The withdrawal of the Adani Group from the controversial wind power project in Mannar has sparked an intriguing debate among media and political circles. On February 15, the Adani Group which is known for its close ties with Indian Prime Minister Narendra Modi informed the Board of Investment (BOI) in Sri Lanka that they would ‘respectfully withdraw from the project’.
Certain elements in the Opposition hurried to argue that Adani’s exit shows the lack of confidence foreign investors are having in the Government. For instance, an article published by the Ada Derana Business web outlet on February 20— written by an ‘independent’ analyst — stated that the withdrawal of Adani Green Energy from the proposed project is a ‘huge setback to the nation’ as Sri Lanka desperately needs foreign direct investments.
On the other hand, during a press briefing conducted last week, Cabinet Spokesperson Dr. Nalinda Jayatissa did not express any regret about the incident. When asked about Adani’s decision, Jayatissa reiterated that the Government’s concern is to provide electricity for the lowest possible cost and that the agreement with Adani did not meet this criterion.
The controversy
The project to build Renewable Energy Wind Farms in Mannar and Pooneryn, along with a transmission system worth US $ 442 million, was approved by the Sri Lankan Board of Investment in 2023. The project became a subject of dispute since its inception on multiple grounds. The agreed tariff rate, which placed a unit cost at US $ 8.26 cents was contested, as local investors were willing to offer less than US $ 5 cents for the same provisioning. It was also argued that the tariff rate Adani offered was significantly higher to renewable energy prices in India.
The project was awarded without a competitive bidding process, raising concerns over the transparency of the deal. Environmentalists highlighted the potential harm the project could have on the Mannar region which is known for its sensitive eco-system and habitats for migratory birds. The lack of an independent environmental impact assessment and consultation with communities affected by the project were seen as a problematic by environmental groups, who proceeded to challenge the project before the Supreme Court.
The National People’s Power (NPP) was a major critic of the project at the time the approval was granted. In many forums, NPP leader Anura Kumara Dissanayaka, as an Opposition MP, publicly criticised the agreement for its lack of transparency and the exploitative nature of the deal. After assuming power in November, the NPP Government appointed a committee to renegotiate tariff rates, which ultimately resulted in the withdrawal of the company.
Energy connectivity and ‘Neighbourhood first’
The Adani Project cannot be discussed in isolation from the larger geo-political endeavour of India to sustain its sphere of influence in the region. The ‘Neighbourhood First’ policy promulgated by Prime Minister Narendra Modi aims to enhance connectivity with neighbouring South Asian countries and energy connectivity is integral to this broader vision. The Modi Government perceives the risk of South Asian countries becoming more allied with China, and China’s growing influence in the region as a threat to its geo-political aspirations. Through integrating crucial economic infrastructure like the energy sector of neighbouring States to the Indian economy, India seems to envision to keep these countries within its sphere of influence.
After Sri Lanka’s sovereign debt default in 2022, India emerged as the main foreign country providing aid for Sri Lanka. Financial aid worth US $ 4 billion was provided to Sri Lanka as bridging finance, until Sri Lanka receives a bail-out package from the International Monetary Fund (IMF).
The economic crisis and the fall of the Gotabaya Rajapaksa regime — which was seen as following a more China-friendly line — marked a shift in Sri Lanka’s foreign policy, with the new Ranil Wickremesinghe administration becoming closer to India and the Western bloc. During Wickremesinghe’s tenure, India proposed several energy connectivity projects including a high-capacity power grid interconnection with India and an LNG supply project from India to Sri Lanka.
The proposed Adani wind farm project also originated during this period. The lack of a bidding process that required the Sri Lankan Government to offer the project to Adani was seen by critics as an indication of how crony capitalism influences decisions of the Indian Government. The deeper connection between Gautham Adani and the Narendra Modi Government is well known. The rise of the Gujarati businessman is highly connected to Modi’s political success. During BJP rule, Adani expanded his business empire, emerging as a leading member of the Indian capitalist class.
There have been many allegations about the corrupt nature of the Modi-Adani nexus. In November 2024, Adani made headlines as he was indicted before a United States court for bribery allegations, accused of offering bribes to Indian Government officials to secure energy contracts. The unsolicited nature of the Mannar project is yet another example for the special preference the Indian Government shows for Adani and the role private capital plays in expanding India’s foreign policy interests.
Resisting exploitative deals
From Sri Lanka’s perspective, therefore, the Adani project presents a clear dilemma. On the one hand, India’s support was essential for Sri Lanka to navigate its economic difficulties. On the other hand, Sri Lanka’s vulnerability exposes it to manipulation by its powerful neighbour which can promote exploitative deals that benefit its cronies.
What if India takes offence at the rejection and withdraws its support for Sri Lanka? At the same time, what is the meaning of ‘economic support’ if that proves to be unfair and exploitative for the Sri Lankan people?
India promoting connectivity projects to secure geopolitical influence is a reality that Sri Lanka will have to deal with. A prudent foreign policy approach would require the Sri Lankan Government to remain vigilant when engaging with such proposals, avoiding the two extremes of unconditional submission and aggressive confrontation. The former would lead to a compromise of national interests, while the latter could result in diplomatic isolation. The best course of action would be to assess proposed projects on a case-by-case basis, ensuring a thoroughly transparent review process so that no one can challenge the procedure and making decisions with sovereign priorities in mind.
While investments in renewable energy presents significant economic potential for Sri Lanka, such investments must be mutually beneficial for both the host State and the investor. A skewed deal such as the Mannar wind farm project which cannot be considered as economically beneficial for the host state does not warrant any defence by the name of ‘investment protection’. Foreign investment is not an end in itself, but a means of achieving economic growth and development.
The decision of the Sri Lankan Government to distance itself from an exploitative deal imposed on the country during a time of distress appears to be a bold move that demonstrates its commitment towards prioritising national interests. Making a strong case based on economic, governance and environmental grounds would help the Government to mitigate any potential diplomatic backlash that may arise from the decision.
