Policy Brief

June28,1, 2018
June
2019

Dr. Monika Cha nsor ia is a
Tok yo -based Senior Fellow
at T he Japa n I nst it ute
of I nter nat iona l A f f a irs.
P r e v i o u s l y, s h e h a s h e l dappointments at the Sandia

Development of Sr i L ank a’s East
Container Terminal Port:Japan & India’s Regional Cooperation
in South Asia Shaping Up

National Laboratories (U.S.),

Dr. Monika Chansoria

Hokkaido University (Sapporo,
Japan), and Fondation Maisondes S c ienc es de l ’ Hom me( Pa r is). Dr. Cha nsor ia has
authored five books including
her latest work, China, Japan,
and Senkaku Islands: Conf lictin the East China Sea Amid an
American Shadow (Routledge© 2018).

Disclaimer :The views expressed in thispublication are those of the authorand do not necessarily reflect thepolicy or position of The Japan
Institute of International Affairs or
any other organization with which
the author is affiliated.

Signing the Japan-India Vision Statement in Tokyo on 29 October
2018, the Prime Ministers of Japan and India reviewed cooperation on
development of connectivity via quality infrastructure and capacitybuilding carried out bilaterally, as well as, with other partners. Moreso, the need to do this in an open, transparent and non-exclusive
manner based on international standards, responsible debt financing
practices, and in alignment with local economic and development
strategies and priorities was highlighted. 1 The synergy finds
embodiment in collaborative projects between Japan and India in the
Indo-Pacific region, especially in Sri Lanka, Myanmar, Bangladesh,and Africa. In slightly over six months since this statement, Sri
Lanka recently announced on 28 May 2019, its decision of entering
into a trilateral partnership with India and Japan to develop a deepsea container terminal. The state-run Sri Lanka Por ts Authority(SLPA) said a Memorandum of Cooperation (MOC) had been signed
between the three countries to jointly develop the East Container
Terminal (ECT) of the Colombo Port next to a $500-million Chineserun container jetty in Colombo harbor.
The East container terminal is located at the southern part of
the newly expanded Port of Colombo. India and Japan will likely
deepen and develop this facility to allow large container ships toenter seamlessly. The SLPA further said it will retain 100 percent
ownership of the ECT while all operations will be owned jointly. Sri
Lanka will retain 51 percent while joint venture partners India andJapan, 49 percent stake. While officials from the three countries are
expected to formulate the scale and form of the project by over the
next few months, corporate partners are also expected to be broughton board in the project that shall be financed majorly by JapaneseOf ficial Development Assistance (ODA). Work on this trilateral
1 Japan-India Vision Statement , Tokyo, October 29, 2018.

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project is likely to begin by March 2020 andis projected to increase the por t’s container
volume and enhance marine transportation in
and around South Asia. According to the SLPA,
the decision demonstrates “Sri Lanka’s ability tomaintain and further its national interests while
cooperating with international par tners” andcontributes to advancing the regional prosperity
and stability of global trading networks.

billion in investment from China under the Beltand Road Initiative.4
Sri Lanka had planned to develop the threeterminals – South, West, and East – with a depthof 18 meters that would allow larger container
ships to operate at the port. India-Japan, ChinaQatar-Iran, along with the Sri Lanka Por ts
Authority had expressed interest to develop the
project as the deepest Container Terminal at
the Port of Colombo, helping to berth massive
ships, container carriers, and oil tankers. In
recent years its container handling volume hasrisen steeply, par ticularly for trans-shipment(transferring containers between ships) cargo.
Colombo is highly regar ded by shipping
companies as an international por t with themost modern container handling facilities inSouth Asia with demands for container handlingat Colombo continually growing. However, it isproving challenging for the existing container
handling facilities to meet any additional
demands. Expansion of the facilities therefore
is urgently required. A series of ODA loan
projects for the Port of Colombo, concentratingon container handling facilities, have been
implemented in the past.5

