China Pulls Out of Logistics Hub Project at Colombo Port

China Merchants Port Holdings, or CMPH, withdrew from its agreement to develop the South Asia Commercial and Logistics hub at Colombo port. The proposed project was valued at $392 million and involved the SLPA, CMPH, and Access Engineering. CMPH held the largest share, while the other two parties each held 15 percent.

The project never progressed as planned. It faced delays over concession approvals, disagreements about the agreement’s clauses, and uncertainty over proposed Strategic Development Project benefits. After several rounds of discussions, CMPH and the SLPA could not reach a settlement on the terms.

The SLPA agreed to pay $21.9 million to settle investments connected with the project. The payment ends the investment arrangement, but it also highlights the cost of delays and unresolved conditions. The hub was originally expected to be completed by the end of 2025, but construction had not begun.

A port logistics hub is a large facility connected to a port that stores, handles, and prepares cargo for its next destination. It can receive containers, unpack selected shipments, organize goods, and send them onward through distribution networks. This matters because ports can earn more from cargo beyond the initial transfer between vessels.

Colombo currently handles much transshipment by transferring unopened containers between ships. The proposed SACL hub would have added storage and processing space. Operators could have unpacked selected shipments, prepared their contents for onward distribution, and supported a larger warehousing operation.

That difference could have expanded Colombo’s role in regional logistics. Instead of earning mainly from moving containers through the harbor, the port could have captured more value from handling their contents. The cancelled project therefore affects both cargo services and Sri Lanka’s ambition to become a regional logistics center.

The proposed SACL hub was designed as a major port-linked logistics facility, rather than a small warehouse. It would have had eight stories, 5 million square feet of space, and storage capacity of 530,000 cubic meters. Its scale reflected plans to make Colombo a stronger regional logistics center.

The project’s expected cost was $392 million. CMPH, the SLPA, and Access Engineering were the parties to the agreement. CMPH was the major investor, while the SLPA and Access Engineering each held 15 percent stakes. The facility would have handled cargo storage, processing, and distribution.

The employment projections were also substantial. The project was expected to provide at least 1,800 direct jobs and create another 10,500 indirect jobs. Because construction never started, those planned facilities and employment opportunities were not delivered. The cancellation leaves Colombo without the intended increase in logistics capacity.

The project was delayed because the parties could not agree on the concessions that would apply to the facility. When the agreement was signed, it was expected to receive benefits as a Strategic Development Project. Those benefits were important to the project’s financial and operating framework.

The IMF had long insisted that Sri Lanka suspend Strategic Development Project concessions. After objections from the IMF, the facility’s expected SDP status was withdrawn. The SLPA then had to seek approval for a proposed concession agreement, delaying the project from the start.

In March 2024, the SLPA revealed that construction had not begun. Almost a year later, it said the project was scheduled to commence in 2025 after attorney general approval. The SLPA chairman estimated construction would take 42 to 45 months, pushing completion to about 2029. Further disagreements eventually ended the deal.

The cancelled hub could cost Sri Lanka more than a construction project. It was intended to help Colombo earn more from cargo passing through the port. The facility would have added storage, unpacking, and distribution services, allowing the country to capture value from goods rather than simply transferring containers.

The proposed hub would have held 530,000 cubic meters of cargo. Operators could have unpacked selected shipments and prepared them for onward distribution. That could have reduced pressure on existing logistics arrangements and supported a broader warehousing business. The article does not quantify the earnings Sri Lanka would lose.

The cancellation also comes as Colombo’s vessel-turnaround performance worsens. The Container Port Performance Index 2025 ranked Colombo 95th, behind Jawaharlal Nehru Port at 22nd and Mundra at 30th. Strong connections remain, but the missing hub leaves Colombo under pressure to improve service and earn more.

Finding another investor may be difficult because the original project faced unresolved commercial and regulatory problems. Allegations included bypassing tender processes, while unions warned about annual losses and limits on the SLPA’s freedom to offer competing operators lower royalty terms. The agreement’s clauses were later described as highly problematic.

The concession framework also remained uncertain. Expected Strategic Development Project benefits were withdrawn after IMF objections, and approval delays prevented construction. A new investor would therefore need confidence that the SLPA, government, and other authorities could agree on workable terms before committing major capital.

Competition adds another challenge. The World Bank ranked Jawaharlal Nehru Port 22nd and Mundra 30th for vessel turnaround, compared with Colombo’s 95th place. The article does not identify specific replacement investors or routes. However, these stronger-performing Indian ports could make it harder for Colombo to retain or attract cargo if its service performance continues to weaken.

Ports generate value by connecting ships with wider supply chains. They can store cargo, unpack selected shipments, prepare goods for distribution, and support warehousing businesses. These services create more opportunities to earn from cargo after it arrives, instead of treating the port as only a transfer point.

Colombo illustrates the difference. Much of its transshipment work involves moving unopened containers between ships. The proposed logistics hub would have added 530,000 cubic meters of storage and enabled operators to unpack selected shipments. That would have linked the port more closely to onward distribution and regional logistics.

Connectivity alone does not guarantee competitiveness. The World Bank identified Sri Lanka as having unusually strong international shipping connectivity, yet Colombo ranked 95th for vessel turnaround in 2025. Jawaharlal Nehru Port and Mundra ranked 22nd and 30th. Colombo must therefore improve service and earn more from the cargo its connections bring.