Vineet Ravindran asked: How does the Trincomalee oil farm deal benefit India? Why is Trincomalee important for India?

Gulbin Sultana replies: The Trincomalee Oil Tank Farm, also known as the China Bay Oil Tank Farm, was built by the British in the 1930s to supply fuel to Royal Navy ships during the Second World War. The British continued to control the oil farm comprising 99 tanks until the Sri Lankan Government took it over in 1957. Each of the existing 99 tanks can contain 12,000 tonnes of fuel. With a total capacity of over 1.2 million tonnes, the oil farm has the potential to turn Sri Lanka into a petroleum hub in the South Asian region. However, out of 99, only 14 are in usable condition and being used by the Lanka Indian Oil Corporation (LIOC), a subsidiary of the Indian Oil Corporation, since 2003.

In January 2022, India and Sri Lanka signed an agreement to develop the Trincomalee Oil Tank Farm. It was reported that the two countries have agreed to jointly develop 61 out of the 99 tanks. The Trinco Petroleum Terminal (Private) Limited has been set up for the joint venture project, with 51 per cent of stakes held by the Ceylon Petroleum Corporation (CPC) and 49 per cent by the LIOC. Of the remaining 38 tanks, LIOC would continue to use 14 tanks and the CPC would run 24 tanks. If the agreement is implemented, India and Sri Lanka can emerge as partners to turn the oil farm into a regional petroleum hub, with immense economic benefits in terms of augmenting energy security for both countries and the region.

The signing of the agreement also shows that the Sri Lankan Government remains committed to the understanding reached between the two countries in 1987 to jointly develop the oil farm.

Trincomalee, a town and a port on the north-eastern coast of Sri Lanka, is situated on a peninsula in Trincomalee Bay—the second deepest natural harbour in the world. Due to its immense strategic and commercial value, it enjoyed the attention of the colonial powers, including the Portuguese, Dutch, French and British in the past. Even though its commercial importance declined significantly in the post-independence period, Trincomalee remains strategically important for the maritime powers competing for influence in the Indian Ocean Region due to its location, natural harbour, and the oil farm.

Of late, the Sri Lankan Government had been planning to revive commercial activities in Trincomalee by refurbishing the oil farm, redeveloping the Trincomalee Port, and setting up special economic zones (SEZs). In addition to its strategic significance, Trincomalee is important to India due to ethnic, people-to-people and commercial linkages.

Posted on 17 October 2022

Views expressed are of the expert and do not necessarily reflect the views of the Manohar Parrikar IDSA or the Government of India.