East Container Terminal, Colombo Port
Joint development of the Port of Colombo
underscores the fact that the Indian Ocean
is becoming more integral to global trade.
According to the SLPA, the trans-shipment
Colombo hub handles 70 percent of containersthat are Indian expor t-impor t cargo, which
explains Indian interests in investing in the East
Container Terminal. At present, the Colombo
Port handles over five million containers a year
and is the second fastest growing port with agrowth rate of 10.6 percent as per 2016 records.
The Por t of Colombo faces marine shipping
routes connecting Europe and Asia and is
the largest Sri Lankan port through which 90
percent of the country’s seaborne goods pass,connecting Europe, the Middle East, Africa
and Asia. It witnessed traf fic of 6.21 million
twenty-foot equivalent units in 2017, making
it Southwest Asia’s busiest port.2 The project
holds high importance in the region given thatJapan’s primar y maritime routes run throughthe Indian Ocean, and thus, improved capacityof the region’s ports will resultantly improve
the security of tankers and commercial ships.3
Between 2011 and 2015 itself, vessels of theJapanese Maritime Self Defence Force visited
Sri Lankan ports on 22 occasions. The Colombo
Port is considered the most commercially viable
project and has already attracted around $1.4

Colombo’s old harbor was developed by
the British and by 2002 it became capable ofhandling ships of length 500 ft. Despite that,the harbor got dredged periodically, depth
reaching maximum of 12 m, and was insufficient
to r eceive container ships. To meet thegrowing demands of increasing cargo traffic,
the Sri Lanka Por ts Authority proposed theColombo Port Expansion Project in 2005. The
project proposed a 5.14 km main breakwater,
secondar y breakwater of 1.65 km along withbasic infrastructure. The harbor would compriseof three terminals, South, East and West, each

2 “Japan and India to develop Colombo port, Countering Belt and Road” Nikkei Asian Review , May 20, 2019.
3 Ibid.
4 Ibid.
5 Sri Lanka Port of Colombo Expansion Project (IV): Port of Colombo Extension Project (I) ~ (IV) Report by Japan
International Cooperation Agency, March 1999.

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two years in not developing the East Terminal.”9
Thereafter, in August 2017, President Sirisena
informed that the ECT will not be privatized but
will be run by the Sri Lanka Ports Authority, andcontinued, “We are committed not to hand overthe Eastern Terminal to any party because suchan action will lead to close the Sri Lanka Port
Authority in another 10 years.”101200 m long, capable of accommodating threealongside berths, allowing total of nine deepwater ber ths. 6 Upgrading the East Terminalin particular has been through its share of ups
and downs, with attempted development on
since 2013. In the master plan of Colombo Port
Expansion Project, the East Container Terminal
has a 1200 m long Quay wall, alongside water
depth of 18 m berthing of three mega ships, anda yard capacity of 2.4 million TEUs.7

Later, according to a tripar tite agreement
entered in July 2018 by the three main terminal
operators at the Port of Colombo – South Asia
Gateway Terminal, Jaye Container Terminal
and Colombo International Container Terminal– they are to function as a single unit mainly inrespect of container handling, trans-shipment
ship handling and related activities. According
to the Alphaliner Monthly 2018, the Por t ofColombo was ranked as the world’s fastest
growing por t among the top 30 container
ports during the first half of 2018. In container
handling, the Colombo Por t recorded a 15.6
percent growth for the first half of 2018.
However, the port has reached its capacity limit
and is incapable to increase container handlingunless the East Terminal is brought into action.11

The SLPA has completed a 440 m single
berth in the first phase of the ECT development
plan to cater for the shortfall in the capacity ofcontainer handling in the port of Colombo. Thisconsists of a 440 m quay wall alongside a water
depth of 18 m which was completed in May
2015. In Februar y 2016, the cabinet decided
to invite expressions of interest and businessproposals from interested par ties for thedevelopment of the East Container Terminal.
The Ports Authority called for Expressions ofInterest for the $400 million project in June
2016, in order to complete the balance sectionof part built ECT. The bids closed in July 2016.8
However, in December 2016 Por ts Minister
Arjuna Ranatunga cancelled the tenders as
committees overseeing the project sought
to introduce new conditions in the tender
process. The revised procedure disqualified fiveinternational consortia and two single bidders
that had submitted expressions of interest.
In May 2017 SLPA was brought under new
Minister, Mahinda Samarasinghe who statedthat “During the last two years SLPA has lost
approximately Rs. 4 billion due to the delay incompleting the ECT. The Ports Authority could
have earned this money easily ... we have wasted

Port of Colombo Expansion Project: A
History
The por t was developed around 1875 asa shipping point for tea and spices under the
British colonial empire, later functioning as
a midway point for routes to por ts along theeastern coast of India. In the 1980s, construction
began on container terminals and the por tacquired cargo-loading machiner y throughinternational yen loans that were facilitated

6 Tudor Wijenayake, “East Container Terminal Blunder…” Daily Financial Times Sri Lanka , September 18, 2018.
7 Ibid.
8 Ibid.
9 Ibid.
10 Ibid.
11 Alphaliner figures cited in “Colombo Port: No.1 in Alphaliner’s ranking,” Container News , September 10, 2018.

