US investment in Colombo Port: A pivotal shift in South Asian geopolitics

Government representatives, envoys and officials of US DFC, investors Adani, John Keells Holdings and Sri Lanka Ports Authority at the signing ceremony on US DFC’s $ 553 million loan financing for the upcoming Colombo West International Terminal in Colombo port on 8 November 2023 – File photo

The sheer scale of this investment is noteworthy, as it is the DFC’s most significant infrastructure venture in Asia and among the largest globally. The strategic importance of the West Container Terminal lies in its potential to bolster Sri Lanka’s economic growth while simultaneously fostering regional economic integration, especially with neighbouring India. The port’s proximity to major international shipping routes makes it a key asset in facilitating the flow of global trade

The United States has announced investing a substantial $553 million in a major port terminal project in Colombo, Sri Lanka, next to the CICT terminal which is invested and operated by a Chinese State-Owned Enterprise. The U.S. announcement is a game-changing development that holds significant implications for the geopolitics of South Asia. This move serves multiple strategic objectives for the U.S., and  signifies a renewed commitment to strengthening economic ties between the United States, India, and Sri Lanka. In this article, we will delve deeper into the intricacies of this investment and its broader implications.

 Colombo Port: A strategic hub

At the heart of this investment is the West Container Terminal in Colombo, a deepwater port project supported by the U.S. International Development Finance Corp. (DFC). The sheer scale of this investment is noteworthy, as it is the DFC’s most significant infrastructure venture in Asia and among the largest globally. The strategic importance of the West Container Terminal lies in its potential to bolster Sri Lanka’s economic growth while simultaneously fostering regional economic integration, especially with neighbouring India. The port’s proximity to major international shipping routes makes it a key asset in facilitating the flow of global trade.

Chinese Terminal at the Colombo Port 

The CMPort investment coming to the Port of Colombo back in late 2010 was based on industry capability and its proven capacity as a global port operating company. However, the terminal was up and running by 2013, that is with around $300 million investment at the Colombo Port South terminal. Today, the CMPort CICT at the Colombo port, an investment by China’s CMPort Holdings (same company which managers the Hambantota Port) already handles over 3 million TEUs (twenty-foot equivalent units) reaching an average 40% of the total volumes at Colombo Port, as the terminal is the first and only deep-water port in South Asia capable of handling the large vessels afloat. On an average, around 75% of CICT terminal volumes comes in Ultra Large Container Carriers (largest mega ships) making the terminal the most efficient terminal in the region for Ultra Large Container Vessels.

The Deep Ports opening up in Colombo and Hambantota gave Sri Lanka massive benefits by placing the country back in the maritime and the shipping map. The presence of Ultra Large Container Vessels at the CICT terminal is a direct result of strategic investments made by CMPort Holdings. Ten years ago, CMPort Holdings made crucial investments in installing 14 Quay Gantry Cranes with a wider reach capacity at the Colombo International Container Terminals. This forward-thinking initiative positioned CICT of Colombo Port as the only deep terminal in the region with efficient operations.

Many local professionals are of the view that the West Container Terminal in the Colombo Port should be given to a global consortium with a proven track record in port operations. However, the Adani and U.S. International Development Finance Corp. falls very much low compared to the industry track record of the CMPort of China Merchants Group. China Merchants Port is named among the top 10 terminal operators in the world, and in the 2018 Lloyd›s list of the top 10 global port operators, China Merchants Port was ranked fifth. As of 2018, CMPort of China has a network of 34 ports in 18 countries around the world, such as Houston in the US and Newcastle in Australia

Without these investments, the Colombo Port faced the risk of losing its competitiveness in the transhipment business within the shipping industry. The timely and proactive measures taken by CMPort Holdings not only kept the Port of Colombo in business, but played a pivotal role in attracting ULCVs, the largest mega ships in the industry, which emerged in 2016 with carrying capacities exceeding 14,500 TEU. This strategic move secured Colombo’s position as a preferred hub for Ultra Large Container Vessels, preventing potential relocation to other regional ports such as those in Singapore or Malaysia

U.S. investment in Sri Lanka: A renewed commitment

The U.S. investment reflects a broader commitment to engage proactively in development projects across the Indo-Pacific region. Due to the dependence of heavy financial assistance from China to fund port and highway projects, the Sri Lankan Government was seeking alternatives to maintain its balance act. The DFC’s involvement is intended to fill this gap and provide Sri Lanka with much-needed infrastructure development while avoiding further accumulation of sovereign debt. This is part of a global acceleration of DFC investments, which totalled $9.3 billion in 2023. It seems, the United States is reinforcing its commitment to take a more active role in fostering economic development in the Indo-Pacific region.

Adani Group: A boost in legitimacy

The investment from the United States also serves as a significant endorsement for the Adani Group, a key stakeholder in the Colombo port project. The conglomerate faced allegations of fraud by short seller Hindenburg Research, which had a substantial impact on its market value. The U.S. investment not only bolsters the project’s credibility but also provides Adani Group with a much-needed stamp of legitimacy in the wake of these allegations. By endorsing the project, the U.S. strengthens its partnership with Adani, a major Indian business figure.

U.S. interests in Sri Lanka

The United States’ engagement with Sri Lanka extends beyond apprehensions about China’s influence in the area. While China has played a significant role in Sri Lanka over the past decade through initiatives like the Belt and Road Initiative, the U.S. perceives India as an emerging regional security concern. Despite India having a smaller economy compared to China, its global influence is expanding, and it harbours aspirations that may involve securing a permanent seat on the United Nations Security Council. These shifting dynamics are redefining the strategic considerations of major powers in the region. Additionally, the timing raises questions about the U.S.’s motives in countering potential Chinese influence in Sri Lanka, as Chinese interest in Sri Lanka’s ports span over a decade.

