India is reengaging and attempting to tilt the balance in a strategic tussle with China on Sri Lanka, a pivotal battleground because it lies on key global shipping lanes.
A small group of fishermen ply the shallow coastal water along Pooneryn in northern Sri Lanka, an impoverished, remote area within striking distance of India’s southern tip. It’s where Gautam Adani, who is Asia’s richest man and has vaulted ahead of Jeff Bezos this year, plans to build renewable power plants, thrusting him into the heart of an international political clash.
With Sri Lanka in the throes of its worst economic crisis since its independence from Britain in 1948, India is reengaging and attempting to tilt the balance in a strategic tussle with China on the island, a pivotal battleground because it lies on key global shipping lanes and plays into India’s fear of encirclement from its Asian rival.
At the forefront of those efforts is Mr. Adani, who is a long-time supporter of Prime Minister Narendra Modi, and has been accused by some Sri Lankan lawmakers of signing opaque port and energy deals closely tied to India’s interests, something his group has always denied, saying the investments meet Sri Lanka’s needs according to a report by Bloomberg.
Sitting atop a $137 billion wealth pile, Mr Adani controls a sprawling empire that spans ports, coal plants, power generation and distribution.
While he derives the vast majority of his fortune from India, Gautam Adani has gradually made more overseas deals and told shareholders in July that he seeks a “broader expansion” beyond India’s borders with “several” foreign governments approaching his conglomerate to develop their infrastructure.
Privileged to meet President @GotabayaR and PM @PresRajapaksa. In addition to developing Colombo Port’s Western Container Terminal, the Adani Group will explore other infrastructure partnerships. India’s strong bonds with Sri Lanka are anchored to centuries’ old historic ties. pic.twitter.com/noq8A1aLAv
— Gautam Adani (@gautam_adani) October 26, 2021
Those moves and Mr Adani’s perceived closeness to Prime Minister Modi’s administration have spurred suggestions the tycoon could be the cash cow for India’s pushback against China, whose Belt and Road infrastructure drive is intended to increase Beijing’s influence in strategic countries and on the global stages.
“In countries that the Indian government has better relations than the Chinese government, Adani could find success,” said Akhil Ramesh, a resident fellow at the Pacific Forum research institute in Honolulu.
While India lacks the financial firepower of its neighbour, Mr Adani’s investments in countries such as Israel and Sri Lanka compete with Chinese state-owned firms.
And it’s in Sri Lanka where that tension is playing out most acutely.
Mr Adani’s investments there were described to Bloomberg News by multiple Indian and Sri Lankan officials as advancing Prime Minister Modi administration’s objectives on the tear-drop shaped island, in much the same way that his businesses in ports, power and cement coincide with the government’s economic priorities at home. Mr Adani has repeatedly denied that his firms receive special treatment from Prime Minister Modi’s government.
Pooneryn in northern Sri Lanka
In October last year, Mr Adani emphasized the “strong bonds” between the two nations when he met with then Sri Lankan President Gotabaya Rajapaksa, just months after inking a $750 million Colombo port deal.
It was a rare example of Indian infrastructure investment in Sri Lanka, after Colombo in previous years pivoted to Beijing — which has funded everything from highways to ports through Belt and Road — and splurged on debt-fueled projects.
Soon after that meeting, a team from Adani Group — which is targeting a $70 billion move toward green energy — toured Sri Lanka’s north. The region has been starved of investment since the end of the country’s 26-year civil war in 2009.
The visit seemed a turning point, as not long after the Rajapaksa administration terminated Chinese solar projects on islands in the Palk Strait between India and Sri Lanka because of security concerns from New Delhi, according to multiple people with direct knowledge of the matter.
China’s embassy in Colombo later confirmed the end of the solar projects on social media.
In early 2022, Mr Adani quietly signed memorandums of understanding to build 500 megawatts of renewable energy projects in Pooneryn and Mannar, other northern districts close to India, according to local media reports confirmed months later by a tweet from Sri Lanka’s power minister, Kanchana Wijesekera.
India “is worried about Chinese access to the Indian Ocean, and being encircled by Chinese-friendly regimes in Pakistan, Sri Lanka, and Bangladesh,” said Katharine Adeney, a professor and expert on South Asian politics at the University of Nottingham.
Mr Adani’s supplanting of China’s solar power projects represents “a strategic move and one that we are likely to see more of,” she said.
Spokesperson for the Ministry of External Affairs and the Adani group declined to comment.
China’s ambassador in Colombo and a representative for Sri Lanka’s president didn’t respond to requests for comment. Power Minister Wijesekera also didn’t respond to messages from Bloomberg.
The Indian billionaire has even started to publicly criticize China, saying in September at a conference in Singapore, that China was “increasingly isolated” with Belt and Road facing “resistance.”
Even so, Mr Adani’s global ambitions face challenges. As the billionaire boosted his influence in Sri Lanka, local media and opposition politicians have claimed that his companies have skirted due process.
