Sri Lanka India Oil Deal

January 7, 2022

On January 6, 2022, the Sri Lankan Government signed an agreement with the Lanka Indian Oil Corporation (LIOC). According to the agreement, Sri Lanka will lease oil tanks to IOC.

About the Agreement

Sri Lanka has leased 14 tanks to LIOC for fifty years. Another 24 tanks have been leased to CPC. CPC is joint venture of LIOC and Trinco Petroleum Private Limited. CPC is Ceylon Petroleum Corporation. The CPC is to develop 61 oil farms in the country.
Under the agreement signed in 2003, Sri Lanka agreed to lease all of its 99 tank oil farms to India. This has now been nullified by the new agreement. The new agreement brings in new governance structure.

Background

Since 1987, the Indian and Sri Lankan Governments were trying to divide the Trincomalee tank farm. The Trincomalee deal had remained controversial for several years. The deal remained dormant due to civil wars in Sri Lanka and also due to political instability.

Significance

Trincomalee is located on the shipping route of Asia and Gulf countries. This is one of the busiest oil trade routes in the world. The port was the major supply hub of the allied powers during second world war. The port is close to Chennai. The tank farm will help in refueling the Indian ships largely. The agreement will help Sri Lanka to become a petroleum regional hub.

Current Scenario

Sri Lanka is under huge financial pressure. The country has to repay 4.5 billion USD in 2022 alone. Its foreign exchange reserves are decreasing largely.

What is an oil tank farm?

It is an oil storage facility. The petroleum products are transported to the end users from these facilities.

The Long History of the Deal

In 1987, the then PM of India Rajiv Gandhi and Sri Lanka President Jayawardene signed an agreement to jointly develop the Trincomalee tank farm. The progress stopped right there and no subsequent measures were taken to develop the farm due the civil war. In 2002, the war ended with Norway brokering. Later in 2003, the Lanka IOC (that now signed the deal) was formed. However, the political instability in the country halted the progress of the deal yet again. India started pushing for the deal hardly after China took over the Hambantota in 2010. PM Modi’s visit to Sri Lanka in 2015 established a joint task force to create a petroleum hub in Trincomalee.

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