SOE 2005 Policy Brief - Sethusamudram Canal Project

Institute of Policy Studies of Sri Lanka Sri Lanka: State of the Economy 2005 Post-Tsunami Economic Issues
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16. Sethusamudram Shipping Canal Project 16.1 Introduction The Sethusamudram Shipping Canal Project (SSCP) was originally the brain child of British Naval Commander A.D. Taylor in 1860. However it has been put on hold over several decades as each assessment revealed a higher cost factor. In 1999 however, the SSCP was boosted by an announcement by the then Indian Defense Minister that the government would complete the project within 3 years.
The motivation for building the canal is the fact that the Palk Bay between northern Sri Lanka and southern India is un-navigable by ships due to its shallowness created in particular by the Adams Bridge. Therefore, any ships traveling from the east to the west coast of India needs to circumnavigate Sri Lanka. By dredging a canal across the Palk Bay it would be possible for small to medium size ships to avoid this circuit and simply cut across the Palk Bay thereby saving 25 hours per voyage (300 nautical miles at an average speed of 12 knots) and Indian Rs. 5.36 lakhs according to estimates of the Tuticorin Port. It should, however, be noted that the 25 hour time saving may be exaggerated as there will be delays in the crossing process and speed limits will be imposed. Furthermore, the south Indian ports led by Tuticorin are more than likely to capture a greater share of the growing transshipment market in the Indian subcontinent.
It is also likely that economic benefit is not the only incentive driving the SSCP. The canal would also allow Indian naval ships to have better access to the waters between India and Sri Lanka, thus providing a geopolitical incentive for the canal.
The total length of the canal in Palk Bay is 152.2km. This breaks up into 3 legs, the Adams Bridge leg of 20km, the central leg of 78km and the Palk Strait leg of 54.2km. Of these, the central leg already has the required depth of over 12 m; however, the other two legs require dredging. Dredging a 12m deep canal in the Palk Strait and Adams Bridge
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legs would allow ships of draught 9.15m and 10.7m to completely pass through Palk Bay. The width of the canal is estimated at 300m.
The National Environmental Engineering Research Institute (NEERI) of Nagpur, India has submitted an Environmental Impact Assessment Report and a Techno-Economic Feasibility report to the Indian government. In September 2004, the government of Sri Lanka set up an Inter-ministerial Committee comprising of the Foreign Ministry, Environmental and Natural Resources Ministry, Ports and Aviation Ministry, Fisheries and Aquatic Resources Ministry, Defense Ministry and the Science and Technology Ministry, chaired by the Foreign Secretary. This committee has studied the potential impacts of the SSCP on Sri Lanka and has had a meeting with the Indian government. The Indian authorities have agreed to consider an amended Environmental Impact Assessment based on the concerns raised by Sri Lanka. Prior to this in late 2004, the President of Sri Lanka met the Prime Minister of India in New Delhi and discussed, among other things, the SSCP. The Prime Minister assured the visiting President that any issue that may have adverse effects for Sri Lanka will be resolved in Sri Lankas favour.
This paper provides some insights into the impacts of the SSCP on Sri Lanka. It concludes that the canal brings about a large international negative externality, with Sri Lanka at the receiving end. If these external costs are taken into account, the overall cost of the project may not be worth the benefits that are anticipated. Sri Lanka should, therefore, ensure that India takes account of such external costs in proceeding with the project. This policy brief will assess three important issues of the economic effects, the environmental impacts and the legal implications.
16.2 Economic Effects The Colombo port is a major hub port strategically located in both a global and regional context. As the Palk Bay is currently not navigable (by most modern ships), the transport
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of goods from the eastern ports (Calcutta, Chittagong, Chennai) of the Indian subcontinent to the western ports (Karachi, Mumbai, Cochin) and vice versa goes via Colombo in the form of a network of feeder lines. Such feeder cargo makes up approximately 70 per cent of Sri Lankas transshipment volume.1
With the Sethusamudram canal being created, ships can travel from east to west directly, saving time and fuel costs. The port of Tuticorin in southern India is likely to attract a lot of the new shipping since it is closest to the proposed canal. However, it will face competition from Chennai and Cochin in particular. For Colombo to compete with these three ports will require a phenomenal effort since the benefits it offers would have to outweigh the costs of the 424km detour. Even without the SSCP, the Colombo port has been under increasing pressure due to the ever improving service provision of the Indian ports. The south Indian ports of Cochin and Tuticorin (which is now managed by the Port of Singapore Authority) have experienced rapid growth in traffic as a result of improved efficiency in service delivery. At the same time, the government of India continues to develop Mumbai and Chennai as transshipment ports for the subcontinent. In fact, Mumbai has grown at an annual rate of 20 per cent per annum. In 2003-04, the 12 major Indian ports handled 3.9 Million TEUs (Twenty Foot Equivalent Units). Sri Lankas status as the hub port in the sub-continental feeder market is already under pressure and the development of the SSCP may well push Colombo out of this market completely unless action is taken.
