Trincomalee Oil Farm Deal

In News

  • China’s Foreign Minister will visit Sri Lanka in the midst of a crippling economic crisis that has seen Sri Lanka turn to India for help and fast pedal the long-delayed India-Sri Lanka plan for joint development of the Trincomalee oil tank farm.

About

  • Economic crisis in Sri Lanka: Sri Lanka’s foreign exchange reserves sank to $1.6 billion.
    • The shortage has led to a drop in food imports, pushing up prices of essentials in the country.
    • An IMF bailout is the last option that Sri Lanka does not wish to take.
    • International ratings agency Fitch downgraded Sri Lanka from CC to CCC, warning that the country was likely to default on two international sovereign bonds.
  • Financial assistance: India may offer in return financial assistance to help Sri Lanka tide over its present crisis.
  • Tank farm at Trincomalee: Sri Lanka is moving ahead on finalizing plans for jointly developing with India a massive oil tank farm at Trincomalee.

Background

  • During the Second World War: The British built the Trincomalee oil tank farms to serve as a refueling station, adjacent to the Trincomalee port, an enviable natural harbour.
  • Need to be refurbished: The nearly century-old oil tanks need to be refurbished at the cost of millions of dollars if they are to be fit for use again.
  • Joint venture: The Accord in its annexure stating that “the work of restoring and operating the Trincomalee oil tank farm will be undertaken as a joint venture between India and Sri Lanka”.
    • Things barely moved until 2003, when the Indian Oil Corporation set up Lanka IOC, its Sri Lankan subsidiary.

China-Sri Lanka Dispute

  • Contaminated consignment of organic fertilizer
    • In the backdrop of a spat between the two countries over a contaminated consignment of organic fertilizer that has resulted in unexpected tensions between both countries.
    • Sri Lanka canceled an order for the import of 99,000 tons of the fertilizer; China blacklisted the Sri Lankan state-run People’s Bank and accused it of a “vicious” default on the letter of credit payment.
  • Arbitration proceedings for a compensation
    • A Chinese company launched arbitration proceedings for a compensation of $8 million.
    • Sri Lanka drew a line under the controversy by agreeing to make a payment of $6.4 million.

Significance of the deal

  • 16-month-long negotiation: It will not only mark the culmination of India’s 16-month-long negotiation with the ruling Sri Lankan administration but will also give shape to a proposal envisaged 35 years ago, in the Indo-Lanka Accord.
  • China Bay: The facility, interestingly located in ‘China Bay’, has 99 storage tanks with a capacity of 12,000 kilolitres each, spread across the Upper Tank Farm and the Lower Tank Farm, where LIOC currently runs 15 tanks.
    • The new agreement being negotiated pertains to the remaining tanks.
  • Emergency Lines of Credit and currency swap: India’s nod for the emergency Lines of Credit and currency swap requests from Sri Lanka was contingent on the Sri Lankan administration moving forward on the Trincomalee deal.

Indo-Lanka Accord

  • 1987: India’s Interest in the oil tank farm dates back to the signing of the 1987 India-Sri Lanka Accord.
  • Joint venture: It stated in the annexure that the work of refurbishing the tank farm located in the north-eastern province of Trincomalee would be undertaken jointly by the two countries.
  • Tamil Tigers: The agreement lay dormant as first India and then Sri Lanka fought the Tamil Tigers.
    • An attempted revival in 2003 went nowhere.
  • In 2017: the two sides agreed to operationalise the long-standing agreement, but opposition from trade unions of the Ceylon Petroleum Corporation held up any progress in the matter.

Source: TH

 

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