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Publish Date : 12-Nov-2013

Sri Lanka has declined to sign an agreement to lease the Trincomalee strategic oil storages to a unit of Indian Oil Corp (IOC) and is blocking the Indian firm's plans to establish a bitumen plant in the country.

Sources at the Ministry of Petroleum Industry said that the Sri Lankan government has agreed to take over the petroleum storage tank complex in Eastern Sri Lanka that was given to an Indian oil company on a long lease.

The China Bay petroleum storage tank complex was given up to India's state-run Indian Oil Corporation in 2002 by the United National Party (UNP) government which was in power between 2002 and 2004.

In 2003, Lanka IOC - a subsidiary of state-owned IOC - bought one-third share in Ceylon Petroleum Storage Terminals Ltd which controls the China Bay tank farm. Ceylon Petroleum Corp (CPC) and Colombo signed into a MoU with Lanka IOC to award a long-term lease to the Indian firm for working the 99 storage tanks at Trincomalee for 35 years for a yearly fee of $100,000.

The government stated that the hand over was not corresponding to the government standards.

From starting operations, Lanka IOC has capitalized near to US$15 million at regular intervals to add more services like additional storage tanks, lube blending facilities and refurbishing of jetty.

Lanka IOC needs to capitalize another US$17 Million to se up bitumen handling facilities at the tank farm and had requested to the Board of Investment (BOI) of Sri Lanka. The BOI has said that approval can be given only after settlement of the lease issue with the Petroleum authority.

Lanka IOC officials have that Sri Lanka might take a tough stance on the lease agreement particularly now, after India downgraded its level of participation at the Commonwealth meeting in Colombo.The tank farm in 850 acres of land has 99 tanks each with the capacity to hold 12,100 metric tons of oil.

The government under privatization gave Lanka IOC 99 storage tanks, of which 15 are being used and two more are being restored at a cost of US$17 million. The China Bay tank farm that connects to the Trincomalee harbor is of historic and strategic importance and it is the biggest tank farm situated between the Middle East and Singapore. It was constructed by the British in 1930s to supply fuel to Royal Navy ships.

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