Comparing Chinese and Indian strategies

It seems the U.S. recognises that China tends to be less aggressive compared to India in their dealings with Western nations. Especially, if we recall the incident in December 1971, during the Bangladesh Liberation War, the United States deployed the 7th Fleet, led by the aircraft carrier USS Enterprise, to the Bay of Bengal, officially to secure American citizens in Bangladesh but with the unofficial aim of preventing the liberation of Bangladesh and threatening allied forces. With the superpowers, the U.S. and the Soviet Union, supporting Pakistan and India, respectively, the Bangladesh Liberation War became a global battleground. During the time Indian intelligence intercepted an American message, indicating that the US “7th” Fleet, led by the USS Enterprise, reached Sri Lankan waters from Vietnam. This event highlights one scenario how the U.S would use Sri Lankan port architecture in an event of conflict in the region and how Sri Lanka would play a pivotal role in geopolitical manoeuvre, as it served as a staging point for U.S. military operations, highlighting the strategic importance of the Colombo port in Sri Lanka. 

The U.S. and Indian alliance

The United States’ investment in the Colombo port, in collaboration with the Adani Group, strengthens the broader strategy of building a more robust partnership with India. This alliance has the potential to transform Sri Lanka into a hub for the Indo-Pacific, with specific attention to the eastern port of Trincomalee, an area under significant Indian influence. Trincomalee, with its natural deep-sea harbour and strategic location, is well-positioned to play a pivotal role in the evolving regional dynamics.

The significance of Trincomalee

Trincomalee has been a key point of interest due to its historical significance, natural deep-sea harbour, and its role in several sea battles throughout history. Its unique geographic features, including a series of natural submarine canyons, with an entrance channel of 500 metres wide, makes it one of the finest deep-sea harbours globally. Several military experts and scholars have emphasised the strategic military importance of this harbour. The U.S plans for supersonic submarine developments highlight the potential of Trincomalee as a hub for the U.S Indo-Pacific command.

Sri Lanka›s role in the region

Arguably, the ultimate ambition of the United States extends to strategically positioning Sri Lanka as a central player in the region, akin to Taiwan’s role in the Pacific Ocean, Cuba’s significance in the Atlantic Ocean, and São Tomé and Príncipe’s role in the Gulf of Guinea. Sri Lanka’s unique cultural, historical, and geopolitical ties with India, China, and Western powers make it a crucial player in the evolving global superpower dynamics. Its geographical location at the crossroads of key international trade routes further underscores its strategic importance.

One of the most strategic mistakes of India was neglecting the Port of Colombo in the early 2000s, as one of the most important ports for Indian development. However, as China moved in with a commercial investment to the Colombo Port CICT terminal ten years ago, at present the CICT terminal plays a vital role for transhipments to Indian markets at a very competitive port operational cost.

The success of the Adani - U.S. International Development Finance Corp. (DFC) investment in the Colombo port would be determined only by the competitive advantage it brings to the Colombo port, through modern port operational technologies or digitalisation.

The United States› engagement with Sri Lanka extends beyond apprehensions about China›s influence in the area. While China has played a significant role in Sri Lanka over the past decade through initiatives like the Belt and Road Initiative, the U.S. perceives India as an emerging regional security concern. Despite India having a smaller economy compared to China, its global influence is expanding, and it harbours aspirations that may involve securing a permanent seat on the United Nations Security Council. These shifting dynamics are redefining the strategic considerations of major powers in the region. Additionally, the timing raises questions about the U.S.›s motives in countering potential Chinese influence in Sri Lanka, as Chinese interest in Sri Lanka›s ports span over a decade

Many local professionals are of the view that the West Container Terminal in the Colombo Port should be given to a global consortium with a proven track record in port operations. However, the Adani and U.S. International Development Finance Corp. falls very much low compared to the industry track record of the CMPort of China Merchants Group. China Merchants Port is named among the top 10 terminal operators in the world, and in the 2018 Lloyd’s list of the top 10 global port operators, China Merchants Port was ranked fifth. As of 2018, CMPort of China has a network of 34 ports in 18 countries around the world, such as Houston in the US and Newcastle in Australia. Moreover, if the Adani group underperforms in the West Container Terminal, it would also impact the efficient operational reputation of the Colombo Port and reduce it in global ranks. As of today, CICT has not only managed to dominate the operations at the Colombo port but also it ranks globally as a top performing terminal. Specifically, it won the best terminal under 4 million TEU category in Asia for seven years in a row at the AFLAS Awards in Singapore.

In conclusion, this move demonstrates not only the United States’ determination to counterbalance China’s influence and strengthen its partnership with India but also its intention towards positioning Sri Lanka as one of U.S strongholds in the Indian Ocean. Sri Lanka, with its multifaceted connections and strategic location, is poised to play a pivotal role in the region’s evolving dynamics. As major powers continue to compete for influence in the newly formed Indo-Pacific region, Sri Lanka emerges as a strategic linchpin in the region’s evolving geopolitical puzzle.

 The writer is a researcher on maritime affairs and BRI development expert. He graduated from Dalian Maritime University, and in 2016 completed his LL.M at Ocean University of China. He Co-founded the Belt & Road Initiative Sri Lanka (BRISL), an International development organisation in Sri Lanka and serves as the founding director. He can be contacted at: [email protected] | Twitter: @YRanaraja