The saving grace for Colombo port is the fact that the SSCP lacks the depth to accommodate the larger vessels that make up the bulk of main line (as opposed to feeder) vessels. The maximum depth that could be dredged across the Palk Bay is estimated at 12m and this is far too shallow for large mainline vessels to pass through. Furthermore, the trend in modern shipping has been towards larger ships with greater carrying capacity, requiring fewer stops. Dredging the canal to accommodate larger ships of
1
Transshipment is the shipment of goods to an intermediate destination, and then from there to yet another destination.
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draught greater than 10.7m, such as 12.8m draught ships, would call for a 14m deep and 500m wide canal and the dredging and environmental costs of this would not be worth the benefit. The present proposal is for a 12m deep, 300m wide channel to be created which could accommodate ships of 9.15 and 10.7 draught requirements.
It could, therefore, be assumed that in the long run the SSCP will cater almost entirely to sub-continental feeder cargo. As mentioned earlier, this makes up 70 per cent of Colombos transshipment volumes and thus a significant proportion of the ports activity. In order to make up for this looming loss, it is essential that Colombo tries to shift her comparative advantage from feeder transport to main line shipping. Sri Lanka is strategically located in between the eastern and western worlds. However, the Colombo port is too shallow (14m) to accommodate some of the larger mainline vessels and certainly will not be able to accommodate the new generation of super carriers (Malaccamax carriers). As a result, Southeast Asian ports such as those of Malaysia and Singapore attract the bulk of mainline vessels.
This makes it all the more imperative that the work on the Colombo South Harbour gets moving as soon as possible. The new harbour will have an initial depth of 17m but will eventually be of depth 23m. The project is partially funded by the ADB (US$ 100 mn.) and initial pre-construction work is complete including a business plan, detailed studies, tender document and a regulatory framework. The balance US$300 million is expected to be raised from donors. However, work is expected to be completed only by the year 2020 at the earliest, and until that point, Colombo port is likely to suffer losses due to the likely reduction in Indian feeder cargo. In the meantime, the Colombo Ports Authority has stepped up investment in the existing port including extending the JCT (Jaya Container Terminal) quay wall by 100m, deepening JCT 1 and 2 and basin to 15 meters, new superpost Panamax quay cranes for JCT, widening the South Entrance and fast tracking the procurement of a new IT system to enhance productivity. As a result, it has been
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rewarded with increasing transshipment handlings in the last couple of years, including a record 2 million TEUs in 2004.
Another encouraging factor is the growing importance of the shipping trade in Asia. The booming economies of China and India have generated massive amounts of goods transport across the region. The Malaysian Maritime Institute has predicted that by 2011 Asia is expected to handle 206.7 million TEUs, including 64 million in transshipment requiring 430 new container berths. The Colombo port needs to exploit its natural location (Colombo is closer to the international shipping routes than the Indian ports) and supplement this with speedy improvements to the port including the Colombo South Harbour2 and thereby capture a portion of this expanding transshipment market. It could then negate the negative impact of the loss in sub-continental feeder cargo that seems imminent considering the SSCP.
The possible environmental effects of the SSCP will also have economic implications for Sri Lanka. A key impact will be on fishing in the Jaffna peninsula. There is a possibility of marine life being adversely affected by changing water temperatures, introduction of alien species which would alter the food cycle, pollution, etc. There is a strong chance that this would alter the fish stocks in the Palk Bay. Another problem is due to the possibility of changing tidal patterns as more water flows through the Palk Bay as it is exposed to the Arabian Sea and Bay of Bengal currents which could cause damage to the coastal structures such as jetties that are required for fishing. Coastal structures have been built to withstand present coastal patterns. The cost of altering these structures to adapt to new coastal patterns will fall on Sri Lankan fishermen, another externality created by SSCP. Furthermore, there will be heightened activity in oceans during the SSCP building process which is likely to disrupt traditional fishing. As an estimated 40 per cent of the Northern Province labour force is involved in agriculture and fisheries,
2
The Asian Development Bank (ADB) hired Australia-based Maunsell McIntyre consultants carried out a feasibility study for the Colombo South Harbour and concluded that the project would be economically viable despite the high initial costs considering ever increasing traffic.
