminal (ECT) in Colombo port. The CHEC is also the builder of the Colombo Port City which is designed to be an international financial hub.
No Open Tendering
Shipping sources in Colombo said that it had been their demand that government should give the warehousing project on the basis of an open tender. Instead, the government had unilaterally given the project to the CMPH, they added. No other Sri Lankan or foreign party had raised this issue, with the result, the deal “is done and dusted” as Rohan Masakorala CEO Shippers’ Academy in Colombo, put it.
For the purpose of setting up the warehouse, to be called the ‘South Asia Commercial and Logistics Hub’ (SACLH),, the CMPH has set up a fully-owned subsidiary, Fortune Centre Group Limited (FCGL).
The FCGL gets the rights to name the chairman, managing director/chief executive officer, and appoint five directors, to the project company. Access Engineering, a local construction company, and the SLPA, the two local collaborators can name one director each.
The issued share capital of FCGL will be US$ 84 million. FCGL agreed to contribute, in cash, US$ 58.8 million, representing 70% of the total issued share capital. Access Engineering agreed to contribute in cash of US$ 12.6 million, representing 15% of the total issued share capital; and SLPA agreed to contribute in cash of US$12.6 million, representing 15% of the total issued share capital.
By the agreement, SLPA is not allowed “to grant any third party the right to carry out port-related logistics or warehousing services at the Port of Colombo at a rate lower than the royalty fees payable by the project company”, filings by China Merchants Port show according to Sunday Times.
The logistics hub will cost US$ 392 million. The ‘South Asia Commercial and Logistics Hub Limited’ has to pay SLPA a lump sum of US$ 14 million in royalties no later than 90 days from the day when all conditions of the BOT agreement are met. The cost considers the value of existing assets, the lease area and construction and development as well as expected revenue and other income the CMPH may get from the logistics hub.
Also, US$ 126 million must be deposited to a bank account in Sri Lanka within 60 days of the letter of intent accepted by China Merchants Port on April 21, 2023. At the end of 50 years, the hub company “shall hand back” the leased site and transfer all assets of the logistics hub to the SLPA”.
China Merchants Port says the logistics complex will allow it to gain a greater market share of South Asian ports and increase its influence in the region. A statement said it is “a giant leap forward’’.
Indian Angle
The warehousing project has an international strategic dimension, especially an Indian dimension. After the Mahinda Rajapaksa government gave the CICT project to China in September 2011, India felt a pressing need to have a foothold in Colombo port because of its strategic and economic interest in it.
Colombo Port handles 60% of India’s transhipment cargo and India-linked cargo, in turn, accounts for 70% of Colombo Port’s total transhipment volume. Even the Hambantota port has significant business with India. In fact, the RORO vehicle’s cargo comes mostly from Chennai, Mundra, and Ennore in India and Gunsan and Pyeongtaek in South Korea.
Since India views Sri Lanka as “an aircraft carrier permanently docked on its Southern flank” as the Indian diplomat Shivshankar Menon put it, India was wary about a strong Chinese presence in Colombo port. In fact, the India-Si Lanka Accord of 1987 had anticipated a foreign presence in the ports of Sri Lanka in the 1980s itself. The Accord made Sri Lanka promise that it would not allow its ports to be used by forces inimical to India. India did not have China in mind at that time. The bugbear then was the US.
Following the entry of China as the principal infrastructure builder in Sri Lanka from 2011 onwards, India woke up to the need to keep China away from its doorstep. Along with its QUAD ally, Japan, India fought hard to secure the contract to build and operate the East Container Terminal (ECT) in Colombo port to balance the Chinese presence there.
But the government of Gotabaya Rajapaksa reneged on an earlier promise to hand over the project to India and Japan. Gotabaya cited an electoral commitment to not to give the ECT away to foreign entities and wriggled out of the pledge.
However, due to mounting pressure from India to make good the loss of ECT, the government gave the West Container Terminal (WCT) project to the Adanis of India. But the Adani’s were allowed only a 51% stake and not 85% as it had been in the case of the Chinese company running the CICT (namely CMPH).
In July 2014, the Sunday Times reported that the Government had allowed the state-owned China National Aero Technology Import-Export Corporation (CATIC) to set up an Aircraft Base Maintenance Centre (ABMC) in Trincomalee to repair and maintain Chinese-built aircraft in the Sri Lankan Air Force. It was to be built at a cost of US$ 40.3 billion. The cabinet had accepted a proposal to this effect by the then President Mahinda Rajapaksa.
But apparently, after India raised objections, the then Minister Prof.G.L.Peiris told parliament: “ No such decision has been taken to permit the establishment of an Aircraft Base Maintenance Centre in Trincomalee.”
In 2014, India did not hide its discomfort over the burgeoning influence of China in Sri Lanka under the stewardship of Mahinda Rajapaksa who was perceived in New Delhi as anti-India and pro-China.
In November 2014, a Chinese submarine, Changzheng-2 and a warship Chang Xing Dao, docked in Colombo. Seven weeks earlier, a Chinese submarine, a long-range deployment patrol vessel, had called at the same port ahead of a visit to Sri Lanka by Chinese President Xi Jinping.
In the Sri Lankan Presidential election held soon after in January 2015, Mahinda Rajapaksa was defeated by Maithripala Sirisena who had the support of the pro-India and pro-West opposition leader Ranil Wickremesinghe and former President Chandrika Kumaratunga.
