From defence sales to electricity grids, India upgrades Lanka ties

By Jyoti Malhotra

Business Standard (New Delhi): India’s promise to sell two Offshore Patrol Vessels (OPVs) to Sri Lanka, during their first-ever defence dialogue in New Delhi last week, as well as the recent agreement to build an electricity transmission line from Madurai to Trincomalee and connect the electricity grids of the two countries, is an indication of India’s serious willingness to revamp its primary relationship with its southern neighbour.

The defence dialogue was held between Defence Secretary Shashikant Sharma and his counterpart, Gotabaya Rajapaksa, the brother of Sri Lankan President Mahinda Rajapaksa. As Sri Lanka recovers from its crippling 26-year-long civil war with the LTTE, which ended in May 2009 with the killing of LTTE Chief Velupillai Prabhakaran, it is reaching out to the international community for help across the board. At the end of 2011, Colombo’s foreign exchange reserves were a lowly $ 5.9 billion, while its trade deficit had touched $ 8.83 billion. The international community – from Japan’s Marubeni Corp to China’s companies building and expanding the Hambantota and Colombo Ports respectively, to Qatar Airways setting up a direct relationship with Hambantota Airport – is already responding in a big way.

India and China

Sri Lanka’s biggest partners, however, remain India and China. The island nation’s strategic location astride the world’s busiest sea-lanes, besides its highly literate work-force and 25-year tax holidays on offer, also means that geography is destiny.

External Affairs Minister S.M. Krishna promised tied aid worth $ 703 million during his visit to Colombo last month, in sectors ranging from laying rail tracks, building houses for the displaced Tamil population to revamping the water supply in the central Dambulla uplands.

India is keenly aware of China’s interest in expanding its sphere of influence into India’s neighbourhood – Hambantota Port in Sri Lanka, Gwadar Port in Pakistan, Kyauk Phu Port in Myanmar – and officials say it is ready to protect its own interests.

Certainly, an expanded defence dialogue is one way to do so, especially in a post-conflict Sri Lanka. Equally, in the last phase of the conflict – when, in the run up to Prabhakaran’s killing, the Sri Lanka Army carried out most of its human rights violations – it was India’s solid support to Rajapaksa’s campaign to finish the LTTE that helped Colombo stave off considerable international pressure.

Neither Indian nor Sri Lankan officials are willing to talk, on the record, about Delhi’s moral and psychological support to Colombo during that intense, last few weeks of the civil war. Suffice to say that western nations, especially the US and the European Union, were pressing Rajapaksa to end the war because Tamil civilians as well as LTTE cadres were being killed by the Sri Lankan army in significant numbers. Rajapaksa ignored the not-so-covert threats by these Western nations, Indian and Sri Lankan officials told Business Standard on the condition of anonymity, because Delhi “was standing behind Rajapaksa like a rock”. As for implied Western accusations that Delhi would also be stained with some of Rajapaksa’s blood, the Manmohan Singh Government’s Foreign Secretary at the time, Shivshanker Menon, simply ignored the charges.

Engaging across the board

With the conflict out of the way, India now looks determined to engage with Sri Lanka across the board. Besides Krishna’s visit, former President Abdul Kalam was in Sri Lanka in late January at the invitation of the Lankan President and was treated like a rock star wherever he went – whether Colombo, Moratuwa or Jaffna.

In the northern part of the island, which had borne the brunt of the civil war, India extended a line of credit worth $ 382.37 million for track-laying on the Pallai-Kankesanthurai sector, besides signalling and telecommunications for the northern railways. In the Dambulla region, a MoU worth $ 60.69 million for the supply, erection and commissioning of water treatment plants and distribution was signed. Also in the Jaffna area, about 49,000 houses for Tamils displaced by the war will be built, at a cost of $ 260 million.

But it is the decision to build a 500 Mw coal project at Sampur, near Trincomalee, a 50:50 joint venture between NTPC and Ceylon Electricity Board (CEB), that is really setting the Indian Ocean on fire.

Although the MoU for India’s largest project with Sri Lanka was signed in 2006, it has now been given the status of a Strategic Development Project and is therefore tax-exempt, by Sri Lanka’s Economic Development Minister Basil Rajapaksa, another brother of the President.

In addition, Colombo has finally agreed to the Indian proposal to build a 283-km high voltage electricity transmission line from Madurai to Trincomalee – 264 km of overland line and 39 km of submarine cable – so as to connect the electricity grids between south India and northern Sri Lanka.

CEPA

Meanwhile, Sri Lanka’s Trade and Commerce Minister Rishad Bathiudeen has been told to push the Inter-Agency committee appointed last year to review the proposed Comprehensive Economic Partnership Agreement with India. The proposed CEPA hit a brick wall in 2008 when Sri Lankan businessmen said they feared they would be swamped by Indian imports.

As for Sampur, Lankan Power and Energy Minister Patali Champika Ranawaka told the Business Times that “no preference will be given to Chinese companies, to supply and install power generators or any other part of the coal power plant”.

Clearly, the reference to China is a Sri Lankan acknowledgement that the Asian giant’s expanded presence in the island nation is getting under India’s skin. Even if the first phase of the development of the Hambantota Port by China Harbour Engineering Company (CHEC) for $ 360 million was first offered to India – and when India took so long to respond, the offer was moved to China – it is now said that the second phase, worth $ 810 million, has also been given to CHEC.

CHEC has also been contracted to build a $ 200 million airport in nearby Matalla. Meanwhile, the first terminal of the Colombo South Port expansion project with three terminals has been given to China Merchant Holdings Ltd. As much as 70 per cent of the port’s transhipments are to India, while 30 per cent of India’s cargo arrives here.

Meanwhile, in Norochcholai, a 300 MW coal-fired power plant built by China Machinery and Engineering Corporation was commissioned last March. Reports from Colombo say that although it seems to have run into some mismanagement, China’s Exim bank has promised to fund a second phase of the project worth $ 1.3 billion to expand capacity to 900 Mw.

Mounting environmental concerns means that Sampur and Norochcholai will be the only coal-fired plants in Sri Lanka. None other than President Rajapaksa has denied that China’s presence in Sri Lanka is to counter India’s influence. “No one has said anything to us, not India, not even the US. Even the US, the British and India are now inviting China to come and invest,” Rajapaksa told foreign journalists last week, on the eve of Sri Lanka’s 64th Independence Day celebrations.

Devolution of powers

Analysts point out that India’s willingness to take greater responsibility for its southern neighbour is accompanied by the belief that President Rajapaksa will move towards greater devolution of powers in the states and amend its unitary constitution in favour of a much more federal state.

The 13th Amendment to Sri Lanka’s Constitution, a result of the 1987 accord between the two states is ripe for implementation, the analysts said, pointing towards a “13th Amendment Plus,” which would give the country’s vast Tamil population equal dignity and rights. Krishna told journalists as much during his visit to Colombo, during which he was invited to a ‘Pongal’ ceremony at Temple Trees, the official residence of the President. He had been “heartened to hear from the Sri Lankan President that he was committed to solving the national problem on the 13th Amendment-Plus approach,” Krishna said.

But according to a Sri Lankan newspaper, President Rajapaksa has denied making any such promise. “Oh, no, how can I make promises like that? I have referred the issue to Parliament,” he said, referring to a Parliamentary Select Committee that had been set up for the purpose.