China Merchants Port Holdings has withdrawn from a $392 million logistics hub project at Colombo Port, with the Sri Lanka Ports Authority agreeing to pay $21.9 million to settle investments, citing irreconcilable differences over the concession agreement and objections from the International Monetary Fund.
The project, announced in April 2023 and initially expected to be completed by end of 2025, was to be an eight-story, 5-million-square-foot facility with a storage capacity of 530,000 cubic metres, providing direct employment to at least 1,800 people and creating 10,500 indirect jobs.
Leader of the house Bimal Rathnayake told parliament in October that the deal was called off because the two sides could not see eye to eye on the agreement. He said the agreement allocated 10 acres between the East and West Container Terminals at Colombo Port, and its clauses were highly problematic.
The project faced delays from the start. In March 2024, almost a year after the agreement was signed, it was revealed that the project had not yet commenced due to delays in approval for concessions. Sri Lanka Ports Authority Chairman Admiral (Retd) Sirimevan Ranasinghe told the media that delays were due to difficulties in reaching an agreement on the concessions applicable to the project.
The logistics hub was initially expected to enjoy concessions as a Strategic Development Project, but this was withdrawn due to objections from the International Monetary Fund, which had insisted Sri Lanka suspend such concessions as part of its bailout program approved in March 2023. The Wickremesinghe administration signed the agreement a month after the IMF program was approved, and in December 2023 Sri Lanka committed to stop approving new SDP projects.
China has been a major financier and builder of Sri Lanka’s infrastructure, with China Merchants already operating the $500 million Colombo International Container Terminals and holding a 99-year concession at Hambantota Port. The proposed logistics hub would have expanded the firm’s maritime business into warehousing and distribution.
In response to the pullout, the SLPA has decided to call for tenders to develop a new logistics hub under a public-private partnership model. However, analysts note that finding a replacement investor will be difficult given geopolitical rivalries, rapid modernisation of competing regional ports, and concerns over the reliability of agreements signed with the Sri Lankan government.
Analysis
Why This Matters
- Colombo Port is a key transshipment hub, and a logistics centre would have helped it earn more from cargo passing through, addressing weak performance in vessel turnaround times.
- The collapse highlights tension between Sri Lanka’s need for foreign investment and the constraints of its IMF program, which restricts tax concessions.
- China’s retreat from a major joint venture raises questions about the predictability of its Belt and Road investments and Sri Lanka’s ability to attract alternative partners.
Background
China has financed and built much of Sri Lanka’s infrastructure, including the Colombo International Container Terminals and Hambantota Port. The proposed South Asia Commercial and Logistics hub aimed to build on that relationship, but disagreements over concessions and IMF opposition stalled the project. Sri Lanka’s IMF program, approved March 2023, required the suspension of Strategic Development Project concessions, which had been promised to the investor. The Wickremesinghe administration negotiated both the IMF deal and the logistics investment, but could not reconcile the two.
Key Perspectives
Sri Lanka Ports Authority Chairman Sirimevan Ranasinghe: said delays were due to difficulties in reaching agreement on concessions, and that the project would have taken 42-45 months to complete, pushing it to around 2029.
Leader of the house Bimal Rathnayake: told parliament the deal was called off because the two sides could not see eye to eye, calling the agreement’s clauses “highly problematic.”
What to Watch
- Whether the SLPA’s public-private partnership tender attracts credible bidders and whether any new investor demands conditions similar to those CMPH sought.
- Colombo Port’s performance rankings in future World Bank reports, especially after the collapse of a project aimed at improving cargo processing.
- Sri Lanka’s ongoing IMF review and whether the government can offer alternative incentives within program rules to draw new investment.
Checked
12 claims in this story checked against 1 source: 9 supported.
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- SupportedChina Merchants withdrew from a $392 million Colombo port logistics hub project.The Diplomat: “Last week, China Merchants Port Holdings (CMPH) pulled out of an agreement to build a $392 million South Asia Commercial and Logistics (SACL) hub at the Colombo port.”
- SupportedThe SLPA plans to seek a replacement investor through tenders for a new logistics hub.The Diplomat: “In response to CMPH’s pullout, the SLPA has decided to call for tenders to develop a new logistics hub at Colombo port, under a public-private partnership (PPP) model.”
- SupportedThe SLPA agreed to pay $21.9 million to settle investments.The Diplomat: “The Sri Lanka Ports Authority (SLPA) agreed to pay $21.9 million to settle investments.”
- Partly supportedThe agreement ended over irreconcilable differences on concessions and IMF objections.The Diplomat: “In October this year, leader of the house Bimal Rathnayake told parliament that the deal was called off because the two sides could not see eye to eye on the agreement.”
- SupportedThe project was announced in April 2023 and expected to be completed by the end of 2025.The Diplomat: “When the project was announced in April 2023, it was expected to be completed by the end of 2025 .”
- SupportedThe proposed facility was to be eight stories tall.The Diplomat: “The logistics hub was to be an eight-story, 5-million-square-foot facility with a storage capacity of 530,000 cubic meters (CBM).”
- SupportedThe proposed facility was to cover 5 million square feet.The Diplomat: “The logistics hub was to be an eight-story, 5-million-square-foot facility with a storage capacity of 530,000 cubic meters (CBM).”
- SupportedThe proposed facility was to have storage capacity of 530,000 cubic metres.The Diplomat: “The logistics hub was to be an eight-story, 5-million-square-foot facility with a storage capacity of 530,000 cubic meters (CBM).”
- SupportedThe project was expected to provide at least 1,800 direct jobs and 10,500 indirect jobs.The Diplomat: “The SACL project was expected to provide direct employment to at least 1,800 people and create 10,500 other indirect jobs.”
- SupportedBimal Rathnayake told parliament in October that the sides could not agree on the deal.The Diplomat: “In October this year, leader of the house Bimal Rathnayake told parliament that the deal was called off because the two sides could not see eye to eye on the agreement.”
- Partly supportedThe project’s expected SDP concessions were withdrawn because of IMF objections, as part of the IMF bailout program approved in March 2023.The Diplomat: “When the agreement was signed, it was expected to enjoy concessions as a Strategic Development Project (SDP). However, this facility was withdrawn due to the objections of the International Monetary Fund (IMF), which had long insisted that Sri Lanka suspend SDP concessions.”
- Partly supportedAnalysts note that finding a replacement investor will be difficult because of geopolitical rivalries, modernising regional ports and concerns about the reliability of Sri Lankan government agreements.The Diplomat: “However, given international developments, geopolitical rivalries, and the expertise needed to develop a logistics center, finding a replacement investor will be difficult and time-consuming.”