East Container Terminal (ECT) project

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.

• 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.

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.