The Right Way to do the Eastern Container Project

by Kumar David-2021/01/31

The fracas about the Eastern Container Terminal is mostly if not entirely political; concerns re finance, technology and traffic, in so far as the spat in the public domain is concerned, are not of substance. The scuffle is twofold – domestic nationalist ideology and Lanka’s positioning in geopolitics. In the domestic arena it is all about Indian participation, and the principal protagonist is Sinhala Nationalism. There is subliminal ideological aversion in the Sinhala nationalist mind to things Indian. This is not the place to explore why; whether Raja Raja Cholan, domestic antagonisms, or Tamil Nadu’s 60 million, lie at the root of the antipathy is a topic for another day. My only assertion today is that there is a gut distaste of India in the nationalist psyche. The point is that a pathological driver in the ECT standoff is Indian involvement irrespective of its suitability or otherwise. It lubricates the spleen of monk and laity alike and affects decrees of policy bosses.

The other input which I take as given, is that there is strategic tension in this region between China on one side and the Quad (India-US-Japan-Australia) on the other. Foreign Minister Colambage as reported on the front page of the Island of 28 Jan, when asked whether US, India, Japan and Australia would take a common stand against Sri Lanka on accountability, dismissed the possibility. “Sri Lanka is important to them” he said, while describing them favourably as four pillars of a Quadrangular security alliance. Hmm how will Beijing look at this jelly-fishy flopping? Exploring the good and bad of Chinese Belt & Road billions, versus capitalist liberal-democracy, will take me to far afield today.

There are four options on the table, everything else is simply variation on one of these themes.

Option 1:

Implementing the project as a consortium arrangement where Japan and India are the key players. Perhaps Japan will invest/loan $500 million, perhaps the Adani Group (India’s country’s largest port developer and operator) will manage operations, and perhaps an agency of the government of Sri Lanka will take a stake. I will mention variants anon.

Option 2:

China takes the leadership role in the project, most likely within the umbrella of the Belt & Road programme. Many variations are possible – Hambantota or Norochcholi style where China finances and builds and Lanka operates and repays debt, or in addition to this operates the project for an agreed number of years, or a third variant is where China lends capital and it is up Lanka to construct, operate, make a profit and repay.

 

Option 3:

This is what hard nationalist have wet dreams about; raise every kopek in the domestic market, have a love fest with the trade unions, borrow within this framework. Essentially, a Lankan conceived, financed, constructed and operated eastern harbour terminal.

 

Option 4:

Do bugger-all; forget about ECT; live without it; which may be where Lanka will end up given the pluripotent cock-up that is now unfolding on all sides.

These options have been discussed ad nauseam in press and TV and readers I think are fed up with saturation coverage. So I will go directly to what should be done. a) The China option – Option 2 should be discarded. I am not anti-China, not but we are already hugely indebted to China and debt repayment schedules to the PRC are hefty (about $2 billion a year for the next four years). We should put no more eggs in that basket. b) Lanka must play the non-alignment game to full advantage; pan-whoring is the way to go. How well Nehru, Nkrumah, Sukarno and SWRD-Mrs B played that game. Beggars must choose wisely and position their begging bowls judiciously. The ECT is the point to switch our tender maidenly virtues to course correction away from Chinese totalitarians to rapacious raiders from the capitalist powers. The forces behind Option 3 are powerful; unions, monks and nationalists who can bring GR, MR and SLPP to their knees. In any case it’s appropriate that domestic funds, whether from entities such as the EPF, the Lankan capitalist class or trade unions take a stake, Why not? And it this may set a model for financing development in a future where we are less broke. c) Option 4 is out of the question unless Lanka is to crawl into a cave.

Hence my position is that the way forward is to blend of Options 1 and 4. Let me go a little further on this road and explore a feasible project model. The site (contingent land and sea) will remain state property. A Project Company will be established by the principal Japanese and Indian partners for the purposes of: raising capital – maybe $700 million, building the terminal facilities, operating the harbour, developing contacts with international shipping lines, generating a profit, servicing debts incurred in project construction and in say 30 years transferring ownership to a government entity at a price discounted at an agreed annual rate (say 2% to 3%). This is quite similar to the BOT (Build, Operate and Transfer) concept that has been very successfully used with power projects all over the world. There will have to be some differences; for example a local partner is desirable because unlike a power project a harbour interacts with thousands of workers every day. Even better would be if the offer made by the trade unions to provide part finance is taken up. Either would need local partners who can raise say $100 million (Rs 20 billion) as co-investment. An additional take on making ownership part domestic would be to list 10% to 20% as shares on the local stock-exchange.

I appreciate that the challenge is more complicated than a BOT power-project where the most complex tasks arise during project construction, thereafter dispatching electricity to the grid under the control and supervision of a centralised network operator are familiar in electricity supply systems. Making a port project operationally successful and profitable will be far more complex and require commercial and pricing ability, good international networking and management of labour. Handing the whole project over to a Japanese-Indian consortium for an annual rental of such and such an amount is straightforward. The developers will raise funds, service debt, operate the facilities and pay easy-picking rental to the state, but the fever of Sinhala nationalism and trade union restlessness make this difficult. I concede that dim witted military types who are in charge of everything under Gotabaya will find that approach comfortable; just sit on an armchair and function as rent collectors. However the lay of the current political landscape may make this lazy approach infeasible. I think the government will have to get off its indolent backside and work out a project plan that includes some complexity since to let the project die is objectionable waste of economic opportunity.

I do not propose to discuss the report of the Presidential Commission of Inquiry handed over last week, except to the extent that it may influence the Eastern Container project. A expose can be found in Colombo Telegraph at: https://www.colombotelegraph.com/index.php/full-text-of-the-leaked-report-war-criminals-murderers-and-fraudsters-exonerated-by-nandasenas-political-victimisation-commission/ The CT story alleges that the report is an attempt to “exonerate, white-wash and acquit without charge perpetrators of the most heinous crimes committed in Sri Lanka in the recent past and in many cases reward murderers, abductors, and money launderers with compensation by the state”. The report unanimously recommends that “indictments against every accused in emblematic cases highlighted by the UN be dismissed, indictments in currently active trials be quashed; that high military officers, sergeants and sailors charged with rape, kidnapping, extortion rackets, abduction and assaulted be acquitted and released”.

This commission from hell was chaired by disgraced retired Supreme Court Judge Upali Abeyratne and included retired Court of Appeal Judge Chandrasiri Jayathilake and former IGP Chandra Fernando. It was a Gota regime whitewash squad reflecting regime thoughts and desires. The release of this stinking report at this moment, the eve of the Geneva UNHRC meeting where a devastating attack on the Lankan Government by the UN High Commissioner pointing to escalation of punitive measures is feared, has detonated a bomb under the regime’s backside. The recommendations are music to the ears of Gota’s military junta and it is impossible for the regime to condemn the report as this would enrage chauvinists and monk-mobs. On the other hand the MR loyal political side is acutely embarrassed. In order to minimise a skewering at Geneva and reprisals from the West will the government assuage Western anger by handing over the Eastern Terminal project to the Japan-India consortium? I expect to see heightened tension in the government between the military (GR) and the political (MR) wings of state power in the coming months.