KAMALIKA PIERIS

REVISED 14.9.17

The relationship between Sri Lanka and India has always been very uneasy. Instead of falling down and worshipping India as the creator of everything, the Sri Lankans are wary and doubtful. They know that India has regional ambitions and clearly wishes to dominate Sri Lanka. They also know that India would like to control some at least of Sri Lanka‘s important territory. Therefore certain projects are looked at with suspicion.

To start with, Sri Lankans do not welcome a physical link with India. A land bridge (‘Hanuman Bridge’) has been mooted linking Rameswaram and Talaimannar at Palk Strait, This is to be an extension of the UN-ESCAP Trans Asian Highway    which was originally going to stop at India. There would also be two roads from Talaimannar, one to Colombo , the other to Trincomalee.

There is strong opposition to this. Such a link with Tamilnadu is dangerous said one critic. It will be suicidal for our survival and integrity. There is enough coming and going already, and a bridge will only open the flood gates for more Indian nationals into Sri Lanka said another.  A   land bridge would bring  a special type of malaria mosquito into Sri Lanka, said doctors. So far it has not come here.  What keeps it away is the ocean. So land bridge will help it come here.  We have eradicated malaria here.

The railway line constructed by  India thorough Mannar Island does not end at the Talaimannar station but goes beyond and has been raised to marry with a possible future bridge head at Talaimannar.  The railway should have been terminated on the main land. This would have left the sea open to Sri Lanka naval movement from north to south and easy movement for other seagoing craft as well, said critics. The introduction of a rail bridge between the mainland and the island of Mannar would block this. The railway is to continue from Talaimannar to Medawachchiya, for doubtful reasons.

In 2008  there was a proposal to lay an undersea power line  with submarine cable under the Gulf of Mannar. In 2010 there  were plans to set up interconnection of electricity grid between India and Sri Lanka to enable Sri Lanka to source electricity from India. Critics observed that India had the world’s biggest ever electricity blackout in 2012, where three regional grids, serving half the 1.2.billion population collapsed entirely. When power transmission lines are interconnected there is a possibility of cascade failure when one major power plant trips for some reasons.  Undaunted Yahapalana  said in 2017 that it  plans to connect Sri Lanka’s power grid to the Indian power grid to boost power generation within the next five years.

India  has  always had a deep interest in the Northern Province. India   signed an agreement in 2011 to develop the Kankesanturai port  and roads in Jaffna. But India’s main concern was with Trincomalee . Everybody knows this.

The Indo-Lanka Accord of 1987, signed during UNP rule, included  conditions for Trincomalee .The letters exchanged between India and Sri Lanka specified that Trincomalee or any other port of Sri Lanka will not be made available for military use by any country in a manner prejudicial to India’s interest  and that the work of restoring and operating the Trincomalee Oil Tanks will be undertaken as a joint operation between India and Sri Lanka.

In 2002, during the UNP government, Prime Minister Ranil Wickremasinghe, together with a team of advisors, including Chairman, Ceylon Petroleum Corporation  (CPC)  and the Minister for Petroleum industries, visited India. India wanted to take over the Sri Lankan petroleum trade, ‘lock stock and barrel’.  Prime Minister Ranil Wickremasinghe was agreeable .However, Chairman CPC had vehemently protested against the proposal, supported by his Minister and the proposal fell through. India had failed in its attempt to grab the Sri Lankan petroleum trade in its entirety. (Island 25.4.17 p 9)

But in the same year, 2002, the UNP government set up the Lanka India Oil Corporation (LIOC), a subsidiary of Indian Oil Corporation, and handed over one-third of the petroleum business in Sri Lanka to LIOC. Thereby removing the monopoly enjoyed by the CPC. It was done by a cabinet paper without any competitive bidding process. LIOC thereafter started a string of fuel stations countrywide and provided marine bunkering at Trincomalee   and Colombo. In 2016, LIOC owned 189 filling stations in the country  LIOC made a profit of 4.73 billion in 2014-2015. The profits go to India, because 75% of the shares are held by India Oil Corporation.

No assessment has been made whether there was any real economic benefit gained by LIOC coming into Sri Lanka, said critics. ‘All that happened was that 100 of the best filling stations were given to LIOC for USD 35 million’ Critics also observed that the price of oil  declined these last few years and the profit from one litre of diesel increased from Rs. 5 to Rs. 39. LIOC  made an additional profit of over Rs. 8 billion. This windfall profit had not  taxed by the government.

