India’s Minister for External Affairs S. Jaishankar’s visit to Sri Lanka on January 19-20 was significant. It marked an important breakthrough in Sri Lanka’s efforts to access IMF funding.
During the visit, Jaishankar drew attention to India’s concrete support for Sri Lanka’s economic recovery. In a letter to the IMF sent a day before Jaishankar’s arrival in Colombo, India expressed strong support for Sri Lanka’s debt restructuring plan. It thus became the first country to provide written support to Sri Lanka getting IMF assistance.
The country, which has been in the grip of an economic crisis has been working on securing a $2.9 billion loan from the IMF. Over the past few months, it has been trying to get financial assurances from its major creditors — China, Japan, and India – to access the bailout package.
During his visit, Jaishankar met Sri Lankan leaders to discuss how India could help Sri Lanka restructure its debt and assist the country in its economic recovery. President Ranil Wickremesinghe was present at a joint press conference addressed by Jaishankar and Sri Lankan Foreign Minister Ali Sabry, a sign of the importance Colombo placed on the Indian foreign minister’s visit to the island.
After making the usual platitudes about Prime Minister Narendra Modi’s commitment to the Neighborhood First policy, full implementation of the 13th amendment to the Sri Lankan Constitution, provincial council elections, and durable efforts toward reconciliation, Jaishankar made some interesting observations about Sri Lanka’s energy sector.
He said that energy security is one of the island’s most serious challenges and a solution must encompass the larger region. Sri Lanka has enormous potential for renewable energy, which can become a sustainable source of revenue, and Trincomalee can become an energy hub, he said.
“In its support for Sri Lanka, India is prepared to be a reliable partner on such initiatives. We have today agreed in principle on a renewable energy framework that would take this cooperation forward,” Jaishankar announced.
While this is the first time that a senior Indian official has expressed Indian interest in Sri Lanka’s renewable energy industry, studies have drawn attention to the benefit that both countries can reap from collaboration in the energy sector. A policy brief by India’s Observer Research Foundation last year suggested that the two nations should “further consolidate their relations by exploring the opportunities available in renewable energy.”
Others too have suggested that an integrated electricity market is key to South Asia’s energy security. Highlighting that about 80 percent of total primary energy production in South Asia is generated from fossil fuels, which are mainly imported, the World Bank said that “regional cooperation and integration can help accelerate the diversification of electricity supply resources across South Asia while enabling a greater role for renewable energy resources.” South Asia has significant untapped hydropower potential, and the countries must accelerate the deployment of solar and wind resources, the World Bank said.
However, given the bad blood between South Asian nations, such coordination has proven to be difficult. Many Sri Lankans look at India with suspicion as it has a history of intervention in Sri Lanka’s internal affairs. Faced with financial difficulties, however, Sri Lanka has continued to sell energy assets to foreign private entities, especially those from India.
Already India has a significant stake in Sri Lanka’s energy sector and a strategic interest in Trincomalee. Political circles in Colombo are abuzz with Indian demands for stakes in the Ceylon Petroleum Corporation and the Ceylon Electricity Board, which would effectively end Sri Lanka’s energy sovereignty. A little known fact is that Sri Lanka had agreed to develop the energy architecture in Trincomalee only with Indian consent, which triggered much unease in the country.
Lanka IOC (LIOC) PLC, a subsidiary of Indian Oil Corporation, has over 200 retail outlets in Sri Lanka. It also holds 14 oil tanks in the Trincomalee oil tank farm, leased to the LIOC for 50 years from 2021. In December 2021, then-Energy Minister Udaya Gammanpila announced an agreement with India on the control of the Trincomalee oil tank farm. Under the agreement, LIOC got 14 tanks, 24 oil tanks went to state-owned oil importer and distributor Ceylon Petroleum Corporation (CPC), and the remaining 61 are to be managed by Trinco Petroleum Terminals Ltd., a joint venture between LIOC and CPC.
Critics of the agreement warn that Indian investments in strategic locations in Sri Lanka could pose a serious national security threat.
Education Secretary of the Frontline Socialist Party Pubudu Jayagoda has said that India will operate the proposed renewable energy generation projects in the North. Indian oil exploration in the Mannar Basin “poses a serious security threat to the country,” he said.
During the 2022 financial crisis, India was Sri Lanka’s main benefactor, pumping in over $4 billion. Indian loans kept Sri Lanka afloat. Given that the Indian government faces significant criticism over this largesse from its domestic opponents, it is understandable that New Delhi is pushing to further Indian interests in Sri Lanka. Last year, Gautam Adani, who is closely associated with the Modi government, made several investments in Sri Lankan strategic industries.
“Soon after Wickremesinghe became president, he presented a strategic plan for the Trincomalee District. According to the plan, a number of strategic locations in the district will be handed over to Indian companies,” Jayagoda told Sri Lanka’s The Island newspaper last year.
Not only did Sri Lanka hand over 14 oil tanks to the IOC, but also the pipelines used to carry fuel and the bunkering operation. With this Sri Lanka was deprived of a lot of foreign revenue.
“Likewise, although IOC only owns 49 percent of Trinco Petroleum Terminals, they are in charge of the operations. We have given them the best tanks, situated at the lower levels of the tank farm, and the pipelines that transport oil. So they are in control of the tank farm,” Jayagoda said.
Sri Lanka does not have a policy on energy. Most agreements on power and energy are done secretively and are often controversial.
Successive governments have promised to boost renewables but the country produces precious little from its sources of green energy sources. Sri Lanka spent close to $1.2 billion to import fuel to produce electricity in 2021. Hundreds of millions of dollars would have been spent for the same purpose in 2022, although the number should have dropped in 2022 due to dwindling reserves and power cuts.
Under Indian pressure, the Gotabaya Rajapaksa government revoked tenders won by a Chinese company to develop renewable energy in the country. This had dented Sri Lanka’s relationship with China. Given Sri Lanka’s proximity to India and the latter’s paranoia over China, it is obvious that Sri Lanka will not be able to develop renewable energy infrastructure in the country’s North, which has ideal conditions for solar and wind power production, without Indian approval.
Sri Lanka is in dire need of an energy policy that will introduce a degree of transparency into its dealings with foreign powers.