International Relations

East Container Terminal (ECT) project

Table of Contents

Context
Around two years after Sri Lanka cancelled a joint India-Japan MoU for the East Container Terminal (ECT) project in Colombo, the three countries are studying ways of restarting trilateral cooperation.
Background
  • In 2019, India and Sri Lanka signed a memorandum of understanding (MoU) for “co-operation on economic projects”.
  • The development and operation of the container terminal was one of the projects in the MoU including:
  • a Container Terminal in Colombo Port as a Joint Venture
  • Indian investments considering that majority of transshipment in Colombo Port is related to India
  • The MoU did not mention the Eastern Container Terminal. However, India and Sri Lanka had already been in discussion for its development and operation.
  • However, Last year Sri Lanka withdrew from the agreement.
  • But again all three countries are planning for the revival of ECT project.
About Eastern Container Terminal port:
  • The ECT is located some 3 km away from the China-backed international financial city, known popularly as “port city”, being built on reclaimed land on Colombo’s sea front.
 Why Japan is joining the path with India and Sri Lanka?
  • There are two reasons that India had roped Japan into the projects:
  • The East Container Terminal (ECT);
  • An LNG Terminal/Floating Storage Regasification Unit (FSRU) in Kerawalapitiya/Colombo with a piped gas distribution system along with retail outlets for CNG etc.
  • Japan was also the biggest donor to Sri Lanka through the years of conflict.
  • The Geoffrey Bawa-built Sri Lankan parliament, which came up at the height of the conflict, was funded by Japan.
  • It continues to give Sri Lanka substantial financial support even now.
  • However, the old relationship between Sri Lanka and Japan has undergone changes when China’s footprint over Colombo has grown.
  • Late in 2020, the Rajapaksa government unilaterally cancelled a Japanese project for a light rail transit (LRT) project in Colombo.
  • India and Japan share a vision of a Free Open and Inclusive Indo-Pacific (FOIIP), which is of relevance to all countries in the region including Sri Lanka.
What are the terms of the agreement?
  • The Sri Lanka Ports Authority (SLPA) would have 100% ownership of the ECT.
  • The Terminal Operations Company (TOC) conducting all ECT operations was to be jointly owned:
  • Sri Lanka retaining a 51% stake
  • the joint venture partners 49%
  • A 40-year loan at an interest rate of 0.1% from Japan was expected to fund the development of the ECT.
  • The envisaged Japanese loan carries one of the best loan terms Sri Lanka has obtained.
  • The 51% stake is also one of the best in SLPA joint ownership endeavors.
How this project can help India and Japan?
  • Alternative against West Terminal: India had been offered the Western Container Terminal earlier, but had refused.
  • The ECT is already operational, while the WCT has to be built from scratch.
  • Accessibility in Indian Ocean: For India, the ECT deal was important as 60%-70% of transhipment that takes place through it is India-linked.
  • The ECT is also considered more strategic than any other in Colombo Port.
  • Proximity with Chinese developed port: It is located next to the Colombo International Container Terminal (CICT) project, a joint venture between China Merchants Port Holdings Company Ltd. and SLPA.
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