By
Dilrukshi Handunnetti
With the Sri Lankan Government openly expressing its wish to review a much-critiqued government-to-government contract entered in 2002, in a bid to take back 99 oil storage tanks located in Trincomalee, diplomatic feathers are said to be ruffled, at both ends.
The storage tanks were handed over to the Indian Oil Corporation’s local subsidiary, Lanka Indian Oil Company (LIOC) PLC in 2002, when the United National Party (UNP) led by Prime Minister Ranil Wickremesinghe was in power. The decision has been opposed by politicians, people and trade unions alike at that time. But the political mood in Colombo is fast changing, particularly towards India, a country that the current administration has a strained relationship with, despite the overt niceties.
Anti-Indian sentiments
According to authoritative government sources, there is intense lobbying within the government to recall the leased oil tanks, not only for economic reasons, but more for political reasons. While trade unions argue that this was an imprudent decision taken by the then UNP administration without any consultation, there are others who believe that unlike any other move, this would activate Delhi to rethink its approach to Colombo, which is considered less than friendly at present.
As things continue to sour between the two neighbours, China continues to make overtures that are causing serious worry for India. While speculation is rife that China might like to get its foot in and may even succeed, authoritative government sources said, there was no such move but the government was keen to ensure mutual benefit sharing, a key aspect the government believes went missing when the agreement was signed between India and the then government.
There is enough and good reason for the Indians to have continued interest in managing the storage facilities, currently operated at a net profit of Rs 876 million.
But Colombo, it is learnt, is extremely keen to have the agreement reviewed in the coming weeks. At the very least, the oil tanks are likely to become one of the strongest bargaining tools in the hands of the government, ahead of the United Nation’s Human Rights Council (UNHRC) sessions scheduled for March 2014.
The Indian Government has been repeatedly isolating Sri Lanka at various international fora and resorted to vote against the island twice in Geneva, retaliating against Sri Lanka’s human rights record. As a top Cabinet minister remarked, “The last straw was the blatant snubbing Sri Lanka had to endure when Indian Prime Minister, Manmohan Singh, decided to absent himself. It was very telling of India’s attitude towards Colombo and it is only correct that agreements, entered long before our government came into office and do not appear to be beneficial to Sri Lanka, be reviewed. This I believe was the reason for President Rajapaksa to make that remark, while delivering his budget speech.”
Strong lobbying
According to sources, amidst lobbying for the cancellation of the agreement on the basis of inadequate benefits for Sri Lanka, India had begun making strong diplomatic overtures in a bid to preempt a possible eviction of the subsidiary company, which has control over the strategic storage facility, considered the largest located between West Asia and Singapore. At present, LIOC PLC operates 150 retail outlets in the island.
Highly placed sources from New Delhi confirmed that the Centre has begun to feel the heat following President Mahinda Rajapaksa’s impromptu remark while delivering the budget speech in his capacity as Minister of Finance where he referred to the privatization of the oil storage tanks in 2002 and explicitly expressed a need to take them back, a sentiment some of the pro-government and pro-opposition trade unions have been repeating for a number of years.
Managing Director, Ceylon Petroleum Corporation (CPC), Susantha Silva told Ceylon Today that it was not up to him to comment on the prudence of an agreement reached between two governments, adding, “To the best of my knowledge, there are no ongoing talks.”
In a bid to reduce the current tension, it is learned that India has offered to operationalize some of the unused tanks, and to complete the task as a joint venture. At present, the exclusivity accorded to the LIOC has earned the wrath of many stakeholders.
Speaking to Ceylon Today, Subodh Dakwale, Managing Director/Chief Executive Officer, Lanka Indian Oil Corporation said the requirement was to ensure gainful utilization of the tanks, which is achievable in a phased out manner. Offering ‘no comment’ on the President’s recent remarks hinting at a possible rescinding of the existing agreement with India, Dekwale said, the next stages would envisage mutual benefit sharing and more dynamic use of the storage facility including further development. “These things take discussions and engagement,” he added.
As part of the next phase, LIOC intends investing another US$ 17 million to establish bitumen handling facilities in Trincomalee and more tanks are to be operationalized in a systemic manner as a joint venture partner, which sources confirmed as being resisted by some powerful quarters in Colombo.
The China Bay tank farm spreads across 850 acres and has 15 operationalized oil tanks, each with a storage capacity of 12,000 kilolitres each. It was built by the British in 1930s to supply fuel to Royal Navy ships.
