A proposal to form an India–Sri Lanka joint venture to refurbish and manage the 99 giant,British-built, World War II vintage, oil tanks in Trincomalee in Eastern Sri Lanka was first made by India in 1987. The Indo-Lanka Accordof July 1987 had said, in its annexure, that “the work of restoring and operating the Trincomalee oil tank farm will be undertaken as a joint venture between India and Sri Lanka.”
However, it is only now, 34 years later, that Sri Lanka appears to be working towards forming a company, the Trinco Petroleum Terminal Ltd, a subsidiary of the State-owned Ceylon Petroleum Corporation (CPC), to join the Lanka Indian Oil Corporation (LIOC), to manage the tanks.
The Hindu quoted the Lankan Minister of Energy, Udaya Gammanpila, to say that the cabinet will soon ratify the proposal for the formation of the company, and that an agreement with India will be signed within a month.
Long and Tortuous Interim
Between 1987 and 2003 precious little was done about the tanks partly due to the war against the Tamil militants and partly due to the unsettled domestic conditions. However, in 2003, during the peace process, the India-friendly Ranil Wickremesinghe government invited India to refurbish and manage the tanks. The Indian Oil Corporation (IOC) then formed the Lanka Indian Oil Corporation (LIOC) to do the job. All the 99 tanks, and the land on which they stood,were taken on lease from the Lankan government for 35 years for an annual fee of US$ 100,000. The Sri Lankan Government was guaranteed access to the tanks to fulfil “national and security needs”. Each tank could hold 12,000 mt of oil.
The agreement, which could not be annulled unilaterally, was signed by the Sri Lankan Treasury (Finance) Secretary, the Ceylon Petroleum Corporation (CPC) and the LIOC.
Following the transfer, India refurbished 15 tanks, at a cost of US$ 2 million per tank, in the Lower Tank Farm, and built two more. It had plans to invest another U$ 17 million to refurbish some tanks in the Upper Tank Farm also. Out of the 17 usable tanks, most are being used by the LIOC, and the rest by the Sri Lankan Air Force and the Prima Bread Factory.
The LIOC has been paying the leasing fee of US$ 100,000 per year regularly though the lease deed was never concluded. Successive Lankan governments have kept dragging their feet on the lease deed. However, the LIOC has been paying taxes to the Sri Lankan in addition to the leasing fee.
India did not furbish more tanks partly for want of money (it would need an outlay of at least U$ 300 million), partly due to the war, and the absence of a bigger market for petroleum products in the island.
Political Challenge
However, in 2003 itself, Executive President Chandrika Kumaratunga was not in favor of giving the whole lot of tanks to India. The Late Lakshman Kadirgamar, who was then International Affairs Advisor to President Kumaratunga, felt that the tanks should have been parceled out to a number countries including Singapore, Japan and India, to safeguard Sri Lanka’s sovereignty. However, no action was taken to reverse Prime Minister Wickremesinghe’s decision when Kumaratunga assumed power in 2004.
But come 2013, Sri Lanka-India relations soured very badly on account of India’s tilt towards the Tamil side at the UN Human Rights Council. Under pressure from Tamil Nadu, the then Indian Prime Minister, Dr. Manmohan Singh, skipped the Commonwealth Summit held in Colombo in November 2013.
In March 2013, an angry President Mahinda Rajapaksa regime indicated that it would take back all the tanks from LIOC, saying that the transfer of the tanks and the lands was illegal. In December, Rajapaksa told Parliament that government would re-nationalize the tanks. There was a complaint that the LIOC was holding most of the tanks but not using themdeliberately. Therefore, Sri Lanka should take them over and use them.
However, Rajapaksa backed out when India said that the 2003 agreement could not be annulled unilaterally. The transfer (lease) agreement was also valid as the Sri Lankan Treasury Secretary and the CPC had signed it.
In September 2016, the government of President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe surprisingly announced that it proposed to take over 16 tanks for use by the CPC. In February 2017, Petroleum Minister Chandima Weerakkody proposed that 30 tanks be jointly developed by LIOC and CPC under the a plan worked out by Consultants Earnest and Young.
The same month, the Parliamentary Committee on Public Enterprises (COPE) pointed out that the land lease agreement had not been signed since 2003 though the formwork agreement had stipulated that it be signed within six months. It also said that the LIOC had not paid its lease dues regularly. COPE urged the Government to take back the tanks.
The Common Workers Union (CWU) of the CPC filed a fundamental rights petition in the Supreme Court seeking retrieval of the tanks and the removal of LIOC from the management. The CWU claimed that the parties to the original agreement had failed to execute a lease agreement as agreed within the stipulated period and therefore the framework agreement was null and void.
Refuting the charges, LIOC said that it had been paying the lease fee of US$ 100,000 every year without fail. It had also been paying taxes. In 2016-2017, for example, it had paid LKR 30 billion as tax out of an income of LKR 80 billion. The LIOC also maintained that a Land Lease Agreement was not necessary as the land was transferred by the Government through the 2003 agreement under the signature of the Treasury (Finance) Secretary.
Subsequently, to help tide over the crisis, Indiasaid that it is ready to sign a lease agreement but added that the Sri Lankan government would have to initiate the process.
The Government then said that it wants to develop the 84 tanks in the Upper Tank Farm as a “Joint Venture” between LIOC and CPC on the basis of a study done by consultants Ernst and Young. To keep the Sri Lankan Government in good humor, India agreed to have discussions on this, and talks were on.
Post-strike announcements
After the threat of an indefinite strike by seven trade unions, the then Minister for Enterprise Development Kabir Hashim said that out of the 84 tanks in the Upper Tank Farm, 14 would be given to LIOC and 10 to CPC for their exclusive use and the rest would be managed by the proposed LIOC-CPC joint venture. But in a contradictory statement, Petroleum Minister Chandima Weerakkody said that CPC would take 15 tanks and LIOC 10.
India’s stand
India’s stand on the Trincomalee Oil Tank Farm issue appeared to be that the 84 giant oil tanks in the Upper Tank Farm should be run by the proposed Joint Venture between the LIOC and the CPC. But 10 of them could be “leased” to the CPC for its “exclusive” use. India was also clear that the proposed Joint Venture would apply only to the 84 tanks in the Upper Tank Farm and not to the 17 in the Lower Tank Farm.The tanks in the Lower Tank Farm would be with LIOC as per the 35-year lease agreement signed in 2003.
India will, under no circumstances, countenance the surrender of all the 99 tanks in the Tank Farm to the CPC till the expiry of the 2003 lease agreement in 2038, unless both parties to the agreement agree to its annulment earlier than that.
The Indians have been saying that Sri Lanka should be reasonable in view of the fact that India has already come down considerably from their earlier stand that, as per the 2003 agreement, they have exclusive rights over all the 99 tanks.
India is now ready to refurbish more tanks, as these would come in handy when more petroleum is imported to take advantage of lower prices in the international market. But it is for Sri Lanka to come up with a workable and concrete plan for a joint venture to execute the task.
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