China Merchants Port Holdings’, a state-owned firm, has withdrawn from a $392 million logistics hub project at Sri Lanka’s Colombo Port, according to latest confirmations.
Minister Bimal Rathnayake, Leader of the House told the Srilankan Parliament on Oct. 21 that the proposed South Asia Commercial and Logistics Hub was pulled out because some procedures weren’t followed. The termination of the allocation of 10 acres of a land between the port’s East and West Container Terminals was also reported to be a cause, according to Daily Financial Times, a business and current-affairs newspaper published from Colombo.
According to The Morning, another Sri Lankan media, other factors like “regulatory obstacles, changing commercial considerations, and implementation delays” ultimately led to the termination of the original venture.
“We held several discussions with company officials and made it clear that we supported the investment. However, we could not proceed under the existing agreement, as the proper procedures had not been followed,” he said.
The South Asia Commercial and Logistics Hub was announced in 2023 and the project was expected to be completed by the end of 2025. It was the “first major foreign direct investment” to enter the country after Srilanka defaulted on its external borrowing in 2024 before a severe economic crisis unfolded.
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China Merchants Port Holdings’ was set to hold a 70 percent stake in the joint venture while the Sri Lanka Ports Authority (SLPA) and local construction company Access Engineering were each to hold 15 percent.
Chinese investments have played a significant role in Sri Lanka’s port infrastructure and operations. Chinese investments and loans have funded the $500 million Colombo International Container Terminals (CICT) facility. China Merchants Port Holdings, which holds an 85 percent stake in the facility, also secured a 99-year concession to operate Hambantota Port through a $1.12 billion agreement in 2017.
The withdrawal of the logistics hub project is the second instance of a major port-related infrastructure project failing to materialize. Adani Green, which was awarded a renewable energy project by the Sri Lankan government in 2022 without a competitive tender process, withdrew from the project on Feb. 12.
Geopolitical concerns behind the withdrawal
The logistics hub proposal by China Merchants Port Holdings raised several geopolitical concerns because it would have placed a Chinese state-owned enterprise in charge of logistics operations at an important part of the country’s maritime infrastructure. The company’s withdrawal could give other geopolitical players in the Indo-Pacific region an opportunity to expand their presence in the global maritime infrastructure sector.
Uncertainty surrounding domestic politics in Sri Lanka has also contributed to the situation. According to a commentary published by The Diplomat, an international relations magazine, investors have increasingly viewed successive Sri Lankan governments as unreliable.
“One of the National People’s Power (NPP) government’s main challenges is to change that perception. However, there has not been much to write home about in the past two years,” said Rathindra Kuruwita, a Colombo-based researcher and analyst, in his commentary for The Diplomat.
The NPP is a political alliance currently leading Sri Lanka’s government.
West International terminal’s second-phase expansion was inaugurated by Sri Lankan Prime Minister Harini Amarasuriya on October 1 and this expansion doubled its annual capacity. The expansion is intended to strengthen Colombo’s position as a major transshipment hub along the East-West trade route, according to Adani Ports.
“For India, the immediate question is whether the new bidding process for the Colombo logistics hub attracts Indian investment. With its existing terminal now expanded, Indian companies have an established presence at the port, but any further participation will depend on commercial terms, project requirements and Sri Lanka’s selection process,” said the Money control report by Abhinav Gupta.
An expert has also highlighted the importance of China’s withdrawal from the hub in context of Srilanka’s increasing importance in the Indo-Pacific geo-politics.
A report published by Kulani Wijayabahu for Lowy Institute on Thursday said China’s withdrawal from the logistics project at the Colombo Port this month presents Australia with an opportunity that goes beyond replacing a Chinese investor.
“It raises a larger question: who will help smaller Indian Ocean countries develop the institutions needed to manage their ports, protect their waters and negotiate international investments?” said Wijayabahu.
According to the expert, Sri Lanka’s immediate need is to look for alternative investors through competitive bidding and Melbourne is well positioned to coordinate such an effort.
“Australia should take a leadership role not as a short-term response to China but as a long-term investment in its own security and prosperity,” said Wijayabahu.
The discontinuation of the project does not imply Beijing’s departure, according to him.
“But it offers Canberra an opportunity to demonstrate what a different approach to regional cooperation could achieve. Australia has experience helping smaller countries strengthen maritime institutions,” Wijayabahu said.
The expert warned that constructing modern ports without understanding and investing in the institutions responsible for maritime safety leaves serious risks unresolved.
New logistics hub and refunds
According to The Morning, the Sri Lanka Ports Authority (SLPA) said that the project had not been discontinued despite the Chinese company’s withdrawal and that its commitment to developing logistics infrastructure remained intact.
“The Sri Lankan Government subsequently accepted the decision and announced plans to develop a new logistics hub through a fresh competitive bidding process,” Ramiah Mohan wrote, adding that the SLPA had decided on Monday to establish the new project under a public-private partnership (PPP) model.
All three shareholders are also eligible for refunds of their equity contributions, subject to applicable regulatory requirements and the settlement of all operational expenses. The total amount to be refunded is approximately $29.8 million.
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