Why Adani Group opted out of $553 mn US funding for Colombo port project

The Adani group has said it would finance the Colombo West International Terminal redevelopment project through its internal resources and capital management plan

The Adani Ports and Special Economic Zone (APSEZ) has said it is withdrawing its request for a $553 million loan from US International Development Finance Corporation (DFC) for the development of a strategically important terminal of Colombo port.

 

In an exchange filing late on Tuesday, APSEZ said the project for development of the Colombo West International Terminal (CWIT) in Sri Lanka would be financed through the company’s “internal accruals and capital management plan”.

 

“We have withdrawn our request for financing from the DFC,” the company said. The development comes weeks after two US government agencies levelled bribery charges against owner Gautam Adani and other officials of his conglomerate.

 

 

Why did the Adani Group withdraw from the DFC investment?

  In the exchange filing, the APSEZ did not explicitly mention the reason behind opting out of $553 mn DFC investment. But it was indicative that the decision had to do with the recent US indictment against Adani group officials, including Gautam Adani himself.

 

Last month, the US Department of Justice and Securities and Exchange Commission indicted Gautam Adani, his nephew Sagar Adani, and six others for allegedly paying $265 million in bribes to unknown Indian government officials for securing solar power contracts with state electricity distribution companies. They are accused of disguising these bribes as ‘development fees’ and making false statements to US investors about their anti-bribery practices, thereby raising over $3 billion between 2021 and 2024.

 

Even as the Adani group denied all charges as baseless, the DFC stated that it was reviewing the impact of the allegations and had not disbursed the $553 mn loan yet.

 

Can DFC release investment despite Adani indictment?

 

The US International Development Finance Corporation follows guideline that ensures its investments comply with ethical standards and US laws, including the Foreign Corrupt Practices Act (FCPA). According to a DFC report to US Congress in June 2022, the agency acknowledges the challenges of corruption, especially in developing countries, and emphasises the importance of thorough due diligence to prevent and detect such risks.

 

If the companies involved in a foreign project are accused of bribery by the Department of Justice (DOJ), the DFC would likely pause or decline the investment until the matter is resolved.

 

After the charges were made public, key Adani group investors opted out of further investments in the conglomerate. While French energy giant TotalEnergies announced a pause on new investments citing corruption allegations by the US SEC, other investors such as Florida-based GQG Partners expressed their confidence in the group.

 

What is the CWIT project?

 

In September 2021, the APSEZ entered into a public-private partnership with Sri Lanka Ports Authority (SLPA) and local conglomerate John Keells Holdings to develop the West Container Terminal at Colombo port. The APSEZ holds a 51 per cent stake in the project, with John Keells Holdings owning 34 per cent and the remaining 15 per cent stake held by the SLPA.

 

The project was said to be operational by December 2024. In its latest exchange filing, the APSEZ emphasised that construction on the CWIT project is progressing well and is on track for commissioning by early in 2025.

 

What are India and US interests in Colombo port? 

 

Colombo port, situated on the main East-West shipping route that connects Asia, Europe, and the Middle East, is one of the busiest transshipment hubs in the Indian Ocean.

 

According to the Sri Lanka Ports Authority, over 70 per cent of the containers handled at Colombo are transshipments, making it one of the largest transshipment ports in South Asia. Also, 45 per cent of Colombo’s transhipment volumes originate from or are destined to an APSEZ terminal in India.

 

India’s interest: India’s interest in Colombo port began after China Merchant Ports (CM Ports) and Sri Lanka’s Aitken Spence signed a 35-year concession agreement in 2011 to operate the southern terminal of the port. Sri Lanka even handed over its Hambantota International Port to China in 2017 as a debt swap.

 

To counter Chinese influence in Sri Lanka’s port indusatry, the Indian government, through Adani group, got involved in discussions to develop the East Container Terminal at Colombo port in collaboration with Japan. But in February 2021, the Sri Lankan government cancelled the agreement following protests from port unions who opposed any foreign involvement, citing sovereignty concerns.

 

Following this, the APSEZ was given the project to develop the West Container Terminal. The project aimed to enhance the Colombo port’s capacity, which has been operating at over 90 per cent utilisation since 2021.

 

America’s interest: Like India, the US government’s geopolitical interest in CWIT is driven by its desire to counter China’s growing presence in the Indian Ocean. In November 2023, the Development Finance Corporation (DFC), a US government agency which provides financing and support for development projects in emerging markets, entered the picture. It pledged an investment to the tune of $553 million for the project.