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Policy Briefby plans drafted with technological assistancefrom Japan.12 The port was able to make great
strides as a container port, partially due to thetrend toward the use of containers in the marine
shipping industry, and as of 2015 had a container
cargo carrying capacity of 5.2 million TEU, the27th highest in the world.13

At the time when Ceylon (present day Sri
Lanka) gained independence after the Second
World War in 1948, the three piers named
Queen Elizabeth Quay (QEQ), Delft Quay (DQ),and Prince Vijaya Quay (PVQ) were constructedon the inner side of seawalls from 1950 to 1956.
These quays were built in order to shift cargohandling from the system of barges shipping
between vessels anchored offshore to a systemof vessels directly mooring in the port and onloading and of f-loading directly. 15 Following
the assassination of then Prime Minister
Bandaranaike in 1959, the political realities of
Sri Lanka resulted in virtually no investments
being made in developing the harbor. Few years
later, following the establishment of Sri Lanka
as a republic in 1972, it took nearly a decade
to develop 300 meters of quay. Even at thattime, the finished quay did not have the cargohandling equipment necessary for transferring
containers.16 After assuming office in February
1978, President Jayawardene pumped greater
political capital for the economic development
and resultantly the Por t of Colombo’s cargocapacity began to grow.

The rapid shift toward the use of containers
in inter national marine shipping propelled
Colombo, the SLPA, and Japan to develop
container terminals of the port and serve a keyrole as southern Asia’s principal regional port.
According to a study on the Port of Colombo
Development Project:14•	Though Japan’s economic suppor t of Sri
Lanka began with yen loans in 1958, morethan 10 percent of those loans to Sri Lanka
have been allocated to the development of
the Port of Colombo, and hence, this projectis a core facet of economic suppor t for
Colombo.
•	No other single harbor has received as mucheconomic support from Japan as Colombo
has, and, with the foresight of the container
revolution beginning in the late 1970s
among advanced nations’ ports, this port hasdeveloped into a container transshipment
port for harbors along the eastern coast ofIndia.

Japan’s Assistance to Sri Lanka
Ever since Japan established diplomatic
relations with Sri Lanka (then Ceylon) in 1952,
it has par tnered Sri Lanka’s socio-economic
development, focusing on priority areas ofpromoting quality infrastructure and growth.
Before China taking over in 2008, Japan was
the largest donor to Sri Lanka providing grants,
concessionar y loans, and technical assistanceincluding in the Maritime Safety Capability
Improvement program for the Sri Lankan Coast
Guard. The geo-strategic vitality of Sri Lanka
placed at the center of the Indian Ocean is•	Many Japanese firms had participated in the
yen loan operations for the Port of Colombo
during its consulting and implementation
stage, when Japan’s ODA program was juststarting and this served as the basis for thesubsequent overseas expansion.

12 “Port of Colombo Development Project,” Paper presented at the JSCE International Infrastructure Archives Working
Group Meeting, Nihon University, Tokyo.
13 Cited in Containerization International , March 2016.
14 “Port of Colombo Development Project,” n. 12.
15 Ibid.
16 Ibid.

