India finally on board, but Trincomalee oil farm now waits for economy crisis to lift

This is the deal: 85 decrepit oil tanks in 850 acres of dense jungle, and a strategic natural harbour. The foliage is so thick that the place is now home to several species of animals and birds, and cutting down the trees needs government permission. One day, it could be key to Sri Lanka’s energy security while giving India additional capacity for reserves.
India’s prized agreement with Sri Lanka for the joint development of the Trincomalee Oil Tank farm, signed earlier this year after a 35-year wait, may take years to turn around and at least a 100 million dollars. The twin economic and political crises in Sri Lanka carry their own risks.
Officials driving the Trinco oil storage project said they are keeping their fingers crossed and have “maximum optimism” that with the IMF negotiations set to begin, “things will start falling in place” for the Sri Lankan economy. (Express Photo: Nirupama Subramanian)
On April 12, Sri Lanka officially announced that it was temporarily suspending repayment of external debts worth $51 billion. It is now seeking a bailout from the International Monetary Fund (IMF) and other multilateral organisations. It does not have the dollars to repay these debts.
Officials driving the Trinco oil storage project said they are keeping their fingers crossed and have “maximum optimism” that with the IMF negotiations set to begin, “things will start falling in place” for the Sri Lankan economy. With a ballpark cost of $75-100 million for the entire development, the project will need to borrow from international lenders, who will take into account both Sri Lanka’s political and economic stability.

The agreement gives India a strategic footprint on Sri Lanka’s eastern coast, with access to the China Bay harbour, said to be the finest natural harbour in Asia. It was after years of indecision amid opposition from worker unions at Ceylon Petroleum Corporation (CPC) that the Sri Lankan state-owned oil company signed off on the agreement with Lanka Indian Oil Corporation (LIOC) on January 18, paving the way for the formation of the joint venture called Trinco Petroleum Terminals Ltd (TPTL). Under the agreement, CPC will develop 24 of the tanks, and TPTL will develop the remaining 61.
The agreement gives India a strategic footprint on Sri Lanka’s eastern coast, with access to the China Bay harbour, said to be the finest natural harbour in Asia. (Express Photo: Nirupama Subramanian)
The joint development was first mentioned in the 1987 India-Sri Lanka accord. An agreement was nearly reached in 2003, but was never finalised. While negotiations had been going on for a year, it was after former finance miner Basil Rajapaksa’s December 2021 visit to Delhi with a request for financial assance to help Colombo cope with its economic meltdown, that the agreement was fast-tracked.
After being set up, the TPTL board has met four times, and an international tender has been floated for a consultant to prepare a detailed feasibility report. “When we approach financial institutions, we need the DFR. It is the most crucial document,” said Manoj Gupta, Managing Director of LIOC.
When IOC first entered Sri Lanka in 2003 as LIOC for retail operations, it also got the lease for a portion of the Trincomalee storage called the Lower Tank Farm.
 
It has since refurbished the 14 tanks in it, and uses them to supply petrol and diesel across Sri Lanka. Tankers are filled at the terminal and head out to LIOC-operated petrol pumps in Colombo and elsewhere. A lubricant blending tank is in operation at the Lower Tank Farm. LIOC also uses its setup to provide bunkering or mid-sea refuelling from Trincomalee.
The new agreement is for the 85 tanks, each with a capacity of 10,000 metric tonnes (MT), in the Upper Tank Farm. The 1932 British-built storage, located next to the harbour, was used the Allies during the Second World War and for some years after, but has been in disuse at least for six decades. Tall trees and dense foliage cover the entire area. In 1987, the Indian Peace Keeping Force camped in some parts of it.
The tanks are being refurbished for three commercial activities – supply of petrol and diesel across the country; to store petroleum products; and to offer bunkering facilities. (Express Photo: Nirupama Subramanian)
Gupta said TPTL plans to restore 10 tanks in the first phase. While waiting for the project feasibility report, clearing work will begin on the site, he said, after the Trincomalee divisional commissioner gives due permissions for cutting the trees in the area.
The tanks are being refurbished for three commercial activities – supply of petrol and diesel across the country; to store petroleum products; and to offer bunkering facilities.
“We want to develop Trincomalee as the bunkering hub of South Asia,” said Gupta.
At the jetty in the harbour, a barge is being filled with marine gasoline, brought down through pipelines from the already operational Lower Tank Farm. Next, the barge will transport this oil mid-sea to a vessel that has called for bunkering. Bunkering at Trincomalee is offered LIOC and another international company that uses LIOC’s services.
The harbour provides tankers carrying 30,000 MT of oil a clear draught of 9.75 mts. Annually, 15-18 tankers call at the harbour with LIOC’s oil and petrol purchases.
Indian High Commissioner Gopal Baglay said the joint development was part of India’s “endeavour to establish an energy partnership with Sri Lanka”. He said it will add to Sri Lanka’s energy security.
Some sections in Sri Lanka have deep-seated reservations about the agreement, believing that India forced Sri Lanka to surrender a strategic asset to India in exchange for its $ 2.4 bn financial assance over the last three months.
The Sri Lankan government has been blasted in the local media, not just for the Trincomalee oil tank farm deal, but also the solar farm in near and other renewable energy projects in northern Sri Lanka. (Express Photo: Nirupama Subramanian)
The Sri Lankan government has been blasted in the local media, not just for the Trincomalee oil tank farm deal, but also the solar farm in near and other renewable energy projects in northern Sri Lanka.Former High Commissioner to India, Austin Fernando, said the lack of transparency about these agreements made them easy targets for criticism.
“I am not a person who believes that every Indian agreement must be viewed with suspicion. But if anyone comes to invest in Sri Lanka, we must have a hold on it. At the same time, no investors will come here if they do not get any of the benefits. So this is a matter for negotiations, and Sri Lanka must ensure that Sri Lanka’s national security, its economic security, its environmental security, are all protected,” Fernando said.
“Let them come, let them have a joint venture at Trincomalee, let them even set up a refinery there, but the only thing is, it should not jeopardise Sri Lankan security,” said Fernando.