The Politics of Adani's Power Project in Sri Lanka

The controversy over Adani's US $500 million renewable energy project in North Sri Lanka, which now threatens to disturb the recently-forged good relations between Sri Lanka and India, is the result of an intersection of a variety of factors.

These are: Sri Lanka's dependence on India for basics like food, fuel and fertiliser; Colombo's moral obligation to reciprocate New Delhi's generosity by accommodating the latter's economic and geopolitical interests; and last but not the least, the issues raised by Sri Lankan nationalists, a powerful force, which is primarily based on an ingrained fear of Indian hegemony.

By the end of 2021, Sri Lanka had found itself in an abyss due to the economic losses. These were the result of a badly managed COVID-containment program, bad economic decisions and an inherited tendency to be imprudent in spending. When these policies resulted in unprecedented shortages in forex, food, fuel, fertiliser and medicines, and prices skyrocketed, it was only India which rushed aid. Other nations, including China, looked on passively.

While China refused to restructure the debt repayment regime, or to revise terms of lending, and asked Colombo to be prudent in its management of finances, Western nations said that they would wait for the International Monetary Fund (IMF) to finalise its recovery scheme for Sri Lanka.

India too had not entered the fray thoughtlessly. It made Sri Lanka sign some pacts relating to Indian Ocean security before announcing its largesse, which now is now worth over US$ 3.5 billion. One of India's expectations was that the renewable energy projects in Mannar and Ponneryn in North Sri Lanka, located close to Tamil Nadu, would be given to the Adanis.

The Adani project envisages an investment of US$ 500 million. India considers the Tamil-dominated North Sri Lanka, only 36 km away from its shores, as being strategically important, in view of China's attempts to make economic inroads. Earlier, Sri Lanka was persuaded to cancel a Chinese project to set up small power plants in the islands of Nainativu, Delft or Neduntivu, and Analaitivu, located in the Palk Bay, and give it to India instead.

However, the forex, food and fuel crisis, and India's timely and generous help, cleared the path for a favourable decision on the Adanis' projects. Sri Lanka desperately needed power, at one stage 13-hour power cuts had to be imposed due to a fuel shortage at the power plants. The Lankan government rushed approvals for the project circumventing the tendering process on grounds of necessity. Both President Gotabaya Rajapaksa and Prime Minister Ranil Wickremesinghe backed the project as both were keen on retaining India's goodwill after China turned a cold shoulder to plead for financial aid.

However, the entry of the controversial Adanis, coupled with the circumvention of the procedure, raised the hackles of Samagi Jana Balawegaya (SJB), Sri Lanka's main opposition party, and the radical Sinhala nationalist National Freedom Front (NFF). Opponents of the Adanis were further incensed when the government used its majority in Parliament to amend the Electricity Act to waive the tender procedure for such key projects. The SJB leaders said that they are grateful to Indian Prime Minister Narendra Modi for the help has been giving to Sri Lanka, but are opposed to him bringing in his controversial friend Adani through the backdoor.

The issue was further complicated by the fact that the Chairman of the Ceylon Electricity Board M.M.C.Fernando told the parliamentary Committee on Public Enterprises (COPE) that President Gotabaya Rajapaksa had told him that the deal had to be accepted because Indian Prime Minister Modi was putting pressure on him. Alarmed at Fernando's statement, the President denied it and admitted only to saying that it was hard to get tenders for such big projects. Given the President's denial, Fernando retracted his statement and resigned from his post.

Some like columnist Tudor Wijenayke think that the government should not have changed the law but made the Adani project a government-to-government one, with the Adanis named by the Indian government as the executor of the project.

The Ceylon Electricity Board Engineers' Union raised the issue of pricing of the power to be supplied by the Adanis' plant. Though the government has said that it is yet to fix the price, it is said that it will be US 7.55 cents per kWh unit, while local producers are paid only the equivalent of US 5 cents. Moreover, the Adanis will have to be paid in US Dollars.

Opponents of the Adani project announced a plan to demonstrate against the deal on June 16, intending to make it a part of the on-going anti-government campaign which began more than two months ago as the "Go Home Gota" movement.

Meanwhile, Sri Lankan nationalists (essentially anti-India and anti-US) have jumped into the fray. National Freedom Front (NFF) leader and MP Wimal Weerawansa said that the growing Indian role in Sri Lanka should be examined against the backdrop of the IMF's deliberately delaying much needed assistance. He also stated that Sri Lanka should not solely depend on India. He added that foreign powers may find developments here conducive for their overall plans. The QUAD and the West may use the "Right to Protect" policy to launch a military operation against Sri Lanka.

Political observers said that the opposition groups, including some allies of the ruling party, are raising issues to embarrass the government and build up their own constituencies. The opposition SJB is picking holes in every act of the government. And the Sinhala or Sri Lankan nationalists are looking for opportunities to build up their anti-Indian and anti-West constituencies.

A Lankan official who did not want to be named said that perhaps the Adani deal was ill-timed. Coming soon after Indian aid started flowing, the deal gave the impression that the aid was primarily meant to secure New Delhi's economic, political and strategic goals.

Reacting to the incident in Sri Lanka, the Adani Group said that it was "disappointed" but remained confident that the deal was secure. In a statement quoted by the Indian media, the group said: "Our intent in investing in Sri Lanka is to address the needs of a valued neighbour. As a responsible corporate, we see this as a necessary part of the partnership that our two nations have always shared. We are clearly disappointed by the detraction that seems to have come about. The fact is that the issue has already been addressed by and within the Sri Lankan Government."

The assessment here in Colombo is that Sri Lanka will go through the deal, Opposition or no Opposition, because it has no option.