CONTEXT:

• Sri Lanka, Japan, and India signed an agreement to jointly develop the East Container Terminal at the Colombo Port on 28th May.
• The joint initiative is estimated to cost between $500 million and $700 million.
• The signing of the Memorandum of Cooperation (MoC) is significant, given that the countries had been negotiating the deal since last year with little success.
• As per the agreement, the Sri Lanka Ports Authority (SLPA) retains 100% ownership of the East Container Terminal (ECT), while the Terminal Operations Company is jointly owned.
• Sri Lanka will hold a 51% stake in the project and the joint venture partners will retain 49%.

BACKGROUND:

• Sri Lanka has been one of the countries which became part of China’s Belt and Road Initiative, an ambitious plan announced in 2013 by President Xi Jinping.
• However, China’s politically controversial investments in Sri Lanka became an election issue in 2015 and fuelled infighting between politicians in the capital.
• India, the US, and several other countries have been highlighting the concerns over the BRI projects which may leave a number of smaller countries in debt traps.
• India’s involvement in the latest project also became a reason for political infighting in the country.

India’s involvement:

• Over 70% of the trans-shipment business at the strategically located ECT is linked to India. However, in 2018, India’s possible role in developing the terminal had become a major flashpoint within the government.
• President Maithripala Sirisena had opposed any Indian involvement in the project, as roping in foreign actors for developing national assets remains a politically sensitive call in the island, especially among nationalist trade unions.

Japan is to lend loan:

• Japan is likely to provide a 40-year soft loan with a 0.1% interest rate. The SLPA described the envisaged Japanese loan as one of the best loan terms Sri Lanka has obtained.
• Japan had cooperated since the 1980s to develop the port’s container terminals.