Global Economy

Trincomalee oil tank deal a result of 30 years of Indo-Lankan effort


The India-Sri Lanka deal to jointly redevelop the Trincomalee oil tank farms signed on Thursday, the eve of Chinese foreign minister Wang Yi’s Colombo visit, is a result of an arduous effort undertaken by the two neighbours over the last three decades.

During Prime Minister Narendra Modi‘s visit to Sri Lanka in 2015, it was agreed that the Lankan subsidiary of Indian Oil Corp (IOC) and Ceylon Petroleum Corp (CPC) would jointly develop oil tank farms at Trincomalee on mutually agreed terms and a joint task force (JTF) would be constituted based on an initial decision that was reached way back in 1987. However, the JTF did not materialise following local opposition.

Five years later in 2020, discussions between the Indian High Commission in Colombo and the Lankan government gained momentum, resulting in three lease agreements signed between Lanka IOC, CPC and the Government of Sri Lanka on Thursday, explained people familiar with Indo-Lankan ties.

It has been decided that CPC will have 24 oil tanks in the Upper Tank Farm (UTF) leased to it for 50 years for development and use. ET has learnt that it has been further decided that a 51-49% joint venture between CPC and Lanka IOC (Trinco Petroleum Terminal) will have the remaining 61 tanks in UTF for 50 years.

Simultaneously, Lanka IOC will be given on lease 16 tanks in the Lower Tank Farm (LTF) for 50 years, which it has already developed and is currently using.

There will be no third-party involvement in development, use, management and operation of the Trincomalee Tank Farm (TTF) without consent of Lanka IOC and consensus between CPC and Lanka IOC, ET has learnt.

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The lease agreements, which consolidate India’s role in the project discussed since the time of the Indo-Lanka Accord of 1987, was cleared by the Lankan Cabinet earlier this week. Sections in Lanka had opposed the Rajapaksa government’s decision to involve India in a project that was negotiated by different governments in Colombo.

Lanka IOC is a major player in Sri Lanka in sectors like auto fuels, lubricants, bunkering and bitumen. It has 206 fuel stations across Sri Lanka and is also a one-third partner in Ceylon Petroleum Storage Terminals Limited, a JV with CPC. The IOC unit has spent $45 million initially to acquire the stake.

The oil storage tank farm at Trincomalee (Eastern Sri Lanka), also called the China Bay tank farm, consists of 99 tanks in two tank farms — the UTF comprising 84 tanks and the LTF of 15 tanks. While one unusable tank was rebuilt into two smaller tanks of 5,000 tonnes, all other tanks are of 10,000 tonnes each.

These tanks, spread over an area of about 677 acres, were built by the British in 1930/40s for use during World War II. The British government signed an agreement before granting independence to Sri Lanka in 1948, to occupy the TTF and the naval base. In 1957, at the request of Sri Lanka, the British government agreed to hand over the Trincomalee naval base along with the facility to Sri Lanka.

In 1981, Lanka made attempts to lease the UTF and LTF to a Texas-based oil company but it did not materialise. Attempts in 1984 to lease the tanks to a Singapore-based consortium were also unsuccessful. After the signing of the Indo-Sri Lanka Agreement in 1987, letters were exchanged between the then Prime Minister of India and President of Sri Lanka to develop the Trincomalee Oil Tank Farm as a joint venture between the two countries.

In 2002, IOC signed a memorandum of understanding with CPC, enabling the Indian state-run company to inter alia take the tank farm and its allied facilities on a long-term lease to manage and operate the assets, through a newly incorporated Sri Lankan subsidiary, Lanka IOC.

Accordingly, the storage facility at Trincomalee and the land appurtenant thereto was leased to Lanka IOC for 35 years through a tripartite agreement signed in 2003.

Over the last 18 years, Lanka IOC has further invested around $40 million in phases to upgrade storage facilities, refurbish pipelines and a lube blending plant, install tanks and other allied facilities, and commission & modernise petrol stations, ET has learnt.



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