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Srilankan Government, in a unilateral decision, decided to move out of a Memorandum of Understanding signed with India and Japan for the development of the Eastern Container Terminal (ECT) at Colombo Port.
About the Memorandum of Understanding
Not so long ago in May 2019, India, Japan, and Srilanka signed an agreement wherein it was decided that the three countries will develop the Eastern Container Terminal of Colombo Port together.
The MoU said that Sri Lanka Port Authority (SLPA) would retain 100% ownership of the Colombo Port but the Terminal Operations Company, which will conduct its operations will be jointly owned with SLPA getting a 51% stake and the remaining 49% was to be shared between India and Japan.
Adani Group Conglomerate was to invest and develop the chosen portion of the port from the Indian side.
The Srilankan Prime Minister, in January 2021, had stated that this project will move forward as planned which led to widespread criticism from labor unions.
After Sri Lanka's Cabinet decided to exit from the agreement, it was stated from the government's side that they'll borrow from national banks and institutions for the project.
Reason for Sri Lanka's Exit
The Srilankan Political Scenario played a major role in this decision as to the Labor Unions at Colombo Port had earlier rejected the idea of involving India and Japan in the development program.
Over twenty of them have been protesting continuously since last year and have been pushing for 100% ownership of SLCA in Terminal Operations Company with no foreign interference.
Strategic Importance of ECT
ECT is strategically significant for India as more than 70 percent of the transshipment business conducted here is linked to India.
The ECT is located nearly 3 kilometers from 'Port City", an international financial city being developed in Sri Lankan waters with the backing of China.
The Agreement was also important for India as the international relations between Sri Lanka (SL) and India haven't been slightly on the darker side citing SL's growing closeness with China after the recently concluded elections.
Response from India and Japan
Indian Governement's spokesman urged the Sri Lankan government to return to the deal, saying that all sides should continue to abide by the existing understandings and commitment. Meanwhile, Japan Government showed regret at the unilateral decision taken by Srilankan Cabinet.
Possible Implications of the Decision
Sri Lanka's exit from the MoU will definitely take them on a backfoot as opting out of international agreements presents a negative outlook among potential investors for the future.
As Sri Lanka , in September, decided to halt a light rail project that was being supported by Japan, this is the second time when Srilanka has broken the trust of Japan which will deteriorate their ties.
India and Sri Lanka are neighboring countries and apart from a few disputes , the two had moderately good ties. India, in 2019, announced a $400 million credit line to Sri Lanka for infrastructure development. and another $50 million for fight against terrorism. Sri Lanka's unilaterally decided exit from the agreement will deteriorate their ties and India will next time be more cautious while getting into an agreement with the South Asian Island country.