Taking Sri Lanka Towards Regional And Indo-Pacific Integration – Analysis

Pathfinder Foundation report identifies sectors for Lanka-India-Japan collaboration

A panel of Sri Lankan experts constituted by the Pathfinder Foundation has identified Sri Lanka’s developmental sectors that could tie up with India and Japan in a trilateral effort to integrate the island nation with the South Asian and Indo-Pacific regions.

The contributors to the report published in January this year, were: Nihal Cooray, Prof. I.M. Dharmadasa, Prof. Siri Hettige, Dr. Malraj Kiriella, Mr. Rohan Masakorala, Eng. Sena Peiris, Mr. Nimal Perera, Dr. Krishnamurthy Ramanathan, Eng. Gamini Senanayake, Dr. Dimantha de Silva, Dr. Tilak Siyambalapitiya and Dr. Vipula Wanigasekara. Prof. Sirimal Abeyratne, Head of the Department of Economics at Colombo University edited the final report.

The areas identified for Lanka-Indo-Japanese collaboration were: (1) Low-carbon power generation (covering renewable energy, LNG and grid-connectivity between Sri Lanka and India); (2) Development of Trincomalee as an energy hub using the Oil Tank Complex as the starting point; (3) Logistics and connectivity (ports, airports, railways (including mass transport) and ferry transportation;(4) People-to-people contacts (tourism, education, training and skills development).

Here are the main points the report had made:

Renewable Energy

Switching to renewable energy resources is critically important for Sri Lanka to reduce its heavy reliance on imported fossil fuels to meet its growing energy demand. In 2019, the country’s total installed power generation capacity was about 4.2 GW, and only 35% of the total annual electricity demand in the same year was met by renewable energy resources. The rest (65%) was provided by imported and expensive fossil fuels: coal and fuel oil. This is unsustainable.

Future energy generation in Sri Lanka should use a technology mix (solar, wind, hydro, biomass, biogas, and fossil fuels) dominated by green energy technologies.

The absence of appropriate energy storage facilities is the ‘missing link’ to accommodate more weather-dependent renewable energies. The intermittent nature of both solar and wind can be taken care of when it will be possible to use hydrogen as an energy storage medium and as an energy career in the future. The national distribution network must be improved gradually, incorporating smart-grid facilities to accommodate all renewable energy contributions.

The use of fossil fuels in the transport sector must be reduced by the rapid introduction of electric vehicles. The reliance on combustion engines for transport must be swiftly replaced by electric vehicles based on advanced batteries, hydrogen, and fuel cell technologies.

Contributors Gamini Senanayake and I.M. Dharmadasa made the following points: Sri Lanka’s energy policy is underpinned by the government’s ambitious target of generating 70% of power from renewables by 2030. To meet the growing demand, Sri Lanka needs to add an estimated 11,000 MW to its power grid within the next two decades.

Solar power is one of the cheapest energy sources. Sri Lanka has substantial solar resources. However, ground-mounted solar power requires a lot of land and given Sri Lanka’s high population density, agricultural needs, and declining forest cover; land availability can be challenging. Floating solar could bring multiple benefits, such as better land utilization and improved efficiency, and it has the potential to help Sri Lanka meet its renewable energy goals.

Offshore wind is a substantial, renewable source of energy for developing countries like Sri Lanka. Just one percent of the global offshore wind resource could generate enough electricity to meet the current global demand.

Though in general, the plant factor of wind power is around 18-20 %, in the Mannar Basin area off the North-West coast, the plant factor is about 45-50 %, almost identical to coal power plants.

Regional cooperation with India would be crucial in achieving economies of scale rather than attempting to create an independent market with a value chain, where it may not make sense.

Storage is the missing link for Sri Lanka’s energy transition. Storage is required for robust peak demand management. Making hydrogen (or other gases) that can be stored indefinitely and then burned to generate electricity in conventional gas-fired power plants is another option for storage.

Green-hydrogen production via electrolysis of water using solar & wind energy is rapidly becoming feasible (rapid scale-up and commercialization) not only as storage but also to remove the intermittent nature of solar and wind.

Trincomalee as Energy Hub

Trincomalee has a deep natural harbor, oil storage tank farm and land. But all of these have remained underutilized. Plans to establish coal-fired power generation in Trincomalee were abandoned once in the late 1980s and more recently in 2016 after much work had been completed.

