The week began with an unannounced sudden strike by petroleum workers resulting in long queues and traffic congestion around fuel stations. The rush was mainly due to the belief that the strike would get prolonged because of the nature of the demands made by the trade unions and the suddenness of the action.

Striking Ceylon Petroleum Corporation workers were demanding the reversal of a decision to lease the majority of the remaining unused tanks in the World War 11 oil storage facility at China Bay in Trincomalee to an Indian state company for development under a joint venture arrangement.

Sri Lanka and India are expected to sign an agreement to jointly invest and develop the Trincomalee Port and establish a petroleum refinery and other industries there. The tank farm in 850 acres of land has 99 tanks and currently Indian Oil Corporation subsidiary Lanka IOC, engaged in bunkering operations, runs 15 tanks. The proposed joint venture pertains to the remaining 84 tanks, of which Sri Lanka will retain 10 tanks for the CPC.
However, the Petroleum Joint Union Alliance says it opposes the proposal to transfer operations rights to oil tanks to India since the agreement would benefit the Lanka IOC allowing it to expand further and the CPC, which is already in debt, will incur further financial losses.note-book

Those seem to be the legitimate fears of CPC workers. However, the fact of the matter is that these world war II oil storage tanks which have been neglected for the last 70 years are still in good condition and thus remains a valuable asset that has to be put to some good use in a way the country can be economically benefited.

Trade unions are demanding that these tanks should be handed over to the CPC for development. The debt-ridden country at the moment does not possess financial capabilities to undertake a project of that nature which will require an investment of around US$ 4 billion. Besides, leasing of these tanks would give a much-needed cash inflow to the government in order to get out of the current debt issue,

India and Sri Lanka have in principle agreed to jointly operate this oil storage facility and the project to develop the upper tank farm would help the coastal town become a regional petroleum hub. With its fine natural harbour and crucial location, Trincomalee remains in spotlight as a potential transit point for international trade routes, particularly drawing India which has known strategic interests there.

India has been engaging with Sri Lanka since 2003, almost 15 years after the 1987 Indo-Sri Lanka Accord granted first preference to India in the running of the oil storage facility. As per the 2003 agreement signed by the neighbours, India was to upgrade and commission the 99 tanks in the farm – each with a capacity of 12,250 kilolitres – on a 35-year lease. However, the project did not take off fully as planned, as the two sides could not come to an understanding on operational aspects.

Following Indian Prime Minister Narendra Modi’s visit to Sri Lanka two years ago, the two countries renewed discussions and are hoping to firm up the deal before the Indian Prime Minister’s scheduled second official visit to the island early next month. Meanwhile Prime Minister Ranil Wickremesinghe who has just concluded a visit to New Delhi partly to set the agenda for the impending visit of Indian Prime Minister Narendra Modi to Colombo signed a Memorandum of Understanding on cooperation in a number of economic projects.

The MoU covered developing Trincomalee Port’s prospects through operating a major oil-storage facility, LNG plant and piped-gas projects and developing it as a key transit point with major expressways and industrial zones in the region some of which are in the final stages of negotiations.

The two sides were also expected to hold discussions on the Economic and Technology Cooperation Agreement (ETCA), a version of the Free Trade Agreement which will be taken forward during Modi’s visit for International Vesak Day on 12 May.

Although the strike action of the petroleum workers has been halted following the undertaking given by Prime Minister Wickremesinghe, the matter is likely to come up when signing of any significant agreement in this regard is taken up in the near future. Wickremesinghe had given some written assurance to the effect that no agreement on oil tanks would be signed without discussing the matter with relevant parties including the trade unions.

Trincomalee harbour being the second deepest natural harbour in the world, the British had decided to make it as their primary logistics station in the east after World War I. They started the oil storage project in the 1924 and completed in late 1930’s. Since they were handed over to the government of Sri Lanka in 1958 following the departure of the Royal Navy from Trincomalee the tanks have been abandoned and absorbed by scrub jungles inhabited by leopards and elephants although the government of Prime minister SWRD Bandaranaike is supposed to have paid a sum of £237,000 to get the farm bank.
The idea of reviving the oil farm tank came up in 1979 following the second oil price hike of the seventies. However, it had to be abandoned due to Indian objections as they had suspicions that the consortium of companies that sought to restore the oil tank farm had some covert links with the US armed services.

There were further developments in this regard when President J R Jayewardene in 1987 had to include a clause in the Peace Accord he signed with India that access to Trincomalee oil tank farm would not be given to any powers that are inimical to India’s security interests.

Thus the oil tank farm is a valuable asset built by the mightiest imperial power at the time using the best technology available and Sri Lanka cannot afford to abandon it to be decayed with the passage of time. Building such a facility anew is a tedious, time consuming and a costly affair which is a difficult task for any country.

Current power dynamics in the world and developments in trade and shipping in the region will place Sri Lanka in a good position to make use of the oil tank farm. With China’s involvement in development of Hambantota Port and surrounding areas, Sri Lanka will another strategic  partner in India to revive and develop the oil tank farm in Trincomalee.

Also, it is true that India in the past had not been particularly interested in developing the Trincomalee port as the project did not appear economically feasible. As former President Mahinda Rajapaksa claims, his government had first approached India for developing the Hambantota port in south and allowed China to come in only after India declined the offer.
India had the same fear about Hambantota as she thought developing the port there was not financially viable. India was correct in the sense that the port failed to generate enough traffic.  Sri Lanka has now allowed China to build a special economic zone in Hambantota and also to further expand the Mattala airport.

Thus apart from commercial aspects Sri Lanka’s decision to jointly develop the Trincomalee port with India is widely viewed as a sensible decision both strategically and diplomatically.  Jointly developing the Trincomalee Port with India cannot counterbalance the Chinese leverage over Sri Lanka, but it will certainly help Colombo build some countervailing influence.