Indian Oil Corp begins operations in Sri Lanka

[TamilNet, Wednesday, 28 May 2003, 13:37 GMT]
Indian petroleum minister Mr. Ram Naik, who arrived on a two-day visit to Sri Lanka, inaugurated the Indian Oil Corporation's operations in the island’s petrol and diesel retail market Wednesday. Mr. Naik launched Lanka IOC (Pvt) Ltd, a wholly-owned subsidiary of IOC, with the inauguration of a petrol station in Colombo Wednesday as part of a chain of 250 retail outlets the state oil firm is taking over in the island nation. He will visit Trincomalee on Thursday, Sri Lankan government officials said.

The Lanka Indian Oil Corporation would upgrade the acquired petrol stations to international standards by providing value added services like ATM, convenio stores, automatic car wash and food marts.

LIOC will invest about 4 billion Sri Lankan rupees in this venture, sources said.

“India and Sri Lanka are set to move closer in the crucial area of energy security, with plans on to build an oil pipeline linking the two neighbours. The proposal, still in its early stages, is to develop an offshoot from the proposed pipeline between Chennai and Madurai to reach Colombo”, M. Nageswaran, managing director of the Lanka IOC (LIOC), a wholly owned subsidiary of the Indian Oil (IOC) was quoted as saying in the Indian press.

“The pipeline proposal is a significant to the energy security of the island. A net importer of petroleum products, Sri Lanka has already agreed to lease its Oil Tank Farm in eastern Trincomalee to be operated by the LIOC. The tie-up in the petroleum sector is also a pointer to the changing nature of bilateral relations, with a greater emphasis on furthering economic links”, a Sri Lankan government official said.

The World War II vintage Trincomalee Oil Tank Farm, with 99 tanks, each with a capacity of 12,250 kilolitres, was considered to be of strategic importance even during the decades of the Cold War. However, with the changing geopolitics and rapid advances in military hardware, its strategic significance may not be the same as it was in earlier decades; but its continued importance for the island and the region cannot be underestimated. Moreover, the heavy correlation between energy and international affairs adds to the importance of the IOC's role in Sri Lanka in bilateral relations.

For Sri Lanka, the Indian presence in Trincomalee is seen as a part of its international safety net in its present peace process with the Tigers. The Government, however, has maintained that it was a commercial decision. The leasing of the farm is an extension of the 1987 Indo-Sri Lanka Accord under which the two Governments agreed that the "work of restoring and operating the Trincomalee Oil Tank Farm would be undertaken as a joint venture between India and Sri Lanka.''

Currently only 15 of the 99 tanks are operational. The LIOC "plans to develop the China Bay Tankages (in eastern Sri Lanka) on a need basis as the volume of operations in Sri Lanka grow.''

In addition to the Trincomalee Oil Farm, the IOC's involvement in the island's energy sector will be in two terminals under construction at Muthurajawela and Katunayake International Airport, through a joint venture with the Ceylon Petroleum Corporation.

The LIOC is set to enter retail business in Sri Lanka and would initially take over 100 petrol stations in the island. This would be followed by another 150 petrol stations in the second phase.

Compared to the 9,423 retail petrol outlets run by the IOC in India, Sri Lanka has 1,064 petrol stations. Colombo, the island's largest city, has 48 outlets, of which 13 will be operated by the LIOC in the first phase.

In addition to the IOC's initial investment of $62 million for the first phase, $38 million would be invested in the second phase, making it one of the largest Indian investments in the island.

In its retail business, the LIOC would provide the entire range of petroleum products, including Aviation Fuel, LPG and all grades of lubricants and fuel, Sri Lankan government officials said.

On 11 June 2002, Indian Oil Corporation Ltd., and Ceylon Petroleum Corporation (CPC) signed a Memorandum of Understanding (MoU) New Delhi. Mr. M.S Ramachandran, Chairman, IndianOil and Mr.Daham Wimalasena, Chairman, CPC, signed the MoU on behalf of IndianOil and CPC respectively. IndianOil is the largest National Oil Company in the Asia Pacific region. Ceylon Petroleum Corporation is the National Oil Company of Sri Lanka and is the only Oil Company in the island nation.

According to the MoU, CPC will divest 100 CPC-owned Retail Outlets in favour of IndianOil and will assist IndianOil to re-assign the franchise outlets. Indian Oil will modernize and provide additional services through these retail outlets. For development and better operating efficiency of petroleum terminals, storage depots including aviation fuelling facilities and other infrastructure in Sri Lanka, both IndianOil and CPC agreed to operate and use the total existing and future downstream infrastructure on a common user principle basis. Besides, IndianOil will take over the Trincomalee tank farm on long-term lease, according to the MOU.