Trincomalee has the potential to be the site for coal deliveries (with rail transfer to the power plant on the west coast) for a new oil refinery that would replace the existing refinery in Sapugaskanda (dating back to 1969).

Sri Lanka’s future low-cost power generation source will be Liquefied Natural Gas (LNG), which would require a terminal for imports. However, owing to the proximity to customer location, areas closer to Colombo have been proposed to locate the new refinery and the LNG terminal and LNG-powered new power plants, none of which have progressed toward decisions and financing.

The Northern and Eastern provinces have land and renewable resources to generate electricity economically. Trincomalee, with its potential refinery, LNG terminal and power plants, provides an ideal hub to blend fossil and renewable energy-based electricity production that support each other, to ensure a reliable and cost-effective electricity supply to the national grid.

Oil and gas pipelines and electricity transmission lines must be built from Trincomalee towards the load centers in the Western and North-Western Provinces for the country to benefit from such a strategy.

If developed as an energy hub, Trincomalee has the potential to provide storage and allied services to the east coast of India and Bangladesh, both of which import large quantities of LNG as well as LPG.

Logistics and Transportation

Developing a national policy and a policy framework for logistics and connectivity should focus on the trade and connectivity aspirations of the Indian Ocean Rim (IOR) countries and linking the Indo-Pacific strategic trade corridors to derive more comprehensive economic benefits. Sri Lanka could be a major connectivity center of the world by expanding the air and sea logistics network

Writing on logistics and transportation, Rohan Maskarola and Dimantha de Silva point out that the Colombo Municipal Council (CMC) area attracts about 2 million passengers and around 500,000 vehicles daily whereas in the Western Province passenger tramsportation by bus accounts for about 48% and about 4% by rail.

However, it should be noted that almost 35% – 40% of peak- time corridor-based passenger travel is carried by rail. This shows that when rail has been provided as an alternative, people use it as the primary mode.

The Kelani Valley Line, which has been neglected, currently has a 10% peak corridor share. It is mainly due to the current single track and its dilapidated condition. The present rail system is subject to a capacity problem due to infrastructure limitations.

The demand for passenger transportation is expected to double within the next 20 – 30 years, with close to 4.5 million passenger movements drawn to the CMC area.

The highest demand will be for the Kandy Corridor, followed by the Negombo, Malabe, Galle Road and High-Level Road corridors. All these corridors, except the Malabe Corridor, have rail connectivity, with a passenger demand of 348,000 per day in both directions, and is expected to grow to 656,000 by 2035.

Therefore, it is clear that priority must be given to developing a rail-based public transport option for the Malabe Corridor to cater to the country’s traffic congestion issues.

Deep Sea Terminals

With the addition of the 2.4-million-TEU deep-sea terminal, the Colombo International Container Terminal (CICT) at the Port of Colombo is now the only deep-water terminal in South Asia equipped with facilities to handle mega-ships. This gives the port the unique advantage of handling the increasing number of mega-ships sailing along the east-west route.

Of the countries bordering the Bay of Bengal, the leading maritime countries are Bangladesh, India and Sri Lanka. While 95% of India’s global trade is conducted via sea routes, the Port of Colombo accounts for almost 20% of Indian trade volumes moving as transhipment. This accounts for approximately 70% of the Colombo Port’s transhipment volume.

The lack of direct shipping services between Bangladesh, India and Pakistan has also resulted in Colombo being used as a hub port for much of the intra-SAARC trade.

The Trincomalee port, which lies on the country’s eastern coast, has a basin depth of 20M and is the second deepest natural port in the world. The harbor includes 1600 hectares of sea mass and 2000 hectares of land mass, almost ten times the area of the Colombo Port.

In 2017, the Trincomalee Port handled 233 ships and 4 million tonnes of cargo movements, accounting for approximately 4% of the Sri Lanka tonnage. Currently, the port handles mainly break-bulk and liquid cargo. It is used primarily by Holcim Lanka and Tokyo Cement Lanka for clinker and gypsum; the Indian Oil Corporation and Ceylon Petroleum Corporation for petroleum products and Prima Company for the transportation of wheat.

Container traffic is limited because Colombo attracts most of the current container volumes, and the Trincomalee Port lacks the required infra- structure for handling containers.

Hambantota Port

The Hambantota Port is located within ten nautical miles from the world’s busiest maritime lanes, between the Malacca Strait and the Suez Canal, linking Asia and Europe. It is ideally located at the intersection of the major international shipping routes. Approximately 200 to 300 ships sail on this route daily.