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this would have a major impact on the population of this conflict affected poverty stricken region.
The changes in ocean patters in the Palk Bay will also affect constructions in coastal areas of northern Sri Lanka. If tides become stronger there will need to be new measures put in place to combat sea erosion. Jetties and minor port structures will have to be reengineered. There maybe a requirement for relocation of housing if there is significant sea erosion.
There is the added potential damage to agriculture in Sri Lanka if the SSCP comes into force. Changing sea temperatures may affect the climate in the form of rain fall and length of droughts. As it is, drought is a serious problem in much of Sri Lanka, particularly in the North Central Province. The drought in 2004 caused much hardship and created supply side shocks in the national economy.
16.3 Environmental Impacts The existing ocean currents travel from the Bay of Bengal to the Arabian Sea and vice versa depending on the prevailing monsoonal winds. These currents do not cross the Palk Bay since Adam's Bridge acts as a breakwater. However, if dredging occurs across Adam's Bridge it could allow part of the Arabian Ocean-Bay of Bengal current to gush through the Palk Bay. The current could potentially erode Adam's Bridge enabling even more water to pass through and thus result in a cycle. The change in currents will affect temperature, salinity and nutrient levels in Sri Lankan waters.
Ocean temperatures could fall as the colder east and west Indian coastal currents enter the Palk Bay due to the SSCP. This drop in temperature could affect cloud formation and sea breeze. Clouds that form due to oceanic convection require an ocean temperature of around 27 degrees celcius. If the change in currents pushes the temperature below this threshold it will adversely affect cloud formation and thereby affect rain and drought
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patterns in Sri Lanka. At present, oceans in the region have a temperature close to the 27 degrees celsius mark. Scientific understanding of the relationships between cloud formation, rain fall and sea temperatures is incomplete and poses risks of unforeseen impacts.
Other effects of shifting currents include a possible rise in sea level as currents pass through Adams Bridge causing sea erosion in the Jaffna peninsula and may even cause part of the peninsula to go underwater. The change in salinity, nutrients and ocean temperature will affect marine life and ecosystems. Similarly, the change in currents will bring with it new deep ocean marine life that will alter food chains. Commercial fish populations and their food sources maybe adversely affected by these changes.
While oil tankers will not be allowed to cross the SSCP and other vessels will not be allowed to discharge bilge, ballast, treated sewage, solid wastes, oily wastes and spillage of cargo, it remains to be seen whether this could be implemented effectively at all times. In addition, the stronger currents in the Palk Bay could result in coastal pollution as pollutants are drawn in from the larger seas and these could be deposited on Sri Lankan coastlines. Furthermore, noise pollution from increased shipping will adversely affect communication of marine mammals such as whales and dolphins which may drive them away. A popular tourist attraction in the eastern coast of Trincomalee in Sri Lanka is dolphin watching which may no longer be tenable if the natural habitats are disrupted.
There has been no systematic survey of the geology of the sea bed to be excavated. However, there is evidence to suggest that much of northern Sri Lanka and southern India lies on a continuous stretch of limestone. The SSCP requires dredging that would damage this bed of limestone. In the future it could even break up causing land subsidence both from northern Sri Lanka and southern India. It could be argued that the dredging required is only to create a 12 meter deep canal thus damage will not be significant; however limestone is far softer than normal rock, and is susceptible to the slightest damage. Before
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the SSCP goes through, a thorough survey of the regions geology is required. Even so it would be difficult to predict what may occur in the distant future.
Palk Bay is also one of the major sedimentation sinks of India, with deposits from rivers in India and Sri Lanka and from currents from the Bay of Bengal and the Gulf of Mannar. The greater the level of sedimentation, the more will be the dredging required in the future. The NEERI Environmental Impact Assessment has calculated annual sediment transport from ocean currents in the Adams Bridge area, but this value falls short of the total annual sediment load of the Palk Bay calculated by others to be over 99 per cent. Furthermore, other studies suggest that in certain sections of the Palk Bay that the SSCP passes through, sedimentation rate is up to 75 times higher than that predicted by previous estimates of 99 per cent. It is evident that NEERI may have underestimated the extent of sedimentation and along with it the extent of future dredging required and potential dumping sites. If this excess dredged material is dumped in a haphazard manner there are potentially serious environmental consequences for Sri Lanka and South India.
