- The Hambantota Port, to be developed in partnership with a Chinese company, entails a great deal of engagement in Sino-Lanka relations.
- The 2003 lease agreement is now revisited for implementation with the addition of provisions to suit the current context.
- If the Chinese control over a port in the southern tip of Sri Lanka is to be feared by some counties in the region, the same will apply for India’s control over a fuel storage facility in the eastern coast of Sri Lanka.
Before contrasting and competing views within the government on the Hambantota Port deal are reconciled, the stage is being set for yet another debate. This is involving the move to develop the Trincomalee Oil Tank Farm with an Indian company under a joint venture.
The Hambantota Port, to be developed in partnership with a Chinese company, entails a great deal of engagement in Sino-Lanka relations. So does the Trinco project in Indo-Lanka relations. Both go beyond their commercial relevance, as the countries concerned look at geopolitical connotations lying beneath commercial interests. The then United National Party (UNP) led government signed a tripartite agreement in 2003 to develop the oil tank farm with India.
The government of Sri Lanka (GoSL), Lanka IOC Pvt. Ltd. (LIOC) and Ceylon Petroleum Corporation (CPC) signed the tripartite agreement with regard to the China Bay Installation (Trincomalee Oil Tank Farm) in February 2003.
2003 lease agreement to be revisited
As per the lease agreement, the oil tank farm with 99 tanks was to be handed over to the LIOC for use for a period of 35 years. Accordingly, they started using 14 tanks in the lower farm area. The remaining 84 tanks in the upper tank area remain disused. In 2004, the UNP government was unseated at a snap general election. The Sri Lanka Freedom Party (SLFP) led United People’s Freedom Alliance (UPFA) that succeeded the UNP was not keen on the implementation of the provisions of the agreement since then. As such, the agreement remained only in letter for most parts.
After 14 years, the UNP is back in power as the core of a ruling coalition commonly called the national unity government. It is apparent that the 2003 lease agreement is now revisited for implementation. In fact, Indian Prime Minister Narendra Modi who undertook an official visit to Sri Lanka soon after the formation of the new government in 2015 mentioned the proposal for the development of Trincomalee as a petroleum hub.
Now, the government has initiated talks with the Indian authorities on the establishment of a joint venture between LIOC and the CPC. The Indian Prime Minister is slated to visit Sri Lanka in view of the UN Vesak Day celebrations next month. On the sidelines of the event, he is expected to have bilateral discussions with President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe. This is going to be featured during talks. Besides, ahead of Mr. Modi’s visit, Mr. Wickremesinghe will head for New Delhi for some talks.
The government of Sri Lanka, had in 2002, invited LIOC for development of the oil tank farm.
Indian Oil Corporation Ltd (IOC), is the parent company of LIOC - it is in fact, India’s largest commercial enterprise with a sales turnover of $ 61 billion (Sri Lanka’s GDP is around $ 80 billion). IOC is listed in the prestigious Fortune ‘Global 500’ list, first among Indian enterprises. According to sources, since taking over the facilities at Trincomalee Oil Tank Farm in 2003, LIOC has invested heavily in refurbishment of tankages, pipelines& jetty and creating new facilities including additional storage tank, lube blending facilities etc. On overall basis, since the past 14 years, LIOC has spent approx LKR 7000 million in the country on its various facilities, invested almost LKR 4400 million in the Ceylon Petroleum Storage Terminal Limited (CPSTL) and is spending almost LKR 100 million each year on maintenance of its assets. One –fourths of the shareholding of LIOC has been paying the rental of US$ 100,000 to Government of Sri Lanka per annum for the facility, since 2003.
LIOC earns Rs. 80 billion in 2016/17, pays Rs.30 billion as tax
For the last financial year (2015.2016), LIOC’s turnover stood at Rs.71billion. It spent 24billion in terms of taxes. Even in 2016-17, out of the turnover of approximately Rs. 80 billion, Rs. 30 billion has been paid as taxes.
The company seems to be making fresh efforts in the expansion of its work here under the new government. During the previous rule, in 2012, it applied to the Board of Investment of Sri Lanka to make an investment of US$ 5.2 million towards creating a Bitumen Handling Facility in the Upper Tank Farm. LIOC also engaged a Project Consultant in this regard. However, the approval was not given. In line with the agreement, LIOC during initial 6-7 years, had given supplies to CPC from Trincomalee Tank Farm for its distribution requirements. In fact, when petroleum products were being taken by CPC from Trincomalee, the petroleum products were sourced by LIOC from International market by paying a war-risk-premium, on their own, which have still not been reimbursed by CPC to LIOC.
Ten tanks for exclusive use of Sri Lanka
Inspite of LIOC having exclusive rights for development of Upper Tank Farm at Trincomallee as per the Tank Farm Agreement, during the visit of Hon’ble Prime Minister of India to Sri Lanka in March 2015, it was agreed that Lanka IOC (LIOC) and Ceylon Petroleum Corporation (CPC) would jointly develop the Upper Tank Farm of the China Bay Installation in Trincomalee on mutually agreed terms.
India has renewed its call that it is willing to move forward so that the Upper tank Farm facility could be developed with Sri Lanka. It has expressed its readiness to set up a Joint Venture (JV) for this purpose.
According to sources, business development proposals will be prepared by the proposed venture and as part of the plans. It, if set up, will prioritize the development of 10 tanks in the Upper Tank farm for the exclusive use of Sri Lanka.
India stresses that the land lease agreement in favour of LIOC will need to be extended for the Trincomalee Oil Tank Farm.
Trinco Storage facility, an option to Singapore and Fujairah
The project is undoubtedly bound to draw international attentions both from commercial and geopolitical perspectives. It is to develop an international oil storage facility in Trincomalee as an alternative to Singapore and Fujairah. For India, it is of immense use, as it is the third largest consumer of oil in the world, and the second largest refiner in Asia. India is also the fourth largest importer of LNG.
As for the Hambantota port project, objection has been raised by the countries such as India and Japan, insisting that port development should be within the full control of the government of Sri Lanka.
If the Chinese control over a port in the southern tip of Sri Lanka is to be feared by some countries in the region, the same will apply for India’s control over a fuel storage facility in the eastern coast of Sri Lanka. So, the pros and cons of the two projects are bound to be weighed from a geopolitical point of view given Sri Lanka’s strategic positioning as an Indian Ocean littoral state. Probably, the commercial aspects of the projects will get scant attention.