New Delhi: 

In a move laden with strategic significance, India, Sri Lanka, and the United Arab Emirates (UAE) signed a trilateral Memorandum of Understanding (MoU) on Saturday to transform Trincomalee into a regional energy hub.

The agreement, unveiled during Prime Minister Narendra Modi’s visit to Colombo, signals a recalibration of regional alliances in the Indian Ocean, where maritime infrastructure and energy connectivity are fast becoming instruments of geopolitical influence.

"The agreement reached to build a multi-product pipeline, and to develop Trincomalee as an energy hub will benefit all Sri Lankans," Modi said during a joint media briefing with Sri Lankan President Anura Kumara Dissanayake following delegation-level talks between the two sides.

In January this year, soon after his visit to China, Dissanayake had said that Sri Lanka had suggested to India to develop a new oil refinery at the Trincomalee Oil Farm.

"Discussions are underway," he said during a public meeting in Sri Lanka. “We have to refine oil (and) use the tanks and become a nation that exports fuel to the world. We can make it a good hub."

The Trincomalee Oil Farm, located on the northeastern coast of Sri Lanka, holds significant strategic, economic, and geopolitical importance for India. This importance can be analysed from various perspectives, including energy security, regional influence, maritime security, and the historical and diplomatic ties between the two countries.

One of the primary reasons the Trincomalee Oil Farm is critical for India is its role in energy security. India has one of the largest and fastest-growing economies in the world, and energy is a key driver of that growth. The Trincomalee Oil Farm is located at a strategic maritime location that provides access to vital shipping routes. The oil storage facilities in Trincomalee can serve as a regional energy hub for India.

India's interest in the oil farm stems from its need to maintain strategic petroleum reserves (SPR) in case of disruptions in oil supply. The farm could function as a backup or a storage facility for India to stockpile crude oil, which could be crucial during periods of geopolitical uncertainty, especially with the volatile situation in the Middle East, which supplies much of India’s crude oil. In the event of a supply chain disruption, such reserves would help mitigate the adverse impacts on India’s energy security.

According to Foreign Secretary Vikram Misri, the signing of the trilateral MoU on Saturday is an initiative designed to ensure Sri Lanka’s energy security, provisioning of energy at affordable rates, and also to possibly contribute revenue for Sri Lanka through export earnings of energy generated at this project.

"At the present moment, the way this is structured, it is a government-to-government MoU in order to provide the enabling framework, and to set out some of the broad terms of reference for this cooperation," Misri said while addressing the media in Colombo following the delegation-level talks. "The immediate next step that will be enabled by this framework MoU is the identification and the nomination of specific agencies and entities that could be government entities or private sector entities or could be entities related to the governments themselves that will try and realise the business-to-business part of this agreement."

Why the trilateral MoU assumes significance is because it comes soon after China Petroleum and Chemical Corporation or Sinopec, the world’s biggest oil refiner, agreed to invest $3.7 billion to construct a state-of-the-art oil refinery with a capacity of 200,000 barrels per day in the southern Hambantota region.

While Sinopec’s primary operations are based in China, the company also has a presence in several other countries, including Russia, Kazakhstan, Angola, Brazil, and other regions where it has exploration and production activities or refining and petrochemical operations.

Sinopec already has an overseas refining facility in Saudi Arabia, a major energy producer. The Yanbu Aramco Sinopec Refining Company (YASREF), a joint venture between Saudi Aramco and Sinopec is a world-class, full-conversion refinery that uses 400,000 bpd of Arabian heavy crude oil to produce premium transportation fuels.

According to Harsh V Pant, Professor of International Relations with King’s India Institute at King’s College London and Vice-President (Studies and Foreign Policy) at the Observer Research Foundation think tank, India’s desire to have a wider energy hub has been strengthened by this trilateral MoU.

"It reflects two things," Pant told ETV Bharat. "One is India’s confidence in continuing its ties with Sri Lanka under the current regime. The second thing is India is bringing the UAE into South Asia in a big way. India-UAE ties have seen a dramatic upswing in recent times."

He further explained that the signing of this MoU is a message that India can leverage its partnerships with other countries for regional economic growth and prosperity. "This also undercuts the debate that China has deep pockets," Pant said.

To sum up, the agreement between India, Sri Lanka, and the UAE to develop Trincomalee as a regional energy hub marks a significant step toward enhanced energy cooperation and regional integration. By leveraging Trincomalee’s strategic location and fostering collaborative development, the involved nations aim to achieve mutual economic benefits, strengthen energy security, and contribute to a balanced geopolitical landscape in South Asia.

However, when implemented, the project in Sri Lanka will become Sinopec’s first fully-owned refinery abroad. Sri Lanka, strategically located in the Indian Ocean, has attracted significant interest from international investors due to its geographical location, which is ideal for connecting Asia, Africa, and Europe. However, the country has faced various economic and energy challenges, including a heavy reliance on imported energy and infrastructure constraints. These factors have made it an attractive location for a new oil refinery project.

The Trincomalee Oil Tank Farm was built by the British during World War II as a refuelling station. It is located in close proximity to the Trincomalee Harbour. The proposal for joint development of this farm was envisaged 37 years ago in the India-Sri Lanka Accord of 1987. It comprises 99 storage tanks, with a capacity of 12,000 kilolitres each, spread across Lower Tank Farm and Upper Tank Farm. In 2003, Indian Oil Corporation set up its Sri Lankan subsidiary Lanka IOC, to work on this oil farm. Currently, Lanka IOC runs 15 tanks. The farm is easily accessible and is located along some of the world’s busiest shipping lanes.

During his media briefing, Foreign Secretary Misri said that the actual projects that will be carried out under the trilateral MoU will be discussed in detail by the designated business entities of the three sides, and that is the next step that will ensue.

"The UAE is a major energy partner for India," he said. "It is a strategic partner for India in the energy space, and it was therefore an ideal partner for this particular exercise that is being done for the first time in this region."

Misri further explained that the exact contours of the UAE’s role will be something that is going to be elaborated on once the B2B discussions kick off under the MoU.

"Insofar as the components of the activities are concerned, I think somebody asked about a multi-product pipeline," he said. “That is certainly one of the things that will be discussed under this particular MoU.”

Stating that while some of the tanks are already being developed and utilised by Lanka IOC, Misri said that there are many more that are lying unused, and have not been put to use as yet.

"And there is a possibility that they will also be developed and utilised under this particular MoU,” the Foreign Secretary said. "Really, in the business space there are a number of initiatives possible for discussion under an MOU such as this. I imagine that once the entities get together, they will look at all issues related obviously to financing, to feasibility, to viability, etc., and come up with the projects that can be taken forward on the ground."

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