Entrepot for geopolitics

US investment in Lankan port opens up new opportunities

US government-owned International Development Finance Corporation’s decision to invest $553 million in Colombo West International Terminal Pvt Ltd could be a geopolitical game changer in the Indian Ocean Region (IOR). Investing more than half in the $789 million project through its financial institution will give the US a strategic presence in one of the largest trans-shipment ports in the IOR, enhancing its larger Indo-Pacific play and offering a bold counter to China’s aggressive expansion in the region via its Maritime Silk Route initiative. Colombo Port West is a year-old consortium majority owned by Adani Ports and SEZ Ltd (51 per cent). Sri Lankan conglomerate John Keells Holdings owns 34 per cent, and the Sri Lanka Ports Authority 15 per cent.

China, it must be noted, holds the contract to develop Colombo Port’s eastern container port, which it won in 2021 after Colombo scrapped a tripartite deal with India and Japan. Five years before that, Colombo had handed over Hambantota Port on the southern tip of the island in a debt-swap deal; China holds 52 per cent of Sri Lanka’s debt. This port is now largely used by the Chinese for intelligence activities rather than trading. Beyond this, China also has a substantial presence, with some 21 ports in the IOR, ranging from Gwadar Port in Pakistan to port-cum-intelligence infrastructure at Khalifa Port in Abu Dhabi, and a sprawling special economic zone in Myanmar. The US flexes its muscles in this area via the presence of the US Navy’s Fifth Fleet and Naval Forces Central Command, headquartered in Bahrain, plus a military base in Diego Garcia, an island just south of India. Added to this is the strong Indo-US naval partnership, with the two navies performing joint maritime exercises, sharing information and intelligence, and participating in joint training maritime programmes. This is in addition to the joint military exercises under the Quad grouping, which includes the US, Australia, and Japan.

For the US, the geo-strategic gains from this investment involving a powerful Indian corporate group may be viewed as a continuum of the larger plan to strengthen ties with New Delhi as a counterweight to China. It is significant, for example, that the announcement of this deal came just days ahead of the Indo-US 2+2 dialogue between the two countries’ defence and foreign ministers. But where the US competitive advantages vis-à-vis China lie through this investment is an open question, the deal is an unambiguous win-win for Adani Group. First, it serves as a huge vote of confidence, overcoming the reputation risks following the Hindenburg report in January, the resignation in August of the conglomerate’s auditors over questionable transactions, and protests in Sri Lanka over the nature of its ports and energy projects in the island nation. Second, it offers the group a major springboard from which to expand outside India, where its 13 ports and terminals, accounting for almost a fourth of the country’s port capacity, make it the largest private-sector player. It was forced to exit Myanmar following a military coup but it bought Haifa Port in Israel this January. Ventures in Bangladesh, Tanzania, and Vietnam are also on the drawing board. With the terminal project likely to be completed by 2024, Adani Group will gain access to a trans-shipment port with a large volume of global trade.