Soon after Sri Lankan media reported that Mr Adani signed the northern power agreements in March, Ajith Perera, the chief executive of the Samagi Jana Balawegaya — the country’s largest opposition party — protested what he called Adani’s “back door” entry into the country’s energy industry.
Perera said on Facebook that Rajapaksa’s administration was “pampering” Prime Minister Modi’s “notorious friends.”
“It must be transparent and it must be bidded out,” Eran Wickramaratne, a prominent SJB lawmaker, said in interviews with Bloomberg News, adding that parliament hasn’t been allowed to scrutinize the contracts.
“The color of the investment doesn’t matter to us — but investment must be transparent, it must be an equal playing field,” he said, adding “we can’t fault the foreign investor, we have to fault our own government and our system.”
A spokesperson for Mr Rajapaksa didn’t respond to a request for comment. In a statement on the protests to the Press Trust of India news service, the Adani Group said its 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.”
In June, the Ceylon Electricity Board (CEB) Engineer’s Union threatened to strike over legislation that removed public competition from the allocation of wind and solar projects, pointing specifically at Adani’s plans in northern Sri Lanka.
Later that month, the chairman of the state-run utility told a parliamentary committee that Prime Minister Modi’s government had pressured Sri Lanka to accept Mr Adani’s energy proposals.
He resigned days later, claiming he was “emotional” when making the statement, and after Rajapaksa “categorically” denied the allegations.
A spokesperson for the CEB didn’t respond to a request for comment. “We are clearly disappointed by the detraction that seems to have come about,” the Adani Group said at the time, according to a report by NDTV. “The fact is that the issue has already been addressed by and within the Sri Lankan Government.”
Protests ensued in Colombo. The crowds held signs reading “Stop Adani” and “Modi Don’t Exploit Our Crisis.”
Mr Adani, like Prime Minister Modi, hails from Gujarat. He built his fortune over the past decade partly by focusing on business areas that were central to Prime Minister Modi’s national priorities.
Mr Adani, whose businesses had yet to expand across the breadth of India, was among local Gujarati businessmen who helped create a biannual investment summit in the state that gave Prime Minister Modi a platform to promote his pro-business image.
In recent years, China’s Belt and Road Initiative has funneled billions of dollars into South Asia, but Sri Lanka’s grinding economic crisis, coupled with food, fuel, medical and power shortages, presented India with a window to push its influence with its smaller, strategic neighbor.
India has sent Sri Lanka $4 billion of aid and credit lines this year as it also attempts to both stem a humanitarian catastrophe on its doorstep and further its geopolitical objectives.
Mr Rajapaksa fled the country in July, handing the reins to Ranil Wickremesinghe following a bout of violent unrest. Since then, Mr Wickremesignhe has sought to dial back anti-Chinese sentiment as his administration initiates debt restructuring talks with both Beijing and India.
“Ranil’s very much a pragmatic leader in that he realizes every international actor is needed at this moment, he’s not going to take sides,” said Bhavani Fonseka, a senior researcher and lawyer at the Colombo-based Centre for Policy Alternatives.
At the same time, Mr Adani’s renewable moves “didn’t get the attention it should have” amid Sri Lanka’s wider unrest and now there’s relative calm there might be an opportunity for reexamination, she said.
For Prime Minister Modi, securing a foothold in Colombo’s new port is seen as particularly important, with China constructing the adjacent Colombo Port City, a Dubai-like financial hub, and operating the Colombo International Container Terminals Ltd.
While India and Mr Adani saw a setback in Sri Lanka when a deal to develop the East Container Terminal at the new port was canned by Rajapaksa after pushback from unions, the billionaire scored a win last year.
New deals were struck and Adani Ports and Special Economic Zone Ltd. was awarded the right to develop, build and operate the West Container Terminal, holding a 51% stake in a joint venture with local conglomerate John Keells Holdings Plc.
In a rare insight into the linkages between Mr Adani and Prime Minister Modi, at a cabinet meeting in March last year, Sri Lankan ministers said New Delhi had nominated Mr Adani for the project, a claim that later that month a foreign ministry spokesperson said was “factually incorrect.”
The project also wasn’t publicly tendered. India would have found it difficult to outbid China in an open process, people with direct knowledge of the deal said.
As it was, in November, the China Harbour Engineering Co. Ltd. was also selected by Sri Lanka’s government to help construct the East Container Terminal.
India likely has a vested interest in having one of its own companies build a port terminal close to China’s own port project, said Samantha Custer, director of policy analysis at AidData, a research unit at William & Mary University in Virginia.
Indian companies are often disadvantaged due to Beijing tying project finance to implementation by state-subsidized Chinese firms, she said.
“One of the motivations for moving forward is geostrategic in order for a politically connected Indian company to be willing to accept delayed or uncertain economic returns,” said Custer.
“That said, an uncertain economic return on investment is not the same thing as no return on investment, and the Adani Group likely recognizes that this is a long-term play with a high risk and high reward proposition.”