Sri Lanka enters strategic oil deal with India

Sri Lanka and India launched a joint venture on Thursday to revive a strategic British colonial-era oil storage facility and strengthen energy security in the region, a senior minister said.

The deal is seen as countering China's rising influence in the region and comes two days ahead of a visit to the Indian Ocean island nation by Chinese Foreign Minister Wang Yi.

Energy minister Udaya Gammanpila said the agreement signed with the Sri Lankan unit of the Indian Oil Corporation would involve the refurbishment of tanks near the eastern port of Trincomalee that were used during World War II by Allied forces.

"Agreements to develop Trinco Oil Tank Farm signed this evening," the minister said on Twitter.

Under the joint venture, Sri Lanka will hold 51 percent and India will hold the rest. The minister did not say how much each side would invest.

Earlier this week, Sri Lanka's cabinet had approved plans to develop the tanks, which have a capacity of eight million barrels.

The Indian High Commission in Colombo called the agreement a "new milestone" in economic partnership between the two South Asian neighbours.

The tank farm, located about 260 kilometres (160 miles) northeast of Colombo, was largely abandoned after the end of the war, but the Indian Oil Corporation has been using 14 tanks since 2003 under a previous agreement.

The facility originally had 100 tanks, but one was destroyed when a Japanese aircraft bombed it in April 1942, the energy ministry said.

Under the new deal, the Indian company will have a 50-year lease on the 14 tanks they currently operate and will have joint ownership of 61 tanks with Sri Lanka's state-owned Ceylon Petroleum Corporation (CPC).

The CPC, which is in competition with the Indian Oil Corporation for retail fuel sales on the island, will also have 24 tanks to run on their own.

The Chinese foreign minister is expected in Colombo on a two-day visit starting Saturday to mark 65 years of diplomatic relations between the two nations.

Beijing has emerged as one of Colombo's key economic and political partners.

India and the United States have expressed concerns that a Chinese foothold in Sri Lanka, particularly one at a port in the island's south, could give Beijing a military advantage in the Indian Ocean.

Both China and Sri Lanka have denied that its ports will be used for military purposes.