Meanwhile, an Indian diplomat speaking on the basis of anonymity told Ceylon Today that there is some concern about the possible abrogation of the 2002 agreement by Sri Lanka, using legal provisions such as the expropriation law. “We are not sure about anything yet. However, it is clear that Colombo is interested in more benefit-sharing.”
According to Ananda Palitha, Convenor of the Jathika Sevaka Sangamaya (JSS) of the CPC, the agreement was flawed from the start and deserves to be abrogated for several reasons.
“LIOC enjoys exclusive control over distribution, to the CPC’s absolute detriment. Nobody should be allowed such exclusive powers. Signed without any consultation with the trade unions, we continue to remain in the dark about decisions relating to this so called government-to-government matter. It should be abrogated as President Rajapaksa has declared in Parliament.”
Meanwhile, several government legislators have conveyed their displeasure, according to reliable sources, for the manner in which the UNP administration executed the agreement. They have also pointed out the Rajapaksa administration has taken critical decisions with regard to certain ventures and have taken them over, and the same should be applied to the leased oil tanks in Trincomalee.
While the controversy rages on, in a bid to protect its economic interests as ties between the two countries take a further nosedive, the Indian Oil Corporation (IOC) has proposed to jointly develop a key storage facility in Trincomalee, elevating its status as a petroleum products trading hub that could eventually cater to the demands of the entire region.
According to top Indian sources, the discussions are looking at a more exclusive approach. Part of it is to offer to revive some tanks, and if in agreement, to help develop the facility as a trading hub that would be capacitated to cater to several Asian countries. “The tank revival can be done in stages,” the source added.
A Sri Lankan diplomat, who is aware of the contents of the discussions, said that possibilities of taking the oil tanks back had not been broached so far. “It has been all about maximizing mutual benefits.
“The proposal is pending with them. It is a good location. With Sri Lanka being an importer, more storage tanks can be revived. Our agreement for using these tanks is for a long period of time. However, as a sovereign government, they can exercise their right,” said the official quoted earlier.
LOIC holds 1/3rd share of CPSTL
Lanka Indian Oil Company PLC is a public liability company, listed in the Colombo Stock Exchange, with a turnover of Sri Lankan Rs 51.74 billion and a net profit of Sri Lankan Rs 876 million.
LIOC holds one-third share in Ceylon Petroleum Storage Terminals Ltd, the common user facility in Sri Lanka for storage and distribution of petroleum products.
In 2003, LIOC, a subsidiary of IOC bought one-third share in Ceylon Petroleum Storage Terminals Ltd. (CPSTL) which operates the China Bay tank farm. Ceylon Petroleum Corp (CPC) and Colombo through a MoU with LIOC, granted a long-term lease to the Indian firm to operate 99 oil storage tanks located in Trincomalee for 35 years for an annual fee of US$ 100,000.
Oil explorations
Oil exploration in Sri Lanka commenced four decades ago, in the late 1960s. In 1967-68, Compaigne General de Geophysicque gathered approximately 420 km of onshore and 75 km of offshore seismic data on behalf of the Ceylon Petroleum Corporation (CPC).
The Soviets, with their increased interest in South Asia in the 1970s, recorded 4837 km of marine seismic data between 1972 and 1975, along with some onshore data to evaluate the Palk Bay area in the Cauvery Basin under an agreement with the government. The Soviets first explored Pesalai 1 and encouraged by the Pesalai 1 success, drilled two more wells – Pesalai 2 and Pesalai 3 – but both operations failed, leading to the Soviets from the area.
In 1975, CPC engaged Pexamin Pacific to promote exploration in the Sri Lankan side of the Cauvery Basin. In 1976, Western Geophysical recorded 1947 km seismic data around the island and also gathered 2829 km of seismic data in the Palk Strait and the Gulf of Mannar.
In the meantime, in November, ONGC Videsh Ltd (OVL), the overseas arm of India’s state-owned Oil and Natural Gas Corporation (ONGC) has bid for three blocks in Sri Lanka’s Mannar basin for oil exploration.
It is learnt that, of the 13 blocks Sri Lanka offered, OVL has bid for the M4, M5 and M6 blocks in Mannar basin. Sri Lanka on November 29 completed the bidding in the second licensing round for oil and gas blocks on the 13 offshore blocks in the Cauvery and Mannar basins. The blocks are likely to be awarded in the first quarter of 2014.
Meanwhile, Sri Lanka is expected to produce oil and gas from its first offshore gas fields in 2016, with Cairn India, a company that entered the island in 2007 and made the Dorado and Barracuda discoveries.
COURTESY:CEYLON TODAY