Sri Lanka finalizes Trincomalee oil farm deal with India, agrees to extend lease of 14 oil tanks for 50 years

In a deal with considerable strategic significance for South Asian geopolitics, Sri Lanka will extend the lease of 14 oil tanks in Trincomalee oil farms to India for 50 years, Lankan Energy Minister Udaya Gammanpila said on Friday, adding the deal, which will also include the joint development of 61 other unused tanks, will be signed next week

Dec 31, 2021
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Sri Lanka finalizes Trincomalee oil farm (Photo: VIF)

In a deal with considerable strategic significance for South Asian geopolitics, Sri Lanka will extend the lease of 14 oil tanks in Trincomalee oil farms to India for 50 years, Lankan Energy Minister Udaya Gammanpila said on Friday, adding the deal, which will also include the joint development of 61 other unused tanks, will be signed next week. The deadlock on the contentious issue ended almost after 15 months of negotiations.

Built by Britishers during the World War two era, the Trincomalee oil farm is located in the northeastern part of the island nation, and has a total of 99 oil tanks. Of them, 15 tanks are being currently used by India after it had signed a deal with the Sri Lankan government in 2003.

Speaking at a press conference, Gammanpila said, “We have been negotiating this for 16 months, and we are now very close to finalizing the terms of the Trincomalee project with India. We hope to sign the agreement in a month.”

Under the newly proposed deal, he said Sri Lanka and India will jointly develop 61 oil tanks through a joint venture, where Lanka IOL, a subsidiary of Indian Oil Corporation, will own a 49 percent stake. The majority stake, 51, will be held by Sri Lanka’s newly established Trincomalee Petroleum Terminal Limited.

“The LIOC will have the control of just 14 of the 99 tanks over a 50-year lease,” he said.

Under the previous deal signed in 2003, it was agreed that both India and Sri Lanka would jointly develop 85 tanks, besides 14 tanks operated by India. However, the work on the development of those tanks never began.

The newly proposed agreement will now exclude 24 oil tanks, included in the previous 2003 deal, meaning India will now exercise control, fully or partially, only on 75 oil tanks— down from 99 tanks previously agreed upon in the 2003 deal.

The Ceylon Petroleum Corporation, a state-owned oil firm in Sri Lanka, will own these 24 tanks, said Energy Minister Gammanpila.   

The Sri Lankan government under President Gotabaya Rajapaksa initially demanded all these tanks back. However, that was something unacceptable to New Delhi, which is growing increasingly concerned by the growing Chinese presence in the island country.  [Read More]

Colombo’s initial refusal to renew the lease and the cancelation of the East Coast Terminal deal of Colombo port in early 2021 resulted in significant strain in India-Sri Lanka ties. In response, India desisted from offering any new line of credit and loans as Sri Lanka witnessed its worst-ever crisis.

Early this month, when Sri Lankan Finance Minister Basil Rajapaksa visited New Delhi, it was agreed that both countries would finalize the negotiation soon, and New Delhi would offer food and fuel security to the island nation. Following the signing of the new deal, expected next week, New Delhi is likely to announce an economic package to help the struggling Sri Lankan economy.

(SAM)

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