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India will help Sri Lanka in oil sector despite recent changes: Officials

Colombo awards licences to three foreign firms, including a Chinese one, to operate in retail fuel market

Sri Lanka

Representative Image (Photo: ANI)

Subhayan Chakraborty New Delhi

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Sri Lanka has awarded licences to China's Sinopec and two other foreign oil companies to operate in its volatile retail fuel market where a state-owned Indian firm has a leading share.

Officials said in New Delhi India will continue supporting Sri Lanka in developing oil infrastructure as the two countries have common interests. Lanka IOC, Indian Oil Corporation's subsidiary, commands a third of the island’s fuel retailing market and the rest is with state-controlled Ceylon Petroleum Corporation (Ceypetco).

Pankaj Jain, India’s Petroleum and Natural Gas Secretary, was in Sri Lanka earlier this week with a delegation. Jain, while visiting prospective projects, called for increasing partnership between the two countries in the energy sector, local media reported.

The countries must explore renewable energy sources like green hydrogen, ammonia and compressed biogas, he said.

India stays put

Sri Lanka's cabinet on Tuesday approved Chinese state-owned Sinopec, United Petroleum Australia and US-based RM Parks, which has collaboration with British oil giant Shell, to operate in the country.

"The three firms will each be allocated 150 dealer-operated fuel stations, which are currently operated by Ceypetco, and get 20-year licences to import, store, distribute and sell oil products in Sri Lanka. A further 50 fuel stations at new locations will be established by each selected company," said Sri Lankan Power and Energy Minister Kanchana Wijsekera on Twitter.

Excluding new locations, about 450 retail fuel outlets will be given to the three new entrants. Lanka IOC currently operates 211 such outlets. "However, the Sri Lankan government has recently allowed it to open 50 more outlets, work on which will begin going forward," said an Indian official.

Sinopec, which is slowly gaining ground in Sri Lanka, is a unit of China Petrochemical Corporation, the world's largest oil refining, gas and petrochemical conglomerate.

Sri Lanka said in March that Sinopec has offered to fully finance the construction of a proposed refinery near the controversial Hambantota International Port, which is being built with Chinese funds.

Sri Lanka, after five years of talks with India, agreed to jointly develop the Trincomalee oil farm at an estimated cost of $500 million. The Trinco Petroleum Terminal Ltd will be 51 per cent owned by CEYPTCO and the rest by Lanka IOC. The company will develop 61 tanks and pipes connecting to the farm at a cost of $70 million.

Neighbours and partners
India wants Sri Lanka’s partnership in oil exploration. Sri Lanka is preparing to issue two-year oil and gas exploration licenses for 900 offshore blocks to foreign firms and ONGC Videsh Limited (OVL), the overseas arm of India's state-run Oil and Natural Gas Corporation. OVL is interested in areas in the northeast of the country.

India has $4 billion as assistance to Sri Lanka which last year plunged into its worst financial crisis in modern times. This included multiple credit lines, a $400-million currency swap arrangement, and deferred import payments worth at least $500 million. India sent a warship carrying essential drugs for the island's 22 million people.

Indian officials said Sri Lanka is seeking a new temporary credit facility of $1 billion from India. Last week, Colombo began talks with New Delhi to extend repayment of a $1 billion credit line received last year.

Sri Lanka's 22-million people consumed 123,000 barrels per day of oil products in 2019 before the pandemic and economic crisis, according to the International Energy Agency. While the domestic turmoil has reduced consumption slightly, the country only produces around 35,000 b/d from its ageing 50,000 b/d Kelaniya refinery.

The nation once defaulted on crude import payments due to a foreign exchange crisis. The government last July restricted fuel supply to essential services and introduced nationwide rationing.

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First Published: Mar 29 2023 | 1:05 PM IST

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