Hambantota Port is also strategically positioned in terms of domestic trade perspectives. While it can serve the country’s southern half, it is directly linked with the Central and Eastern Provinces through roadway connections.

The Hambantota Port occupies an area of 1,815 hectares and, according to the Master Plan, it can accommodate 33 vessels at a time. When it is fully operational, it will be able to handle up to five million TEUs per annum.

Despite the Hambantota Port’s superior geographical positioning in terms of proximity to the main East-West trading route, at present, the Colombo Port continues to dominate the ports in Sri Lanka in terms of its ability to attract ships. Colombo Port’s competitive advantage compared to Hambantota, however, lies mainly in its established reputation.

The ongoing Colombo Port Expansion Project will add two new deep-water container terminals (East and West Terminals) to the existing four container terminals, increasing its capacity to handle 15 million TEUs over the medium term.

The modernization of the older Jaya terminal is also underway, which will involve extending the quay length by 120 meters and procuring three ship-to-shore gantry cranes that would enable the terminal to handle two 330-meter-long ships simultaneously.

Developing deep-water capacity and efficiency in the Port of Colombo is necessary to remain competitive in the region, where many other deep-water ports are currently being developed.

Railways

The Megapolis Transport Masterplan 2016 identified the need for existing railway line modernization with upgrades and electrification. The corridors that required rail connection but did not have an existing line were proposed with the Light Rail Transport (LRT) option. Hence, a 75km LRT network was proposed.

The railway modernization was considered with ADB funding under the Colombo Suburban Railway Project (CSRP). The required feasibility studies and detailed designs were completed for all railway lines (Main line, Coastal line, KV (Kelani Valley) line and Puttalam line). The KV line was selected for the first modernization and was on the ADB pipeline before the government requested ADB to remove it from the pipeline. The reasons for this decision and technical explanations are unknown.

The parliament road corridor, the highest-growing corridor without a railway link, was prioritized for LRT. Initially, a 25km network was selected under Japanese (JICA) funding. The feasibility study was completed in January 2018, which found that the project for a 16 km LRT line from Malabe to Fort was feasible. The project was given Cabinet approval, and the loan agreement was signed with JICA in March 2019 with a 0.1% interest, a 40-year loan, and a 12-year grace period. The project’s detailed design started in March 2019 and was tender-ready by 2020, when the project was suspended. Once again, the reason for the suspension was not made public.

The current National Transport Policy (NTP), developed in 2009, is now outdated. The Ministry of Transport formulated an updated NTP in 2019, yet it did not receive necessary approval to be gazetted. Therefore, there is no updated NTP at present. An NTP with prioritization of sector-wise development is required. Therefore, an immediate adaptation of the National Transport Policy should be a priority.

Small-scale Industrial Sector

The report calls the attention of policymakers the importance of the light engineering sector, which is regarded as the backbone of any heavy industry sector and the primary player of the long supply chain. It argues that many of the industrialized countries, at their initial stages of economic development, have started first strengthening the light engineering sector, which can evolve into large-scale service providers.

Furthermore, a highly developed light engineering sector will create more employment opportunities and be the pillar of strength for value addition to the country’s natural resources.

In particular, skilled workers in light engineering are critically important for advancing micro, small and medium enterprises (MSME) spread across the provinces.

Obtaining services from large Colombo-based service companies is beyond their means in addition to being time-consuming. Hence ensuring skilled and competent service personnel equipped with light engineering capabilities across the country is critically important for the MSMEs’ survival.

Tourism

While the country is generously endowed with a wide variety of ‘attractions’, what requires addressing are issues related to ‘amenities’ and ‘accessibility’.

Areas to be promoted are: wellness tourism, adventure tourism, trekking, hiking, diving etc.. These areas would attract visitors in high numbers, particularly the youth. Transportation within the island must be made safe, clean, reliable and comfortable, whether by road, rail or air.

To achieve the targeted numbers, the authorities should provide attractive incentives for international airlines, including budget airlines, cruise liners and ferries that connect the island with source markets.

Sri Lanka is not a destination limited to one season, as has been promoted traditionally. In fact, Sri Lanka is a ‘year-round’ destination, with the east coast opening up for tourism since the end of the armed conflict, which point has not been given sufficient prominence in the tourism promotional campaigns, the report says.

A highly focused promotional campaign should be carried out in traditional source markets and pre-identified potential markets to promote Sri Lanka, it says.

The report has valuable suggestions for skills development sectors also.