An Oil Refinery In Trincomalee? How India’s Expertise And Sri Lanka’s Ambitions May Align For Mutual Benefit

Fresh after a visit to China, Sri Lankan President Dissanayake disclosed that his government is in talks with India to set up an oil refinery.

New Delhi: In a move that could reshape the energy landscape of South Asia, India may get to play a pivotal role in the development of a new oil refinery at Sri Lanka's Trincomalee Oil Tank Farms if the Indian Ocean island nation’s President Anura Kumara Dissanayake’s words are to go by.

“We suggested to India that we build a joint venture oil refinery,” Dissanayake told a public meeting in Sri Lanka on Sunday fresh after a state visit to China. “Discussions are underway. We have to refine oil (and) use the tanks and become a nation that exports fuel to the world. We can make it a good hub.”

The Trincomalee Oil Farm, located on the northeastern coast of Sri Lanka, holds significant strategic, economic, and geopolitical importance for India. This importance can be analysed from various perspectives, including energy security, regional influence, maritime security, and the historical and diplomatic ties between the two countries.

One of the primary reasons the Trincomalee Oil Farm is critical for India is its role in energy security. India has one of the largest and fastest-growing economies in the world, and energy is a key driver of that growth. The Trincomalee Oil Farm is located at a strategic maritime location that provides access to vital shipping routes. The oil storage facilities in Trincomalee can serve as a regional energy hub for India.

India’s interest in the oil farm stems from its need to maintain strategic petroleum reserves (SPR) in case of disruptions in oil supply. The farm could function as a backup or a storage facility for India to stockpile crude oil, which could be crucial during periods of geopolitical uncertainty, especially with the volatile situation in the Middle East, which supplies much of India’s crude oil. In the event of a supply chain disruption, such reserves would help mitigate the adverse impacts on India’s energy security.

Why Dissanayake’s statement about building an oil refinery in Trincomalee assumes significance is because it comes soon after his visit to China earlier this month during which China Petroleum and Chemical Corporation or Sinopec, the world’s biggest oil refiner, agreed to invest $3.7 billion to construct a state-of-the-art oil refinery with a capacity of 200,000 barrels per day in the southern Hambantota region.

While Sinopec's primary operations are based in China, the company also has a presence in several other countries, including Russia, Kazakhstan, Angola, Brazil, and other regions where it has exploration and production activities or refining and petrochemical operations.

Sinopec already has an overseas refining facility in Saudi Arabia, a major energy producer. The Yanbu Aramco Sinopec Refining Company (YASREF), a joint venture between Saudi Aramco and Sinopec is a world-class, full-conversion refinery that uses 400,000 bpd of Arabian heavy crude oil to produce premium transportation fuels.

However, when implemented, the project in Sri Lanka will become Sinopec’s first fully-owned refinery abroad. Sri Lanka, strategically located in the Indian Ocean, has attracted significant interest from international investors due to its geographical location, which is ideal for connecting Asia, Africa, and Europe. However, the country has faced various economic and energy challenges, including a heavy reliance on imported energy and infrastructure constraints. These factors have made it an attractive location for a new oil refinery project.

The Trincomalee oil tank farm was built by the British during World War II as a refuelling station. It is located in close proximity to the Trincomalee Harbour. The proposal for joint development of this farm was envisaged 37 years ago in the India-Sri Lanka Accord of 1987. It comprises 99 storage tanks, with a capacity of 12,000 kilolitres each, spread across Lower Tank Farm and Upper Tank Farm. In 2003, Indian Oil Corporation set up its Sri Lankan subsidiary Lanka IOC, to work on this oil farm. Currently, Lanka IOC runs 15 tanks. A new agreement is being negotiated for the remaining tanks. The farm is easily accessible and is located along some of the world’s busiest shipping lanes.

Despite reservations expressed by some quarters of the ruling dispensation, President Dissanayake is going ahead with an agreement signed by the previous Sri Lankan government with India regarding a joint venture to develop the Trincomalee Oil Tank Farm. The agreement for the Trinco Petroleum Terminal (Pvt) Ltd (TPTL) between the state-owned Ceylon Petroleum Corporation (CPC) and Lanka IOC, a subsidiary of Indian Oil Corporation, was signed in January 2022 when the island nation was grappling with a financial crisis before Colombo declared sovereign debt default.

“Trincomalee is in the eastern part of Sri Lanka,” Smruti Pattanaik, Research Fellow in the Manohar Parrikar Institute of Defence Studies and Analyses (MP-IDSA) who specialises on South Asia, explained to ETV Bharat. “That is why an oil refinery there will be of strategic importance for India.”

In what can be seen as keeping speculations at bay about Colombo’s ties with Beijing vis-à-vis New Delhi, Dissanayake made it clear that India remains the strongest foreign partner of Sri Lanka as far as the island nation’s foreign relations are concerned.

“We cannot stand up on our own,” Dissanayake said during the public meeting on Sunday. “So we have to forge strong links with other countries. In this the most important is India. It is a country with which we have historical ties. We have close cultural ties. A country which has attained fast economic growth. If they are nearby, they are our friends in our path to economic growth.”

The India-Sri Lanka relationship has traditionally been marked by bonhomie and a legacy of cultural, religious and linguistic interaction. Trade and investment have grown and there is cooperation in the fields of development, education, culture and defence.

Sri Lanka is one of India's major development partners and this partnership has been an important pillar of bilateral ties between the two countries over the years. With grants alone amounting to around $570 million, the overall commitment by the Government of India is to the tune of more than $3.5 billion.

When Sri Lanka was faced with an unprecedented economic crisis in 2022, India provided around $4 billion worth of aid. India also played a crucial role in collaborating with the International Monetary Fund (IMF) and creditors to help Sri Lanka restructure its debt.

Located close to India’s southern coast, Sri Lanka is of huge geostrategic importance for India. India has been expressing concerns about China's growing economic and strategic influence on Sri Lanka, including Chinese investments in infrastructure projects and the development of the Hambantota Port. India has been trying to keep China away from a region New Delhi sees as being under its sphere of influence.