The SSCP area is prone to cyclonic activity. In fact, the Indian Meteorological Department considers the coastal stretch between Nagapattinam and Pamban as a high risk zone for tropical cyclones. Strong cyclones could displace dredged material (to be dumped in the Bay of Bengal and in Pamban Island) and deposited in Sri Lankan territorial waters creating negative environmental impacts. The threat of future tsunamis is very real and the SSCP would provide a deep sea route for a tsunami, carrying with it dredged material and threatening the SSCP itself. In fact, the tsunami of December 2004 is likely to have affected the depth of the Palk Strait. It is reported that certain stretches of the Malacca Strait have changed slightly after the tsunami.
16.4 Legal Implications
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Marine law is determined by the 1982 UN Law of the Sea Convention. The Indian government would need to take the following clauses within this agreement into account if it were to go through with the SSCP. General Obligation: States have the obligation to protect and preserve the marine environment. Article 194 2) States shall take all measures necessary to ensure that activities under their jurisdiction or control are so conducted as not to cause damage by pollution to other States and their environment, and that pollution arising from incidents or activities under their jurisdiction or control does not spread beyond the areas where they exercise sovereign rights in accordance with this Convention. 5) The measures taken in accordance with this Part shall include those necessary to protect and preserve rare or fragile ecosystems as well as the habitat of depleted, threatened or endangered species and other forms of marine life.
The potential for environmental damage and pollution has already been highlighted, indicating the real threat that this pollution extends beyond the areas where India exercises her sovereign rights. Article 196 Use of technologies or introduction of alien or new species 1) States shall take all measures necessary to prevent, reduce and control pollution of the marine environment resulting from the use of technologies under their jurisdiction or control, or the intentional or accidental introduction of species, alien or new, to a particular part of the marine environment, which may cause significant and harmful changes thereto.
Changes in ocean currents will bring with it alien species that will alter food chains in the Palk Bay and may wipe out several species of fish and other marine life as large deepwater fish enter the ecosystem.
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16.5 Conclusion The SSCP has been a desire of successive Indian governments over several decades, and at this point in time there is a strong possibility of this project becoming a reality given modern technology and Indias geopolitical strength (particularly with respect to Sri Lanka as Indias support is vital for the solution to the ethnic conflict in northern Sri Lanka). However this project has significant and potentially devastating side effects (such as subsidence of the Jaffna peninsula) for Sri Lanka. It may be argued that some of the cited dangers are far fetched, but the reality is that several of the environmental impacts are not understood sufficiently. The meetings between the Indian authorities and Sri Lankas Inter-ministerial Committee have proved to be a step in the right direction but they have not been consistently followed up. Of late, officials from both sides have provided mixed signals regarding the Sethusamudram project. On 19 May 2005, the Indian Cabinet gave formal approval to the project and the Union Shipping Minister claimed that environmental concerns are baseless. However, during a subsequent meeting between the President of Sri Lanka and Indian Prime, the latter said that India will be happy to change the Sethusamudram projects design to satisfy your concerns. This view was reiterated by the Indian Foreign Secretary who confirmed that India is willing to consider any new environmental concerns put forward by Sri Lanka. Ideally this will lead to a joint consultation between Sri Lankan environmental experts and the projects designers.
The economic undertones for the Colombo port need to be dealt with internally. The position of the Colombo port as a hub transhipment port was under threat even prior to the SSCP as south Indian ports have been expanding rapidly. Sri Lanka needs to look towards increasing the capability to handle main liners, including moving ahead rapidly on the Colombo South Harbour.
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Sri Lankas response to the SSCP therefore needs to be two pronged. On the diplomatic front, there is a need to consistently press the Indian government to address Sri Lankas environmental and legal concerns, whilst bracing the Colombo Port to face the new challenges that will loom if the SSCP does come about.
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Institute of Policy Studies of Sri Lanka Sri Lanka: State of the Economy 2005 Post-Tsunami Economic Issues

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16.4 Legal Implications

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