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well-known in so far as securing sea-lanes andconsolidating connectivity of ports in South Asia
to the Gulf and East Africa. Sri Lanka’s internal
conflict ended in 2009, and by December 2010,
Japan provided around 1,100 billion Japanese Yen(approximately Rs. 1,400 billion) in assistance to
Sri Lanka under its various funding schemes inconflict-affected areas.17 The assistance has been
provided through several funding schemes suchas Grant Assistance, Technical Cooperation,
and Yen Loan scheme mainly executed by theJapan International Cooperation Agency (JICA).
The primar y and inter-related focus areasof Japan’s assistance to Sri Lanka are peaceand reconstr uction; medium and long-term
vision for development; and socio-economic
infrastructure.18 The recent and major assistanceprojects for socio-economic infrastructure in thetransport and energy sectors, especially in the
Northern and the Eastern Provinces are aimed
at promoting sustaining peace and reconciliation.
These include:19

Besides, ver y recently, Japan has inked
providing a loan to build the $1.8 billion projecton Sri Lanka’s first light railway system in
Colombo. The loan will be granted in six
stages until 2024 and will begin in 2019. An
agreement to release the first instalment of$260 million (30 billion yen) was signed in
March 2019 between the Japan International
Cooperation Agency, which coordinates Japan’s
official development assistance, and Sri Lanka’s
finance ministr y.20 The proposed rail line will
run for 16 kilometers on elevated viaducts tominimize land acquisition. The agency said thefinancing is being provided under an economic
partnership with interest rates of 0.1 percent
and a 40-year repayment period that includes a
12-year grace period.21 In 2017, Sri Lanka leased
out a Chinese-built seaport for 99 years in a bid
to recover from the heavy burden of repaying aloan obtained to build the facility.
Prior to the G-20 Summit in Osaka hosted
by Japan in June, there were reports that the
Abe government was considering proposing
a set of rules for infrastructure investment indeveloping countries. The proposed rules would
increase transparency of contracts, responsible
financing, and give due consideration to thedebt repayment capacity of countries receiving
investments. In addition, there has been
anticipation in Tokyo to adopt the principleof ensuring “openness” of facilities without
imposing restrictions on usage and economic
ef ficiency by making infrastructure durable
enough for long-term use.22•	Constr uction of Vavuniya- Kilinochchi
Transmission Line•	Construction of the new Mannar Bridge andimprovement of the Causeway•	Construction of Upper Kotmale Hydro Power•	Development of Solar Electric Power
Generation in Hambantota•	Constr uction of Southern Highway from
Kottawa to Kurundugahahetekma

India’s Assistance to Sri Lanka•	Construction of the first section of the Outer
Circular Highway in the outskirts of Colombo

India and Sri Lanka’s economic and17 “Overview of Japan’s Economic Cooperation to Sri Lanka,” Factsheet , Embassy of Japan in Sri Lanka, October 17,
2018.
18 Ibid.
19 Ibid.
20 “Japan agrees to provide loan for Sri Lanka’s light-rail line,” The Asahi Shimbun, March 13, 2019.
21 Ibid.
22 “With China in mind, Japan eyes new infrastructure investment rules for G20,” The Japan Times , April 29, 2019.

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commercial partnership is vibrant, with bilateral
trade growing rapidly in the last decade. Sri
Lanka is India’s largest trade partner in South
Asia and India is Sri Lanka’s largest trade
partner globally. Much of the impetus for thecurrent level of India’s economic interaction
stemmed from the signing and entry into forceof the Free Trade Agreement (FTA) in 1998 and2000 respectively. Bilateral trade between India
and Sri Lanka amounted to USD $4.93 billion
in 2018. In addition to being Sri Lanka’s largest
trade partner, India is also one of the largest
contributors to Foreign Direct Investment in Sri
Lanka. Interestingly, over 80 percent of Indian
expor ts to Sri Lanka are outside the list of
products covered by the FTA, thereby indicating
their overall competitiveness in the Sri Lankan
market.23

As far as the Concessional Financing Projects
in Sri Lanka are concerned, India has provided
concessional financing of over 1.8 billion dollars
to Sri Lanka through Line of Credit (LoC)
Projects funded by EXIM Bank of India. Out of
this over USD 1.2 billion has been committed to
the railway sector in Sri Lanka.25 A Line of Creditof USD 150 million for expor t of petroleum
products from India to Sri Lanka was given in
2004. LoC has been fully disbursed and fully
repaid by GoSL by 2012. In addition, a Line of
Credit of USD 167.40 million was provided for
upgradation of Coastal Railway Track which also
included the upgradation of tsunami-affected
Southern Railway line. The upgradation of the
118 km coastal railway track from Kalutara to
Matara was undertaken under two LoCs:26•	LoC amounting to USD 100 million signed inJuly 2008

