Washington's Funding Of Sri Lankan Port Terminal 'Brings The US And China Competition Closer To India'

The U.S. has announced its commitment of $553 million to a deep-water shipping container terminal in Sri Lanka's Port of Colombo.

The funding of the terminal, which will partly be owned by India's Adani Ports & Special Economic Zones Limited (APSEZ), will bring "the U.S. and China competition closer to India," an expert said.

The U.S. International Development Finance Corporation (DFC) committed $553 million to Colombo West International Terminal Private Limited to support the development of the deep-water West Container Terminal located within the Port of Colombo, a Wednesday statement said.

"Sri Lanka is one of the world's key transit hubs, with half of all container ships transiting through its waters. DFC's commitment of $553 million in private-sector loans for the West Container Terminal will expand its shipping capacity, creating greater prosperity for Sri Lanka – without adding to sovereign debt – while at the same time strengthening the position of our allies across the region," DFC CEO Scott Nathan said.

The investment "will facilitate private- sector-led growth in Sri Lanka and attract crucial foreign exchange inflows during its economic recovery," added U.S. Ambassador to Sri Lanka Julie Chung.

"On several counts, the recently announced DFC loan of $553 million for the West Container Terminal is good news for Sri Lanka. One, the loan has not added to sovereign debt. Two, the project looks good on account of feasibility, sustainability and transparency. Further, it has the potential to turn profitable," Niranjan Oak, a research analyst at Manohar Parrikar Institute for Defense Studies and Analyses in New Delhi, told International Business Times.

"Third, the terminal is being built by a consortium of private players, insulating the government from negative impact if things go wrong regarding financial returns. Fourth, with the US on board, Sri Lanka has been able to diversify away from Beijing. Colombo has already heavily borrowed from Beijing," he added.

The DFC is a federal agency launched as part of Better Utilization of Investment Leading to Development (BUILD) Act, which was passed as a counterweight to China's massive global infrastructure building campaign, known as the Belt and Road Initiative (BRI).

The investment in the Sri Lankan terminal marks the first time a U.S. government agency is funding a project backed by the Indian conglomerate, Adani Group.

Adani Ports & Special Economic Zones Ltd., which is part of the Adani Group, will have a 51% share of the Sri Lankan terminal. Sri Lanka's John Keells Holdings will have a 34% share, while the remaining 15% will be held by the Sri Lanka Ports Authority.

"The U.S. funding brings the U.S. and China competition closer to India. Since the DFC funding is for the terminal controlled by the Adani group, this demonstrates American support for the India-linked project amid New Delhi's own competition with China for influence in Sri Lanka," Shanthie D'Souza, founder and president of Mantraya, an independent research forum, told IBT.

"It further indicates the alignment of Indian and American strategic objectives to challenge the Chinese in what both nations see as one of the world's key transit hubs," she added. "This is bound to initiate a chain reaction of sorts when Beijing could further pressurize Colombo to accede to more Chinese interventions in its economy."

India's role is increasing in the tug-of-war for power between the U.S. and China in the Asia-Pacific region. But New Delhi has taken its relations with smaller neighbors "for granted," while Beijing has managed to increase the dependency of emerging nations on China, D'Souza said.

"China's growing role as a creditor in Colombo is a conscious attempt by Beijing to convert India's neighborhood into islands of dependencies by establishing firm and inextricable economic linkages that pour into the realms of politics and strategy. Beijing has succeeded in this as India for a long time pursued an unenlightened neighborhood policy that took its relations with the smaller neighbors for granted," she said.

DFC's announcement of its $553 million commitment comes as Sri Lanka is working to recover from an economic and financial crisis, which includes the weight of billions of dollars borrowed from China.

In the West and in India, which has its own rivalry with neighboring China, the narrative about Beijing's financial cooperation is a story about an unforgiving government lender who debt-traps countries with economic instability and further exacerbates their financial woes.

"The debt trap narrative is rather well-known in India, the U.S. and their allies, but not necessarily in Sri Lanka. The country continues to be closely aligned with the Chinese, in spite of the financial crisis that it witnessed in the recent past. However, that probably is a compulsion that the country has no way of getting rid of," D'Souza said.

Sri Lanka became the first Asia-Pacific country in decades to default on its sovereign debt after missing a deadline for foreign debt repayments last year.

The Hambantota port, which the Sri Lankan government has leased to a Chinese firm for 99 years, is an example used by the West as proof that China's BRI is part of Beijing's debt-trap diplomacy and its bid to gain ownership of important infrastructure.

"Despite not being feasible, Sri Lanka developed Hambantota port by securing loans from China and ended up in a debt trap. The project turned out to be a white elephant. In 2017, the country decided to lease the port to a Chinese company, thus effectively handing over the port operations to China," Oak said. "Since the port project was not economically viable in terms of returns, Sri Lanka did not get many lenders for the same. However, China seized the opportunity and offered loans at high-interest rates. Moreover, the agreement lacked transparency."