Sri Lanka negotiating with India to secure 20 Trinco oil tanks

Adelegation from the Power and Energy Ministry conducted an inspection tour to the Trincomalee oil tanks this week, amidst ongoing negotiations with India to secure around 20 of the tanks for Ceylon Petroleum Corporation to run by itself. India and Sri Lankan have a Memorandum of Understanding to operate the complex as a joint venture.

“We have made a request for 20 tanks but we hope we can at least start with 15,” Power and Energy Minister Mahinda Amaraweera said. India wants to run the tanks jointly, in keeping with the MoU, but CPC trade unions have repeatedly thwarted attempts to operationalise the agreement.

Delays in implementing the MoU have long frustrated New Delhi. In April 2017, India and Sri Lanka signed a MoU that committed, among other things to develop the upper tank farm in Trincomalee as a joint venture between the Indian Oil Corporation (IOC) and CPC.

In May that year, then PM Ranil Wickremesinghe mandated the setting up a committee to open negotiations after India complained Sri Lanka was “dragging it”. India has always been keen to conclude a joint venture agreement as soon as possible, diplomats said at the time.

Negotiators will have to decide the CPC’s shareholding in the joint venture company and the investment each party will make. The tanks are now engulfed in thick jungle, with only the tops visible.

But CPC trade unions have remained staunchly against any joint operation with India. The tank farm was first built on 850 acres by British colonialists in 1930. The upper tank farm comprises of 84 tanks out of a total of 101 (only 99 are usable).

The lower farm has been managed jointly by CPC and IOC--via Lanka IOC Pvt Ltd or LIOC-- since 2003. LIOC has refurbished these tanks, pipelines and jetty as well as created new facilities such as additional storage tank and lubricant blending facilities. An annual rent is being paid for the facility.

But a 2003 tripartite agreement signed between the Sri Lankan Government, LIOC and CPC covers the entire tank far, upper and lower. It is on this basis that India wants to move forward.

In 2012, under the Mahinda Rajapaksa administration, LIOC applied to Sri Lanka’s Board of Investment to set up a US$5.2 million bitumen handling facility in the upper tank farm. It also hired a project consultant. But approval was not granted. Subsequently, LIOC submitted other proposals to develop the upper tank farm. Again, permission was denied.

With the victory of the Sirisena administration in 2015, however, India revived its push on the upper tank farm. It expressed willingness to set up a joint venture which would prepare a business development proposal. And it agreed to first renovate 10 tanks in the upper farm for Sri Lanka’s exclusive use.

But the unions blame successive Sri Lankan regimes for failing to put the Trincomalee tank farm to use. It points out that the Government first proposed to lease out 10 tanks to Singapore in 2002. This plan was abandoned in favour of India in 2003, when a tripartite agreement was signed.

If the CPC distributes fuel to the North and East and the North Central Provinces from Trincomalee, it could save a sum of Rs900 million per year in transport, shipping and late fees, the unions claim. This is much more than the rent paid by LIOC to the Government.