In 2003, the UNP government divided up the operations of the CPC into three segments. One was sold to Indian Oil Company, and one was kept with the Treasury to be sold to some other party in the future.  The CPC was left with the remaining one third. The sale of distribution rights to Indian Oil Company was ‘the biggest disaster to CPC’ , said critics.  The Indian Oil company only paid USD 40 million though 70 million was promised.  In 2004, the government  tried to sell the Treasury one third to Bharat Petroleum .  There were strong objections from the CPC and trade unions , the sale was stopped  and CPC succeeded in getting that one third also back to the CPC. If that sale had taken place, India would have   controlled  our oil distribution.

The UNP government thereafter set up a company called Ceylon Petroleum Storage Terminals Ltd (CPSTL)  for oil storage and distribution, using CPC pipeline network.  The  Muthurajawela  and Kolonnawa storage facility and  11 depots went to this company. One third of the company was sold to LIOC for USD 15 million, while the CPC owns the remaining two thirds.  The oil brought by LIOC as well as the CPC was distributed by this company.

A large oil storage tank farm of 850 acres was built in China bay, Trincomalee by the British, during  World War II, to provide diesel for Britain’s  South East  Asia Command ships.  Made of the best Manchester steel, 99 of these tanks, each with a capacity to hold 12,100 metric tons of oil  remained in good condition. Britain retained ownership of this tank farm even after independence.   In 1957 Prime Minister S.W.R.D. Bandaranaike paid compensation of 250,000 Sterling pounds   and secured ownership.

The CPC trade unions blame successive Sri Lankan regimes for failing to put the Trincomalee tank farm to use. It points out that the Government first proposed to lease out 10 tanks to Singapore in 2002. This plan was abandoned in favor of India in 2003, when a tripartite agreement was signed.

The tank farm remained unused until, in 2003, CPC had entered into a Memorandum of Understanding with Indian Oil Company to lease the facility and the land for a period of thirty five years   on the payment of a sum of USD 100,000. This gave India a significant presence in the strategic Trincomalee port. Why was the tank farm handed over to India instead of the highest bidder? Why was it was not left in the hands of the Sri Lanka navy, critics asked.    why hand it over to the Indians who have never been our friends. India looks after her own interest first,

Of these 99 tanks the IOC used only 15. one condition of the deal was that a formal lease agreement would be signed within six months.  Indian Oil Company had failed to execute a proper lease agreement,   the MOU became invalid after six months and India’s presence in the China Bay Tank Farm illegal.

Since a formal lease agreement had never been entered into between the CPC and IOC for these oil tanks, CPC argued that the ownership and right to use these tanks still lay with the CPC. There was an unresolved issue as to whether the lease of the 14 oil tanks to the IOC was legal at all. Petroleum trade unions agreed. Supreme Court was petitioned   to declare that the China Bay Installations and the adjoining land held by the LIOC is illegal and arbitrary.

Petroleum officials  also  said that Lanka IOC had violated  the agreement. According to the  agreement, the LIOC is entitled to market only 1/3rd of 5% of total throughput via China Bay Tank Farm. The pricing formula for petroleum products is based on products being imported through the Colombo Port and marketed via the Common User Facility  of the CPSTL. Some of the costs included in the pricing formula  do not apply for operations through the China Bay Tank Farm and some costs are lower. For example Jetty and pipeline charges and Port Development Levy are not applicable to the China Bay Tank Farm. Several other items, disadvantageous to Sri Lanka  can be highlighted if necessary, said S. Talpahewa, Former Chairman/Managing Director, Ceylon Petroleum Corporation. (Island 25.4.17 p 9)

On 6th December 2016, Cabinet approved the proposal  that the oil tanks used by India be vested totally with the CPC, three of them to be taken over immediately and the rest within three months.  When CPC engineers visited the China Bay Tank Farm to implement the Cabinet decision  they were locked up. Four officials, including a deputy manager had been held captive by officials of the Indian Oil Company (IOC). They had been locked up for about one hour. The two vehicles the officers had come in had also been held by the IOC officials.

Senior vice chairman of the Indian Oil Company complained to the police that the CPC  officials had been given permission to enter the area only on one particular day, December 28th, but the officials had come on the 29th. So they were trespassing. There was a bilateral agreement and no one was allowed to enter the site without the permission of higher officials.

IInda took the view that the  2003 tripartite agreement covered the entire tank farm — upper and lower, and India wanted to  take advantage of this. In 2012, under the Mahinda Rajapaksa administration, the LIOC applied to Sri Lanka’s Board of Investment to set up a USD 5.2 million bitumen handling facility in the upper tank farm. It also hired a project consultant. But approval was not granted. Subsequently, the LIOC submitted other proposals to develop the upper tank farm. Again, permission was denied.

