Sri Lanka’s CPC and LIOC agreement on the Trincomalee Oil Tank Farm to be signed soon - Opportunity Sri Lanka
Sri Lanka’s CPC and LIOC agreement on the Trincomalee Oil Tank Farm to be signed soon

Sri Lanka’s CPC and LIOC agreement on the Trincomalee Oil Tank Farm to be signed soon

The Morning Business: The agreement for the joint development of the Trincomalee Oil Tank Farm in China Bay by the Ceylon Petroleum Corporation (CPC) and Lanka IOC (LIOC) will most likely be inked by the first week of January 2022 after months of negotiations, The Morning Business learns.
Speaking to us, a highly placed source within the CPC, who wished to remain anonymous, denied that an agreement has already been reached, stating that negotiations are still ongoing and that both parties are hopeful of reaching an agreement within the coming days and that an agreement will most likely be entered into by the first week of January.
Similarly, Minister of Energy Udaya Gammanpila stated: “No agreement has been reached as of yet; these things cannot be done in secret. Such an agreement has to be approved by the Cabinet of Ministers.”
Speaking to The Hindu, Gammanpila had claimed: “We have been negotiating this for 16 months, and we are now very close to finalising the terms of the Trincomalee project with India. We hope to sign the agreement in a month.”
He had further stated that he had provided instructions to the CPC to establish a subsidiary company for the purpose of this joint development and that the establishment of the said special-purpose vehicle (SPV) would be ratified at the next cabinet meeting. The new company is said to be named Trinco Petroleum Terminal Ltd.
Minister of Health and Cabinet Spokesman Keheliya Rambukwella disclosed to The Morning Business that no discussions have been held at the cabinet level regarding the proposed agreement between CPC and LIOC over the joint development of the Trincomalee Oil Tank Farm. Explaining further, he stated that the Cabinet of Ministers will not be meeting this week and that the next meeting of the Cabinet is scheduled for 3 January 2022.
Discussions between Sri Lanka and India regarding the joint development of the Trinco Oil Tank Farm have dragged on for around 16 months and reaching an agreement seemed unlikely due to the hostility towards such an agreement within the Government’s own ranks as well as the Opposition and CPC trade unions.
However, following the recent official visit to India by Minister of Finance Basil Rajapaksa from 1 to 2 December, it was announced by the High Commission of Sri Lanka in India that discussions were carried out regarding an energy security package which included a line of credit to cover the importation of fuel from India, and an early modernisation of the Trinco Oil Tank Farm.
Following this development, there appeared to be renewed interest from both sides regarding entering into an agreement for the joint development of the Trinco Oil Tank Farms. Speaking to The Morning Business in the aftermath of the Finance Minister’s visit to India, LIOC Managing Director Manoj Gupta stated on 8 December that discussions from the Indian side will be headed by the High Commission of India and that they are highly optimistic of reaching an amicable settlement.
Due to Sri Lanka’s current foreign reserve crisis, the country has sought financial assistance from India in the form of a US$ 400 million currency swap to help Sri Lanka address the existing balance of payment (BOP) issues; a US$ 1 billion line of credit to cover the import of food, medicines, and other essential items from India to Sri Lanka; and a US$ 500 million line of credit to cover the importation of fuel from India.
It is being widely alleged that the grant of such financial assistance by India will be contingent on the Government’s support of this joint development of the Trincomalee Oil Tank Farm by LIOC and CPC.
However, such allegations were denied by Gammanpila in his interview with The Hindu, where he claimed: “Some including the political opposition are suggesting that India’s economic assistance is tied to the Trincomalee deal. I vehemently deny that. We began negotiating this agreement well before the economic assistance was sought; there is no connection whatsoever.”
The Trincomalee Oil Tank Farm is located on 850 acres of land and originally contained 101 tanks, each with the capacity to hold 12,100 metric tonnes (MT) of oil.
Out of the original 101 tanks, two have been destroyed by a kamikaze attack during the Japanese air raid on Trincomalee on 9 April 1942 and when a Royal Ceylon Air Force plane crashed in the early 1960s.
LIOC acquired a one-third stake in Ceylon Petroleum Storage Terminals Ltd., which operated the Trincomalee Oil Tank Farm in 2003.
Subsequently, the LIOC entered into a Memorandum of Understanding (MoU) with the CPC for a 35-year lease to operate 32 of the 99 oil tanks for an annual payment of US$ 100,000. However, parties were unable to finalise this 35-year lease due to strong opposition by trade unions and political parties.

OSL take:

India is a key development partner of Sri Lanka that is engaged in many development programmes. The decision to carry out a joint development programme to upgrade the Trincomalee oil tank farm in Trincomalee will help strengthen Sri Lanka’s energy industry. The overall expansion of Sri Lanka’s economy has opened up a host of new business/investment opportunities. Sri Lanka’s geographical positioning in the Indian Ocean, the many trade agreements as well as concessions enjoyed by the country and the ease of doing business environment have also helped Sri Lanka position itself as an emerging business hub in the South Asian region. Given the growing opportunities in Sri Lanka, Indian businesses could explore the growing opportunities in the country. Also, foreign businesses/investors interested in doing business with India could look at forming partnerships or joint ventures with local businesses.

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Article Code : VBS/AT/05012022/Z_4

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