India and Sri Lanka Reach Mutually Beneficial Compromise on Problematic Issue of Trincomalee Oil Tanks

By P.K.Balachandran

India and Sri Lanka have arrived at a compromise on the sensitive and problematic issue of the Trincomalee oil tanks, with both sides climbing down from their earlier positions but gaining some ground at the same time.

As per the Memorandum of Understanding (MoU) on Cooperation of Economic Projects signed in New Delhi on April 25 in the presence of Indian Prime Minister Narendra Modi and his Sri Lankan counterpart Ranil Wickremesinghe, India has agreed to the Sri Lankan proposal to refurbish and use the 99 giant oil tanks as a “Joint Venture” between the Lanka Indian Oil Corporation (LIOC) and the Ceylon Petroleum Corporation (CPC).

Previously, by the tripartite agreement signed in 2003, the tanks were to be refurbished and used entirely by the LIOC on a 35 year lease, though there was a provision for the Sri Lankan government to use the tanks for “national and security” purposes when needed.

The Sri Lankan government had mooted the idea of developing and running the tanks as a Joint Venture in 2016 because it felt that it needed a certain number of tanks (the number varied from time to time) under its control to store fuel for power generation during an expected drought.

There were also proposals for a wholesale takeover of the tanks from the LIOC on the grounds that the 2003 agreement was legally flawed and also that India had developed only 17 of the 99 tanks since taking them over.

Most recently, the parliamentary Committee on Public Enterprises (COPE) had sought the take over the tanks on the grounds that the LIOC had not fulfilled its financial commitments to Sri Lanka and that a Land Lease Agreement required by the 2003 pact had not been signed as per the stipulated time period.

Current Changes

The two countries decided on April 25, that the 84 giant oil tanks in the Upper Tank Farm will be jointly developed by the LIOC and the CPC. A Joint Venture (JV) will be set up by the end of July. It is also stated that the JV will give “priority” to the development of ten tanks in the Upper Tank Farm for the “exclusive use” of the Government of Sri Lanka.

The land in the Upper Tank Farm, which is currently in the possession of LIOC as per the 2003 agreement, will be leased to the JV through LIOC. The land of the Lower Tank Farm, presently 17, which is also in the possession of LIOC as per the 2003 agreement, will be leased to LIOC.

The period of all the leases will be 50 years, but extendable up to a maximum of 99 years by mutual consent.

As per the 2003 agreement, the LIOC had taken over all the 99 tanks and the land on which they stood, on lease for 35 years ,which was to expire in 2038.

As things stand now, there has been an increase in the time period of the lease from 35 to 50 years with a possible extension to 99 years. While Sri Lanka has yielded in terms of the lease period, India has climbed down from the position of being the sole Lessee to being a Joint Lessee with the CPC.

While Sri Lanka becomes a partner in the ownership and development of the tanks, which it was not from 2003 till April 25, 2017, India gets the lease extended from 35 years to 50 and possibly up to 99 years, albeit as a partner in a Joint Venture with the CPC.

Asked about the difficulty in running a Joint Venture with Sri Lanka in a scenario where Sri Lanka is cash strapped and may not be able to pitch in financially, informed sources in New Delhi told that the Government of India is aware of the financial crunch in the island nation and is ready to consider policies in a spirit of friendship to enable Sri Lanka to overcome the difficulty.