Following the FTA, the two Governments
emboldened by the positive outcomes andsuccess of the FTA, felt that more action was
required to unleash the full potential of ourbilateral economic relations. Accordingly,
during the visit of Prime Minister of Sri Lanka
to India in June 2002, India and Sri Lanka
decided to set up a Joint Study Group to
explore possibilities of star ting negotiations
for a Comprehensive Economic Par tnership
Agreement (CEPA) modeled on the IndiaSingapore CECA. Although CEPA negotiations
were completed, the agreement was not signed.
To fur ther broaden the scope of FTA and tostrengthen the economic, trade, investment
and technology cooperation between India and
Sri Lanka, an Economic and Technology Cooperation Agreement (ETCA) was proposed andnegotiations are under way.24 The ETCA covers
both goods and services.

•	LoC amounting to USD 67.40 million signed
in March 2010
Besides, the Line of Credit facility has
been used for projects including upgradationof Nor thern Railway and track-laying in thefollowing sector areas:27•	From Omanthai to Pallai•	Madhu Church Tallaimannar sector•	Medawachchiya-Madhu Railway line•	Pallai-Kankesanthurai sector
Additionally, the Line of credit for USD 45.27
million for rehabilitation of Kankesanthurai
Harbor (KKS) was signed on 10 January 2018.

23 “India-Sri Lanka Economic and Trade Engagement” Factsheet , High Commission of India, Colombo, Sri Lanka,
available at https://hcicolombo.gov.in/Economic_Trade_Engagement
24 Ibid.
25 Ibid.
26 Ibid.
27 Ibid.

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Four out of the six phases of the rehabilitationof KKS port have been completed under India’s
grant assistance. The current LoC is for theremaining two phases involving works relating
to installation of port infrastructure facilities.
After completion of this project, the KKS Harbor
could be fully used as a commercial por t,
facilitating movement of cargo between southern
India and Sri Lanka. 28 Moreover, the Line of
Credit of USD 100 million for Solar Projects in
Sri Lanka was announced for Sri Lanka duringvisit of President of Sri Lanka to New Delhi in
March 2018 during the founding conferenceof the International Solar Alliance. The LoC
Agreement is yet to be signed. Sri Lanka hassigned International Solar Alliance Agreementon 31 January 2018. As far as the Buyer’s Credit
Projects are concerned, the Indian-Sri Lankan
partnership is working on projects including:Greater Dambulla Water Supply Project;
Aluthgama, Muthugama Water Supply Project;and Pothuhera Water Supply Project.29

Aimed largely to propel growth andinvestment, the infrastructure projects are slated
to build institutional, industrial, and transport
corridors, which shall be a boon for better
integration of Asian and African economies in thelong term. Japan’s expertise in providing quality
infrastructure and state-of-the-art technology
will be a clincher in this case, which will be wellmatched by India’s long experience of working
inside Sri Lanka. Although it is still a nascentstage for the Japan-India-Sri Lanka trilateral, theclassic interpretation of recent developments isperhaps the realization by Tokyo and New Delhi
to propel Colombo as an impor tant par tnerin the regional maritime paradigm. In thisreference a maritime communication network
system in Colombo would be of immense utility
vis-à-vis the Indian Ocean. It perhaps is theapprehension of being outmaneuvered by China
and that of its strategic strides that places thetheories of functional integration in the region
to test. These initiatives are just the beginningof newer maritime frameworks that are likely toemerge in the Indo-Pacific, where players like
Japan and India find strategic reason to haveeach other’s back regionally.

Conclusion
Asia’s present geopolitical and geostrategic
setting makes it nearly obligatory for two of its
most prominent and responsible powers, India
and Japan, to step for ward and stabilize thebalance of power and ensure lasting security
within the region. In Africa, the Indo-Japanese
proposed Asia-Africa Growth Corridor holds
promise for collaborative progress and benefits.
In South Asia, the decision to jointly develop theEast Container Terminal of the Colombo Port
is a vital step in the said direction. The potential
for New Delhi and Tokyo to establish a stronger
collective footprint in South Asia and Africa ishuge, and falls in line with the vision to create
a free and open Indo-Pacific region linking
the African continent with India and countries
in South, Southeast Asia, and Oceania via sea
corridors.

28
29

Ibid.
Ibid.

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