A Bill passed by the Sri Lankan Parliament has created ripples among the maritime fraternity in Tamil Nadu and Kerala. The controversial Colombo Port City Economic Commission Bill, cleared last month, governs the China-backed Colombo Port City project worth $1.4 billion.

There is concern in India on the likely impact of the project on ports in TN and Kerala, especially in view of the fact that Chinese investors are involved in the Sri Lanka project. The Port City will be spread across 660 acres of reclaimed land to be developed as a Special Economic Zone (called the Colombo Port City SEZ), for facilitating investments and business in Sri Lanka with emphasis on the service economy, says a report on the project website.

The maritime fraternity in the two Indian states — which have a strong connection with Colombo port, which acts as a major transshipment port in the region — is worried about financial implications.

The biggest worry is that the project may start with SEZ and later expand into the port sector and start the diversion of cargo from India to China.

A strong concerted effort is required from the Indian side to counter the project, stakeholders stress. Southern Ports of India will face stiff competition from Colombo. The Colombo Port currently operates with captive transshipment volume from India, which will be affected in the long run, says Ennarasu Karunesan, Founder & CEO, UMK Group, a logistics consultancy firm, on the impact of the Port City project.

The project allows China to widen its base in Sri Lanka by adding to a well-established Chinese-led port operating in the island nation. India has been looking to secure a port project in Sri Lanka for long, but China was quicker, he said.

‘Provocative development’

“It is more of an SEZ and commercial city like Dubai or Singapore but controlled by China. The situation of southern ports depending on Colombo for transshipment will not change because of this development. However, India does not have an answer to this provocative development,” an official of a leading shipping line said.

Sai Krishna, Assistant Vice President, ICRA Ltd, said Chinese companies already have a modest share of cargo in Sri Lanka as they are running a container terminal in Colombo port and also control the Hambantota port. Sri Lankan Port Authority has also been running the container terminals successfully with a competitive tariff structure and good infrastructure, because of which India has not been able to make much headway in attracting transshipment cargo.

Colombo will further gain advantage in the transshipment business due to cost factors once the SEZ project materialises, said the former chairman of a state-run port. “However, India will have the benefit of attracting cargo other than transshipment because of the burgeoning domestic market,” he added.

“Even before the Chinese investments, the Indian port sector, especially in the South-Eastern region, could not significantly impact the monopoly of Colombo in the transshipment business,” said Suresh Joseph, a logistics consultant.

Other than Mundra and Jawaharlal Nehru ports in the Western region, it would be useful to make an evaluation on how ports in Southern region performed in attracting transshipment business while competing with the island nation, Joseph said.

“We could not even leverage the potential of Vallarpadam terminal, specifically set up to vie with Colombo Port, in wooing transshipment cargo,” he added.

Chinese investments in Sri Lanka would be a factor for India strategically, he said. The proposed facility, Joseph added, could be developed as a naval port, thereby strengthening Chinese presence in the Indian Ocean.