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Indian Oil nips at China’s heels in race to collect Lanka port assets

LiveMint logoLiveMint 26-04-2017 Iain Marlow

New Delhi/Mumbai: India is looking to invest in a colonial-era Sri Lankan oil-storage facility as it seeks to further its naval interests in the Indian Ocean and push China back in the process.

A unit of state-owned Indian Oil Corp., the country’s largest refiner, is set to help fund the $350 million development of an 84-tank facility at the strategically located Trincomalee port on Sri Lanka’s east coast. India and Sri Lanka are also discussing setting up a refinery in the island nation, according to Shyam Bohra, managing director of Indian Oil’s subsidiary Lanka IOC.

The talks come before a meeting on Wednesday between Indian Prime Minister Narendra Modi and Sri Lankan prime minister Ranil Wickremesinghe in New Delhi. Modi is also due to visit Sri Lanka next month.

Still, India’s interests in the Sri Lankan port are probably more strategic than economic, part of its effort to displace hefty investment coming into the country from China and preserving a key gateway to the Indian Ocean. China is expanding both militarily and economically in the region, and its submarines have docked previously in Colombo.

Analysts cautioned that India has been slow to make big investments in Trincomalee for decades, partly because New Delhi is content with a small base that keeps adversaries out. There’s also no business case for a third major port in the South Asian country of 20 million people, they said.

‘Military purposes’

“The biggest Indian strategic concern is that no one else uses that harbour for military purposes,” said David Brewster, a senior research fellow with the Australian National University’s National Security College. “And once it has a foothold, there’s a much more difficult question of whether it will make significant investments.”

The port at Trincomalee and its oil storage tanks was built by the British when Sri Lanka was a colony and was used as a regional base for the Royal Navy. Fifteen tanks are operational, each with a capacity of 12 million liters, or about 75,500 barrels. A further 84 are slated to be renovated, bringing the total capacity to almost 7.5 million barrels. By comparison, the Asian oil trading hub of Singapore has about 63 million barrels of independent storage.

Lanka IOC is managing the 15 tanks and a lubricant blending unit. The governments of India and Sri Lanka have agreed in-principle to jointly develop part of the tank farm, Bohra said, adding details are “yet to be finalized.”

The Sri Lankan government has suggested that Lanka IOC retain 74 of the 84 reconstructed tanks through an equal joint venture with Ceylon Petroleum Corp., Chandima Weerakkody, Sri Lanka’s minister of petroleum resources development, said by phone. The other 10 would be handed back to Ceylon Petroleum, he said.

Bohra also said Lanka IOC is open to joint development of the tank farm.

“Something should definitely happen because we are very keen to see to it that the facility is developed,” Weerakkody said. However, the minister compared India’s investments unfavourably to China’s. “India should expedite their projects that they engage in,” he said. “Chinese investments, they are pretty quick.”

India’s foreign ministry was not immediately available for comment. If India’s investments materialize, the historic but relatively obscure port could become a hub for New Delhi, whose navy must go around Sri Lanka as it crosses from ports on India’s west coast in the Arabian Sea to those on the east coast in the Bay of Bengal.

But New Delhi’s plans would almost certainly be worth far less than Beijing’s ambitious infrastructure-building in Sri Lanka. China has already built a port at Hambantota in Sri Lanka’s south in a move that alarmed Indian observers.

Beijing has also invested heavily in Gwadar, a port in Pakistan that serves as the terminus of the China-Pakistan Economic Corridor. Meanwhile, India is making slow progress on a nearby port at Chabahar in Iran, which could one day allow Indian goods to reach Afghanistan by rail.

Sri Lanka does not want any Indian Oil investment in its existing refinery at Sapugaskanda, close to Colombo, which processes 50,000 barrels a day for domestic consumption, Weerakkody said, adding the company is welcome to set up a refinery for exports. Sri Lanka plans to double the capacity of the refinery.

Geopolitical priorities

Analysts said Sri Lanka doesn’t need any more ports, and that India’s geopolitical interest in Trincomalee far outweighs any commercial interests.

The main port in Colombo is already a major trans-shipment route for large vessels, whose goods are unloaded, put on smaller ships and sent to Indian ports, said Manoj Joshi, a distinguished fellow at the New Delhi-based Observer Research Foundation.

Even Hambantota is not viable as a commercial operation, Joshi said, noting China is developing a special economic zone surrounding the port to boost business.

“It’s a tribute to Indian incompetence and Indian inefficiency that goods are trans-shipped in Sri Lanka,” Joshi said, noting that developing Trincomalee might actually create competition for developing Indian ports such as Chennai. Bloomberg

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