Are India and Sri Lanka turning Trincomalee into major energy and industrial hub of South Asia?

The Sri Lankan government recently announced its decision to liberalise fuel trade in the country, allowing Sinopec (China), United Petroleum (Australia) and RM Parks (USA)- 3 leading fuel suppliers in the world- to start selling petroleum products in the Island nation.

Many countries- especially India and China have strategic interests in investing in Sri Lanka. The liberalisation then, is the Sri Lankan government’s attempt  to use this to their advantage  and usher in an era of greater energy security for the island nation.

Thus far, the Lankan fuel market had only two major players- The Ceylon Petroleum Corporation (CPC) and Lanka Indian Oil Company (LIOC), with the latter being responsible for around 1/3rd of the fuel supply in the country. The LIOC, a subsidiary of the Indian Oil, is currently developing the Trincomalee Oil Tank farm along with the CPC, under the agreements signed between the two parties last year. The current President Ranil Wickremesinghe plans for Trincomalee involve it’s transformation into a energy hub- with the help of the Indians- as well as the utilisation of the agriculture export potential of the north and central northern provinces of Sri Lanka, with Trincomalee serving an important role to that end.

What is Trincomalee then? And why is the Indian Government so keen on developing a strong presence in the area?

Napoleon had once said “He who controls Trincomalee controls the Indian ocean” and that sums up very well the strategic and historic importance of the South Asian port. Trincomalee- its name an anglicised version of the tamil word Thiru-Kona-Malai or “Lord of the sacred Hill”- is a port town located in the North-eastern coast of Sri Lanka in the Trincomalee Bay overlooking the harbour which also happens to be one of the deepest natural harbours in the world. Its location- at one of the busiest shipping routes, its oil tank farm and the easy accessibility of its natural harbour to service this farm, is responsible for the covetous position it has always enjoyed. Since the 18th century, imperial powers who went on to rule the subcontinent, like the Dutch, French and the British have sought to control the harbour due to its commercial and strategic value.

Yet, for political reasons, the Sri Lankan government did not focus on its development after independence, choosing instead to concentrate on the Southern areas, including the capital city Colombo. For that matter, even India hasn’t always been keen to invest in Trincomalee even though scholars working on the Indian Ocean like K.M Panikker for example, have long understood, and written about the significance of Trincomalee for securing India’s defensive interests.  Back in 1987, as part of the India-Sri Lanka Accord, an agreement to jointly develop the oil tank farm was discussed.

However, due to ensuing protracted civil war, the agreement never saw the light of day. India finally turned its attention back to Trincomalee in the last decade, after China signed a 99 year lease to operate the southern Sri Lankan port of Hambantota. China’s overwhelming presence in the subcontinent, including and most importantly in the Indian Ocean, has steadily increased in the last decade posing a major challenge to India’s maritime security interests. This resulted in India trying to gain a footprint in the northern part of Sri Lanka which, strategically, is of utmost importance due to the geographical proximity as well ethnic and linguistic ties between the Tamil dominated north Sri Lanka and Southern India.

Since 2010-2011 then, India began to take a fresh look at Trincomalee-which also happens to be the closest port to Chennai- with LIOC officials having first pitched the development of the farm as a storage facility for Indian Oil or as a refuelling station for small ships coming in from nearby ports.

Incidentally, the oil tank farm in Trincomalee was built during the 2nd World War by the British as a storage facility and  refuelling station for the Allies. Having an oil storage facility and refinery situated next to the Trincomalee port is economically very advantageous. The oil farm consists of a total of 99 tanks that has the capacity to contain 1.2 million tonnes of fuel in total. By jointly developing the oil farm, India and Sri Lanka can potentially turn the farm into a petroleum hub that would go a long way in securing energy security in the region.

In 2015, when PM Modi visited Sri Lanka, New Delhi and Colombo agreed to develop Trincomalee as a petroleum hub. However, things never progressed beyond talks, until 2021, when the first signs of trouble began to appear in the China-Sri Lanka strategic relationship owing to the debilitating economic crisis Sri Lanka found itself mired in. Due to the economic crisis, Sri Lanka had to shut down its only refinery due to its inability to pay for fuel imports and it reached out to India for fuel purchases on credit.

India extended a credit line to cover oil imports which was hinged on the finalisation of the long-awaited agreement for the India-Sri Lanka joint development of the Trincomalee oil tank farm. The agreement which gave the LIOC a 49% stake in the joint development and is valid for the next 50 years was finally signed in January 2022. Further, since this agreement, the Sri Lankan government has started developing plans to revive commercial activities in the region through the setting up of Special Economic Zones (SEZs), development of the hinterlands, the oil tank and refurbishment of the port to better facilitate these activities.

This gives us reason to be hopeful that regional energy security, with Trincomalee at its nexus, might soon be a reality.

Also Read: India and Sri Lanka decide to jointly develop WWII era Trincomalee Oil Tank