India is interested in Trincomalee port but is wary about policy inconsistencies

India is interested in Trincomalee port but is wary about policy inconsistencies

Colombo, April 8: Sri Lanka is keen on involving India in a significant way in the development of the eastern port of Trincomalee and its hinterland to counter-balance the heavy presence of China in Hambantota and its environs in the south of the island. India too is interested in Trincomalee for political, strategic and historical reasons. But India is not exactly jumping at the new prospects held before it, writes P.K.Balachandran in www.southasianmonitor.com.

It has nagging concerns about the stability of Sri Lanka’s policies in regard to foreign investments both in the light of its past experience in the island nation, and in the light of the present discomfiture of the Chinese in regard to the Hambantota port.

The Sunday Times reported that the Sri Lankan government has drafted an Indo-Sri Lankan MoU  for the development of Trincomalee port and its hinterland besides other projects in the island. But India would rather not comment before it gets official documentary evidence of what is being reported in the media. It would also expect clarity of ideas and policy consistency.

This is because the Indians have experienced policy inconsistency in the past in regard to the 500 MW fired coal-fired power plant at Sampur in Trincomalee district; the oil tanks at China Bay next to the Trincomalee harbor; and also the Eastern container Terminal at Colombo port.

While the Indians are watching with some relish the discomfiture of their rival, China, at the Hambantota port where Colombo’s policy inconsistency has been  glaring, they are also worried that a similar inconsistency might afflict the projects undertaken by them in Trincomalee and elsewhere.

Projects

The draft MoU, sanctioned by the cabinet, says that the objective is “to achieve greater economic, investment and development cooperation in a progressive manner, through joint ventures and other cooperative activities that ensure the wellbeing of the people of the two countries on the basis of equality and mutual benefit.”

The spelled out “areas of scope and cooperation” are many.

Trincomalee port

India and Sri Lanka will make joint investments in the development of the Trincomalee port, and set up a petroleum refinery and other industries in Trincomalee district. There will be a Joint Venture to develop the Upper Oil Tank Farms in Trincomalee and sign a land lease agreement for 50 years in favor of Lanka Indian Oil Corporation (LIOC) Ltd. for the tank farm. India and Sri Lanka will jointly set up a 50 MW (extendable to 100 MW) Solar power plant at Sampur in Trincomalee district.

India will help set up a Liquefied Natural Gas (LNG)-fired 500 Megawatts capacity power plant as well as an LNG Terminal/Floating Storage Regasification Unit (FSRU) at Kerawalapitiya, near Colombo. It will assist Sri Lanka in setting up a piped gas distribution system in Colombo and in other suburban areas. It will set up retail outlets for the supply of Compressed Natural Gas (CNG) to the transportation sector in Sri Lanka. It will convert power plants to LNG fired power plants jointly with the Ceylon Petroleum Corporation (CPC).

India will set up Industrial Zones/Special Economic Zones in identified locations in Sri Lanka; develop the Dambulla-Trincomalee, the Mannar-Jaffna and Mannar-Trincomalee roads into modern highways; and further develop the railways by upgrading  tracks and supplying rolling stock.

The Sri Lankan and Indian governments will encourage Indian companies to invest in the Eastern Container Terminal in Colombo Port, considering that 70 to 75% of the business of the Colombo port is transhipment to and from India.

Provisions in the MoU could be amend or supplemented. Disputes are to be settled “through mutual consultations” and either side would be entitled to terminate the agreement by giving three months’ notice.

However, India’s experience in Sri Lanka in the past has not been very good. It was in 2006 that a decision was taken to set up a 500 MW coal-fired power plant in Sampur. But after overcoming all issues, including the re-settlement of war-displaced Tamils, when construction was about to begin ten years later in 2016, the Sri Lankan President Maithripala Sirisena requested Indian Prime Minister Narendra Modi to call off the project on environmental grounds. Colombo then proposed that India help put up a LNG fired power plant of the same capacity in Kerawelapitya . But till date, there has been no progress in regard to that project.

