Trincomalee oil tank farm deal to boost energy security, set stage for further eco cooperation

The Lanka government, IOC subsidiary Lanka IOC (LIOC), Ceylon Petroleum Corporation and a joint venture between LIOC and CPC signed three lease agreements on Thursday on refurbishing and developing the 850-acre oil storage facility.
Discussions on the project date back to the late 1980s but there had been no substantial forward movement for several reasons, including resistance in Sri Lanka to completely leasing out the facility at Trincomalee to India. (Mohd Zakir/HTFile Photo)
Discussions on the project date back to the late 1980s but there had been no substantial forward movement for several reasons, including resistance in Sri Lanka to completely leasing out the facility at Trincomalee to India. (Mohd Zakir/HTFile Photo)
Published on Jan 08, 2022 12:46 AM IST
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ByRezaul H Laskar and Rajeev Jayaswal, New Delhi:

Sri Lanka has inked a deal with the subsidiary of Indian Oil Corporation (IOC) for the long-gestating project to develop the Trincomalee oil tank farm, a move expected to boost energy security for both countries and set the stage for further economic cooperation.

Discussions on the project date back to the time of the India-Sri Lanka Accord of 1987 but there had been no substantial forward movement for a variety of reasons, including resistance in Sri Lanka to completely leasing out the facility built by the British at Trincomalee to India.

The Sri Lanka government, Indian Oil Corporation subsidiary Lanka IOC (LIOC), Ceylon Petroleum Corporation (CPC) and a joint venture between LIOC and CPC signed three lease agreements on Thursday on refurbishing and developing the 850-acre oil storage facility with a capacity of nearly one million tonnes.

According to the deal, 16 tanks which were already developed by LIOC since 2003 will be leased to the firm, 61 tanks will be leased to the joint venture, and 24 tanks to CPC. The lease will be valid for 50 years and there are provisions in the agreements to protect investments, people familiar with the matter said.

An IOC spokesperson said CPC has a 51% stake in the joint venture and LIOC has a 49% stake. “CPC and the joint venture company of LIOC will be developing tanks in a phased manner very shortly for their respective allocated tanks,” the spokesperson said.

The agreements signed on Thursday resulted in the termination of a framework agreement signed by LIOC, CPC and the Sri Lanka government in 2003 that envisaged leasing all the tanks to LIOC. The Sri Lankan side has now ensured that it has a stake in 85 of the tanks at the facility.

The project will ensure energy security for both countries, especially since LIOC already plays a key role in the retail distribution of petrol in Sri Lanka, the people said. The project is also expected to blunt the fallout of the Sri Lanka government’s unilateral cancellation in early 2021 of a tripartite agreement with India and Japan to develop a terminal at Colombo port.

“These agreements are another significant step in broadening the spectrum of the mutually beneficial economic partnership. It will assist Sri Lanka in developing of Trincomalee as an energy and transport hub to bolster its energy security,” one of the people cited above said.

Cooperation in energy security is an important part of cooperation between the two sides under India’s “Neighbourhood First” policy, the person said. “India looks forward to full implementation of bilateral understandings reached within agreed timelines,” the person added.

At the same time, it is believed the Sri Lankan side expects progress in the Trincomalee oil tank farm project will lead to forward movement on its request for urgent financial assistance against the backdrop of a severe economic crisis. Sri Lanka is eyeing a $500-million credit line from India’s Exim Bank for buying petrol and diesel from Indian suppliers, another line of credit to cover the import of food, medicines and other essential items from India, and a $400-million currency swap under the South Asian Association for Regional Cooperation (Saarc) facility.

The Trincomalee project and the credit lines were part of a four-pillar economic cooperation initiative that Sri Lanka’s finance minister Basil Rajapaksa had discussed with his Indian counterpart Nirmala Sitharaman and external affairs minister S Jaishankar during a visit to New Delhi in December.

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Saturday, January 22, 2022