With the victory of the Sirisena administration in 2015, however, India revived its push on the upper tank farm. It expressed willingness to set up a joint venture which would prepare a business development proposal. And it agreed to first renovate 10 tanks in the upper farm for Sri Lanka’s exclusive use. India believes it could turn the project into an international oil storage facility that would provide viable alternative to Singapore and to Fujairah in the United Arab Emirates.

Prime Minister Ranil Wickremasinghe had   submitted a Cabinet memorandum on December 6, 2016 requesting the Cabinet to withdraw the earlier decision and give approval to hand over the China Bay Tank Farm to a joint venture between the CPC and the LIOC.   He stated that the government had decided to overcome disputes on the lease agreement of the tank farm with a new agreement.

Prime Minister  informed Parliament  in March 2017 that a policy decision had been made to develop Trincomalee Oil Tank Farm as a joint venture between the Ceylon Petroleum Corporation and the Lanka IOC. 50 percent shares will be held by the Government of Sri Lanka. The land of the Upper Tank Farm, which is currently in possession of Lanka IOC PLC, is to be leased to this joint venture by Lanka IOC . en tanks in the Upper Tank Farm will be reserved for the exclusive use of Sri Lanka . The land of the Lower Tank Farm, which is also in possession of Lanka IOC , will be leased to Lanka IOC directly.  Yahapalana  government stated that it is only leasing these tanks, not selling them. The period of all the leases will be 50 years, extendable up to a maximum of 99 years. Once the relevant agreement is signed, a consultant will be appointed to determine how much would be needed to renovate the tanks. They are now engulfed in thick jungle, with only the tops visible.

Informants said that President Sirisena and the Petroleum Minister Chandima Weerakkody did not want to give the tank farm out. But Prime Minister Ranil Wickremesinghe was determined to give the tank farm to India, ‘to keep India on our side. India is not going to take the farm and run away.’

It was pointed out, by Yahapalana , that the Trincomalee Oil Tank Farm is a national asset which was left to decay.  Is it our duty to leave such a national asset to gather rust or to make use of them to develop our country?  It is a crime  to leave such an asset to the elements, babbled Yahapalana . There would be a huge demand for oil in the next 50-60 years in India. Our plan is to make use of this storage facility to enable the CPC to enter the Indian market. We plan to export oil to India, while catering to our domestic needs as well. Now who in Sri Lanka can object to that?

When the Ceylon Petroleum Corporation gets 10 oil tanks for exclusive use, continued Yahapalana , Sri Lanka will have a guarantee of more oil stocks. ‘All this time, we had only a stock which is enough for 10 days. Once the facility is jointly developed, we will be entitled to 50 percent of the joint venture company, which is involved in both storage and sale of oil, We will not only be able to sell oil stocks within the country but outside as well.’

Critics did not agree. The proposed agreement will only benefit the IOC and will help the Indian Oil Company to expand further in the island, they said. Petroleum trade unions threatened to strike against the Memorandum. The underlying purpose of the MoU, said critics, was to iron out any shortcomings in the paperwork that was done between the Sri Lanka  and India when the UNP was in power in 2003 and to fully legalize India’s hold over this prime asset and the land it stands on.  Also, up to now  India only used the tanks in the lower level. Under the new agreement India  gets 30 oil storage tanks in the upper level as well.

Sri Lanka  can earn huge revenue from its oil tanks alone said critics, why sell to India?   The oil tank farm should be used by Sri Lanka to build up buffer stocks of fuel when prices are low without leasing it out. At present only 42 days supply of fuel could be stored in the existing facilities but if the Trincomalee  oil tank farm is fully utilized, a buffer stock of four months’ supply could be built up.

Ceylon Petroleum Corporation has calculated that  if the distribution of fuel to the surrounding districts is done from Trincomalee instead of Kolonnawa using these tanks, the distribution cost of fuel could be reduced by Rs 618 million a year. It takes about two weeks to unload a shipment of fuel in Colombo, but in Trincomalee the operation can be completed in one week. Hence by using these oil tanks, the CPC could save over a Rs. one billion a year. This is much more than the rent paid by the LIOC to the Government. The CPC’s storage tanks in Kolonnawa and Muturajawela can only store two week’s worth of oil. If we have 99 tanks of our own, why must we waste more public funds to put up new tanks.

For the past 14 years, IOC has paid lease charges of US$ 100,000 for the tank farm in accordance with the agreement even though the lease deed had not been executed by the IOC and the government due to unknown reasons, said apologists. Critics replied that  IOC was paying Sri Lanka only a paltry rental. During the 15 year period it had controlled the oil tanks, the government had received Rs. 75 million as rental from the IOC and during the same period the Sri Lankan government had paid the IOC Rs 650 million for utilizing the same tanks to store oil being carried to the Jaffna peninsula during the war.

