Prospects of $1.5 bn India credit brighten for Sri Lanka with proposed Trincomalee deal

Colombo, Dec 29 (FN Bureau) Sri Lanka’s prospects of getting a $400 million central bank swap and import credits from India have brightened after the Sri Lankan Petroleum Minister said an agreement would be signed on the Tricomalee Tank Farm with India next month. Sri Lanka had asked for a US$400 million swap from the Reserve Bank of India, a US$500 million petroleum credit likely from the EximBank of India and a US$one billion food and medicines credit during a visit of Finance Minister Basil Rajapaksa to India in early December. The credits however could be unlocked following a “gesture of goodwill” on the part of Sri Lanka, according to sources familiar with the matter, as India is keen to finalize a deal on the 99 oil tanks in Trincomalee, which have dragged on since 2003, economynext.com reported. Though the tanks are in possession of Lanka IOC, a unit of Indian Oil Corporation, the lease of the land had not been executed. Petroleum Minister Udaya Gammanpila was quoted as saying in a media report that a fresh agreement on the tanks will be signed in January. A separate terminal company, Trinco Petroleum Terminal Ltd, would be set up as a joint venture in Trincomalee. The tank farm was given to IOC in 2003, during the administration headed by then Prime Minister Ranil Wickremesinghe. A subsequent administration headed by the Rajapaksa family had asked for some of the tanks back.

Opposition legislator Kabir Hashim, a former Petroleum Minister, told parliament on November 11, that the tanks were given to India following a Memorandum of Understanding signed by Prime Minister Wickremesighe in 2003 for 35 years. Under clause 1.2 of the MOU, a lease over the tanks and land had to be executed within six months, but it had not happened, Hashim said. He said in a 2005 manifesto which brought President Rajapaksa to power, a promised had been given that the tanks would be taken back. Instead permission had been given for LIOC to set up a lubricant plant. Kabir challenged Energy Minister Udayan Gammanpila to take back the tanks if he could, as there was no legal lease executed. He claimed the tanks were not promised to be handed over to India as part of the 1987 Indo-Lanka Peace Accord. A separate exchange of letters between then President J R Jayewardene and Prime Minister Rajiv Gandhi mentioned that “The work of restoring and operating of the Trincomalee Oil Tank Farm will be undertaken as a joint venture between India and Sri Lanka”,” Hashim said. LIOC has refurbished about 15 of the tanks built during World War II by the British and was using them. Sri Lanka had also demanded later a number of tanks for the “exclusive use” of Ceylon Petroleum Corporation and the rest for “joint development”. Though the issue of the tanks has figured in bilateral discussions nothing had been finalized for nearly two decades.

“Today, Lanka IOC and Ceylon Petroleum Corporation (CPC) have agreed to jointly develop the Upper Tank Farm of the China Bay Installation in Trincomalee on mutually agreed terms,” Prime Minister Narendra Modi said soon after talks with Sri Lanka President Maithripala Sirisena in March 2015. “A Joint Task Force will be constituted soon to work out the modalities. India stands ready to help Trincomalee become a regional petroleum hub,” PM Modi said. Diplomatic analysts say India had become unhappy about the repeated breaking of promises given by Sri Lanka. In 2018, Sri Lanka President Sirisena cancelled a coal power plant in Sampur Trincomalee, which was to be a joint venture between Ceylon Electricity Board and India’s NTPC, pushing up the cost of power in the country in the process. Prime Minister Wickremesinghe during the same administration had also in another MOU promised to give India a floating LNG terminal and the ill-fated East Terminal in Colombo Port, which Sri Lanka reneged on. Eventually, India’s Adani group – which was nominated as the investor in the East Terminal – was given another terminal to develop. However, India at the time indicated that it was not according to the government-to-government agreement reached. Nothing was also done on the LNG terminal until the Ceylon Electricity Board floated a competitive bid in 2020. Now the deal is embroiled in a controversy after Sri Lanka entertained an unsolicited bid by a US company, bypassing the tender with the Indian agreement.

Despite the problems, India had indicated the willingness to provide up to $1.9 billion in support to Sri Lanka as the country was in difficulties, when Finance Minister Basil Rajapaksa visited India earlier in December. India had also been willing to be flexible on the exclusive use of some tanks, sources said. Sri Lanka had wanted some tanks for exclusive use. Sri Lanka’s The Sunday Times newspaper said the survey of the 677 acre tank farm ordered by the Petroleum Ministry in November had been completed. CPC had wanted 24 tanks for exclusive use and 61 will come under the joint venture in which the Sri Lanka state firm would get a 51 percent stake. Sri Lanka had earlier asked for 10 tanks for exclusive use. India had indicated its relationship with Sri Lanka was not “transactional” but some gesture of goodwill must be shown from the Sri Lanka side, in wrapping up the tank farm deal. Prime Minister Ranil Wickremesinghe said in a video statement on December 28 that Sri Lanka should wrap up the agreements with India as fast as possible and get the credits. Sri Lanka should also go to the IMF or have an alternative solution, Prime Minister Ranil Wickremesinghe said. India had given Sri Lanka a US$400 million central bank swap last year and had renewed it once. To renew it a third time Sri Lanka had to have a staff level agreement with India. However, India can still give the swap again after a lapse of several months according to their rules, Sri Lanka’s central bank said earlier in the year. While a US$400 million swap would come in one deal, any import credits would materialize over time.