The Lanka Indian Oil Corporation (LIOC), which got the 99 giant oil tanks in Trincomalee Tank Farm in the early 2000s, had renovated 15 of the 99 tanks oil tanks at a cost of US$ 15 million and was ready to invest US$ 17 million more for further refurbishment.

But given the downturn in relations between New Delhi and Colombo on the Tamil human rights issue, the  Mahinda Rajapaksa government in 2013 unofficially said that  it might ask the LIOC to quit because the original agreement was not entered into in a proper manner. It also said that the land on which the tanks stood had not been handed over to LIOC legally. Further, it was said that the LIOC was paying only a nominal fee for the use of the tanks.

But the government of India unofficially warned Sri Lanka that the IOC-Ceylon Petroleum Corporation (CPC) deal on the oil tanks was the result of the India-Sri Lanka Accord of 1987 and was therefore a government to government agreement which could not be unilaterally abrogated. The Sri Lankan government thereafter stopped talking of a takeover but full development of the tanks did not proceed as originally envisaged.

Trincomalee oil tanks

India was keen on participating in the energy sector in Sri Lanka and had an eye on Trincomalee for development as an Indian Ocean energy hub. Each of the 99 tanks has a holding capacity of 12,100 metric tons of oil. The total storage capacity is about one million metric tons.

After the change of government in Sri Lanka in January 2015, Prime Minister Ranil Wickremesinghe proposed an India-Sri Lanka joint venture to develop 30 storage tanks in the first phase. The Government also proposed to establish a new joint venture between Lanka IOC and the Ceylon Petroleum Corporation (CPC) to develop the 84 tanks located within the Trincomalee Upper Tank Farm.

However, a bid by the CPC to undertake the development work unilaterally, met with resistance from the LIOC. A parliamentary committee on public enterprises even charged that the LIOC was not consistent in paying the annual rent. But the LIOC retorted saying that it has never defaulted on the payment of the fee of US$ 100,000 a year. The LIOC also argued that no separate land lease agreement was necessary as the tank farm was transferred to the LIOC by a government-government agreement.

Commercial Viability

The other issue which is worrisome to India, is the commercial feasibility of making Trincomalee port an economically viable one. It is a vast and natural harbor with a depth of 25 meters, unrivaled in the Indian subcontinent. But unlike Hambantota, it is not located on the international shipping route. As of now,  even Hambantota attracts only 300-odd vessels a year and is not expected to break even before a decade. Thus, Trincomalee will be huge white elephant for decades.

However, Adm.Dr. Jayanath Colombage, former chief of the Sri Lankan navy, feels that Trincomalee could serve as a “regional hub” serving the Bay of Bengal region covering the Eastern Coast of India, Bangladesh and Myanmar.

Adm Dr.Jayanath Colombage

“Colombo port will continue to be the global hub, as it has the built-in capacity for that. It also has a developed and suitable hinterland. In contrast, Trincomalee is not developed and the port itself is yet to be built,” Colombage said.

Strategic Value

But India has a critical, non-economic interest in Trincomalle, as it strategically located for exercising control over the Bay of Bengal, which could become an arena of rivalry between India and China.

China is building a port in Kyaukpyu in Myanmar, and Bangladesh has just acquired two submarines from China, raising the hackles in New Delhi and Tokyo. New Delhi has responded to the purchase of the submarines by pressurizing Dhaka to enter into a defense pact with it. India is offering Bangladesh weapons and defense technology to wean it away from China.

India realized Trincomalee’s strategic value way back in 1987 when its  interest found a place in the India-Sri Lanka Accord. As per the accord, Sri Lanka is barred from offering the port and oil tanks to any country which is inimical to India. That Sri Lanka will not do anything to undermine India’s security has been expressed by all Sri Lankan regimes since 1987. Incumbent Prime Minister Ranil Wickremesinghe reiterated this pledge in a recent interview.

Such pledges are a powerful incentive for India to establish a strategic presence in Trincomalee. At the end of the day, the various difficulties in functioning in Sri Lanka (listed above) may be ignored for the sake of getting a foothold here.

(The featured picture at the top shows the Trincomalee port. the natural setting is there but the harbor is yet to be developed)