Critics noted that LIOC sells only 15% of the fuel sold in Sri Lanka, CPC handles the other 85%. LIOC does not have enough sales in Sri Lanka to justify leasing out all the oil tanks in Trincomalee. There is renewed opposition to the deal by CPC trade unions. This is our fount of wealth, they said.  Trincomalee   should be made a national territory, outside any ‘devolution package’. . India was entering into this agreement to stop other countries   getting into Trincomalee. What they were after was not the oil tanks but the land on which the oil tanks stand.

Ministry of Petroleum Resources Development was to hold discussions in July 2017 with Lanka Indian Oil Co. (LIOC) for an agreement on the use of oil tanks at the Trincomalee Oil Tank Farm. The Ceylon Petroleum Corporation (CPC) wants to use some of the oil tanks at the farm, to store fuel as its current fuel storage capacity is low. The Prime Minister said in reply that the government could not simply cancel the agreement, as the LIOC was paying a substantial amount each year for use of the oil tanks.

The Prime Minister    obtained the necessary approval   from Cabinet Committee on Economic Management (CCEM) and the Cabinet and entered into a MoU with India on his visit in April 2017. Malik Samarawickrama signed  the MoU while Indian Foreign Minister represented  India. This Memorandum of Understanding between the Government of the Republic of India and the Government of the Democratic Socialist Republic of Sri Lanka for Cooperation in Economic Projects was signed at New Delhi, on 26th April 2017.

The projects agreed on were a 500 Megawatt LNG Plant in Kerawalapitiya.  50 MW (extendable to 100 MW) Solar Power Plant in Sampur. Joint investments to develop the Trincomalee Port and establish a petroleum refinery and other industries there.  Roads in Sri Lanka including Mannar-Jaffna and Mannar-Trincomalee Highways and Dambulla-Trincomalee Expressway. Upgrading  of tracks and purchase of rolling stock for railways. A Container Terminal in Colombo Port as a Joint Venture. Setting up Industrial Zones/Special Economic Zones in identified locations in Sri Lanka.

The sheer number of projects in this list is a clear indication that it was never meant to be implemented in full, said ‘Political Watch’. Many projects have been included to disguise the main target, the Trincomalee oil tank farm and the environs of the Trincomalee port.   This MOU is intended to carve out India’s sphere of influence, a geographical area which includes  Trincomalee port, the  oil tank farm, and a railway link between Mannar and Trincomalee.

The land  bridge, between Mannar and India, giving India access by land to the Trincomalee port, was also discussed  by  our Prime Minister and the Indian Minister of Transport, Gadkari. This Palk Strait Bridge will connect Mannar with Trincomalee by a highway and facilitate  India’s grand plan, complained critics.

India is also interested in the commercial use of Trincomalee.  In 2006 NTPC Ltd of India  was prepared to set up a 500 MW coal based thermal power plant in Trincomalee as a joint venture with Ceylon Electricity Board. In 2017, India and Sri Lanka  will jointly develop Trincomalee  port,  with  a petroleum refinery and other industries in Trincomalee. A joint working group will be set up to   plan this. Indian Oil Corporation was looking at the feasibility of a refinery to be run jointly with the Ceylon Petroleum Corporation . Indian Oil Corporation is  also  planning to set up its first overseas petroleum hub at Trincomalee, also an Indian LNG plant in Trincomalee. India  has  already  launched a housing project in Trincomalee

The absence of a dialogue at political level with India’s southern most states, Tamilnadu, Kerala, Karnataka and Andhra Pradesh, even Maharashtra has been a major flaw in Sri Lanka’s  foreign policy, said the Editorial, Sunday Times 18.10.09  Yahapalana is going to rectify this.

Yahapalana plans to have a   separate trade  arrangements with the five southern states of India- Andhra, Telangana, Karnataka, Tamil Nadu and Kerala. This region is a US$ 500 billion regional economy and has the prospect of even going up to a trillion US dollars. There must also  be economic link between  Sri Lanka ,Gujerat and other Indian states.   Just outside Hambantota, there is another very good block of land, closer to Galle than Hambantota. It is fully developed. We want to work on that together with the Andhra Pradesh Industrial Infrastructure Corporation, said Yahapalana   Does  Yahapalana seriously wish to tie up this country with five South Indian states including a hostile Tamil Nadu which has been supporting Sri Lanka‘s Tamil separatism for decades, asked critics.  (  Continued)