Beyond Rhetoric:
by Sasanka Perera
(The writer is on X as @sasmester)
On October 15, 2026, the Chinese government-owned China Merchants Port Holdings submitted a regulatory filing to the Hong Kong Stock Exchange, formally implementing a mutual settlement agreement with the Sri Lanka Ports Authority and local partner, Access Engineering. With it, the process to wind down the US$ 392 million South Asia Commercial and Logistics Hub project began. The Sri Lankan media and policy circles in general reacted with predictable alarm. Much of the fallout was framed, and I believe correctly, as a matter of Sri Lanka’s persistent struggle to convert foreign direct investment approvals into operational reality.
As a country attempting to address fragile post-crisis economic recovery, the loss of this project provides a sobering reality check on commercial execution, institutional reliability, and the finite nature of investor patience. In April 2023, the proposed 530,000-cubic-meter logistics complex inside the Port of Colombo was hailed as a game-changer. It was conceived as a 50-year build-operate-transfer agreement. In this scheme, China Merchants Port Holdings held a 70% equity stake alongside 15% each for the Sri Lanka Ports Authority and Access Engineering. According to the original plans, the facility was expected to modernise bonded warehousing, free-zone processing, and cold storage, firmly cementing Colombo’s regional transshipment standing. It even secured Strategic Development Project status according to the provisions in the Strategic Development Projects Act No. 14 of 2008 (and Strategic Development Projects [Amendment] Act, No. 26 of 2025) granted by the Cabinet of Ministers with the concurrence of the Minister of Finance. In this particular case, the project also received a long-term corporate tax holiday.
Despite these concessions and clearances, three years after the initial agreement was signed, nothing concrete materialised on the ground. The joint venture remained trapped in a maze of unfulfilled conditions, unresolved land-allocations, regulatory delays, and lingering fiscal liabilities. The most serious of the latter was an unresolvable US$3.9 million Value Added Tax assessment. Confronted with mounting maintenance costs and the inability of the project to move beyond the signing phase, the partners executed an ‘amicable consultation and neutral handling’ termination, which was embedded in the agreement. Under the settlement terms, shareholders agreed to dismantle the corporate structure and recover roughly 80% of their paid-in equity. Rather than emanating from a politico-ideological problem, this was a cold, pragmatic business decision driven by risk management and fiscal prudence.
Local business reporting and opinions have debated whether the project’s demise represents a regulatory failure, an unavoidable commercial exit or a governmental failure. One side of the domestic debate emphasises institutional inertia. Critics have highlighted what appears to be inter-departmental difficulties between the Ministry of Finance, the Inland Revenue Department, and port administrators which generated paralysing ambiguity over potential future tax positions and statutory clearances. From this perspective, the venture died a ‘death by paper,’ demonstrating how Sri Lanka’s state machinery continues to sabotage its own economic recovery without even realizing it by creating unpredictable operating environments. This is nothing new and is something the present government has inherited from years of previous practice and has not been able to resolve so far.
The counterargument in the public discourse points to commercial pragmatism and shifting market timing. Proponents of this view note that holding equity in a non-operational venture indefinitely makes no financial sense when global maritime logistics costs and trade routes change rapidly and consistently. In this view, exiting with an 80% capital recovery was a routine corporate decision to mitigate against further loss. Another argument, shared by the government’s political opponents, simply claims the project signed during the Ranil Wickremesinghe presidency failed due to the present government’s incompetence. This argument is too simplistic, even though the government has not fully worked out how to streamline these kinds of projects that might be beneficial to the country.
The more credible arguments, in the end, come to the same conclusion. That is, the project failed due to external forces. This tends to mask the state’s failure to deliver legal clarity and institutional coordination, which are essential in these situations. Winding the project down creates several immediate problems for Sri Lanka. First, in global logistics, timing and operational predictability are crucial. Terminating a US$ 392 million venture indicates to international capital that even high-profile, government-backed deals can stall indefinitely. Second, under the settlement terms, the Sri Lanka Ports Authority faces a net cash outlay of approximately US$ 17.4 million to facilitate the capital refund to its partners. These are public funds that should ideally have been directed toward capital upgrades or even public services. But now, they must instead be used to wind up a failed entity. Third, as rival transshipment hubs in the region expand their capacity, it is criminal that Sri Lanka has wasted years trying to work out a project-related future of port land while logistics infrastructure only remained on paper. This is a situation that a country keen on recovering from debt, chronic economic crises and reinventing itself from its ‘Banana Republic’ persona from the immediate past cannot afford.
As the Sri Lanka Ports Authority prepares to re-tender the vacant 13-acre port parcel under an alternative private-investment model, policymakers must digest the hard lessons of this collapse if the government is serious about foreign direct investment. To begin with, statutory permits, land leases, and environmental clearances must be finalised before executing binding joint ventures with foreign capital. On the other hand, there must be established clarity on issues such as what percentage of profits must be reinvested or spent in Sri Lanka, how much can be taken out of the country, what percentage of personnel can come from abroad and so on. Similarly, it is necessary to eliminate all tax ambiguities before signing an agreement. In other words, free-zone incentives and tax exemptions under special investment frameworks must be legally and clearly reconciled across all government departments to prevent late-stage tax liabilities and other avoidable complications.
This includes clarity on what taxes must be paid and what will be waived off and for what period of time. These parameters must be created based on comparable practices elsewhere in the world. Finally, investors should be provided with a single, empowered facilitation body capable of clearing administrative hurdles rather than forcing investors to navigate across different bureaucratic hurdles. Sri Lanka can always learn from more successful experiments in this regard from other parts of the world. These should be in place as matters of policy and principle and not as ad hoc decisions taken from project to project. All these are already part of the conversations in Colombo’s business circles and indicate nothing new. These principles should also include clarity on what areas of the local economy and business infrastructure would not be open to foreign investment for strategic reasons, whether build-operate-transfer agreements should continue beyond a specific period of time, taking into consideration what would be left by the time the transfer period comes, and so on.
The cancellation announced on October 15, 2026, should serve as a wake-up call for Sri Lanka’s economic decision-makers in particular and the government in general. Attracting global capital requires far more than political rhetoric, ceremonial launch events, long-term tax holidays, and high-level diplomatic performances. It demands smooth operational execution, legal certainty, and reliable public administration. If Sri Lanka is to secure its place as a leading maritime and logistics hub and as a dependable investment destination in general, it must resolve its internal administrative bottlenecks. Until then, major investors will continue to walk away when the cost of waiting outweighs the promise of doing business. Or, they might not be attracted to Sri Lanka as an investment destination in the first place.