Colombo, New Delhi close to inking deal on Trinco Oil Tank farms

Insight Online News

Colombo, Jan 1 : Sri Lanka and India have moved closer to inking an agreement on the Trincomalee Oil Tank farms, with the two sides arriving at an understanding on the management of the World War II vintage oil tanks.

As per the agreement, Sri Lanka has set up Trinco Petroleum Terminals Ltd., a subsidiary of Ceylon Petroleum Corporation (CPC), for the development and management of the Trincomalee Oil Tank farm in China Bay.

Sri Lankan Energy Minister Udaya Gammanpila was quoted as saying that as per the new agreement, 24 of the 99 tanks will be directly given to the state-run Ceylon Petroleum Corporation (CPC) by the Sri Lankan Government.

“By doing so, 24 tanks will be released from the commitment to develop them jointly with India,” he said.

Besides, the 14 oil tanks currently operated by the Lanka Indian Oil Company (LIOC), a unit of Indian Oil Corporation, are to be leased to LIOC for another 50 years, said Minister Gammanpila.

An additional 61 tanks will be jointly developed by LIOC and the newly-established Trinco Petroleum Terminals Ltd.

He described regaining of broader control of the Trinco Oil Tank Farm by the Ceylon Petroleum Corporation (CPC) as a “historical victory” following the successful conclusion of the renegotiations with India, reported.

The Minister said the incorporation of the Trinco Petroleum Terminals Ltd. has been completed and that the new subsidiary will be responsible for the development and management of the Trinco Oil Tank farm.

“The agreement between CPC and Lanka IOC (LIOC) for the joint development of the Trinco oil tank farm will be inked soon. Even under the agreement, the CPC will retain majority control over Trinco Petroleum Terminals Ltd. as its subsidiary company,” he added.

The CPC and the LIOC will hold respectively 51% and 49% of shares of this company which will be a CPC subsidiary company.

“Not only will the CPC hold majority shares but will appoint four members of the seven-member board, including the Chairman. This company will be subject to the supervision of the Auditor General. The officers can be summoned before the COPE (Committee on Public Enterprises) in Parliament. Parliamentarians can pose oral questions to the Minister in respect of the company as well,” Gammanpila added.

He said that as a result of the new agreement with India, 85 out of the 99 tanks will be under the control of the CPC, 24 directly and 61 through the subsidiary.

“The LIOC will manage only 14 tanks. Therefore, regaining the control of Trinco Oil Tank Farm by Sri Lanka is a historical victory,” the Minister said.

Ministry Secretary K.D.R. Olga, CPC Chairman Sumith Wijesinghe, Managing Director Buddhika Madiyahewa and Ministry Advisor Lalith Vidanagamage were present during the presser with the Minister.

Gammanpila said the final agreement will be tabled at the Cabinet of Ministers meeting on Monday for approval.

The development comes as Finance Minister Basil Rajapaksa is set to visit New Delhi again this month, according to reports.

The publicly listed LIOC is yet to make a formal disclosure to the Colombo Stock Exchange on the negotiations or the outcome.

The future of the 99 tanks had been a contentious issue. India and Sri Lanka agreed to develop and operate the tank farm jointly in July 1987.

The agreement was to develop jointly. However, in February 2003, the entire tank farm consisting of 99 tanks was given to India for a period of 35 years. There was an unsuccessful attempt to take a part of the tank farm as a sublease from Lanka IOC through the MoU entered into in 2017.

In December 2016, the Cabinet of Ministers decided to repair 10 tanks for storage purposes. Accordingly, five officers of the CPC entered the premises with prior notice on 29 December 2016 to examine the conditions of the tanks. They were detained by the LIOC claiming unlawful entry. India later conveyed its displeasure over the incident through its diplomatic channels.

“This dark period will end soon. I will enter the Tank Farm premises along with the officers who were subject to harassment, in the near future to hoist our national flag there,” Minister Gammanpila said.

“Sri Lankans have been receiving only pessimistic news in the recent past. Hence, we will be happy to deliver this joyful message to patriotic people of Sri Lanka,” he added, said.

Investor sentiments over a favourable deal saw LIOC share price soaring in recent weeks.

Industry analysts say the resolution to the impasse on the 99 tanks will strengthen Sri Lanka’s position to negotiate assistance to source oil from India amidst the severe foreign exchange crisis.

Sri Lanka spent $ 385 million on fuel imports in October (up by 72% year on year) and $ 3 billion in the first 10 months of 2021 up by 40% year on year.

CPC Chairman Sumith Wijesinghe said the Trinco Oil Tank Farm will not be utilised to supply fuel to the local market, and instead it will be utilised as a terminal for the storage and export of fuel to capitalise on arbitrage.

He also said that a feasibility study is being conducted to identify the potential commercial opportunities available for the oil tank farm.

Negotiations between CPC and LIOC over the joint development of the Trinco oil tank farm have dragged on for around 16 months.

The negotiation process got new traction following the visit to India by Minister of Finance Basil Rajapaksa in early December, where 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.

The Trinco 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 were 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.

Of the 99 oil tanks in existence, 14 are already being utilised by the LIOC.

The remaining 85 tanks are reported to be in a state of disrepair. The purported agreement between CPC and LIOC will be for the renovation and development of these 85 oil tanks.


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