Lanka Hyphenates India-China

China's oil quest is set to reach the Mannar area of Sri Lanka adjoining the likely oil/gas bearing Cauvery basin ofsouth India. A Chinese energy foothold in this key area has been facilitated by thegovernment of President Mahinda Rajapakse to balance an Indian presence in this area.

Exploration for oil and gas in certain parts of Sri Lanka between 1967 and 1974 did not yield any useful results. That exploration did not cover the Mannararea. In 2001, the Ceylon Petroleum Corporation awarded a contract for a seismic study of the Mannar area to TGS NOPEC, a Norwegiancompany. Under this contract, the Norwegian company was permitted to sell the data collected by it to third parties too. It sold the data to the Oil and Natural Gas Corporation (ONGC) of India and British Gas, India. In 2006, the Sri Lankangovernment purchased the entire data from the Norwegian company for US $ 10.5 million and cancelled its right to sell the data collected by it to third parties. According toDr Neil de Silva, Director-General of the Petroleum Resource Development Secretariat (PRDS), the data collected by the Norwegian company indicated the possibility of the presence of oil and gas in the Mannar Basin. The data was given to an Australian company, Spectrum, for analysis.

On September 22, 2005, A.H.M. Fowzie, the Minister for Environment and Natural Resources, stated as follows in a press interview:

"The Sri Lankan government hopes to get foreign expertise for the exploration of oil and natural gas deposits in Sri Lanka.We have been informed that oil and natural gas resources are found in Sri Lanka from Puttlam to Matara and also in the Bay of Mannar as well."

During a three-day visit to New Delhi, Mangala Samaraweera, the then Foreign Minister of Sri Lanka, announced on May9, 2006, that Sri Lanka would offer one oil and gas exploration block to the ONGC on a preferential basis. He said:"Given our close relations, we are offering one block on a preferential basis to the ONGC. We are confident that the discussion on this will be finalised soon."

During a visit to New Delhi in the third week of January this year, Fowzie announced that the Sri Lankangovernment had divided the area to be explored into eight blocks, of which one each wouldbe offered to India and China without bidding and there would be international bidding for the remainingsix. He announced at Colombo on March 6, 2007, that the government would be entering into a Memorandum of Understanding with thegovernment of China on the oil exploration process within the next two months.

Earlier, the Asian Tribune of Bangkok reported on January 4,2007, as follows: 

"India’s state-owned Oil and Natural Gas Corporation Videsh Ltd. has announced that it will explore for oil and gas in Sri Lanka’s Mannar basin very soon. The ONGC Videsh Ltd said the company’s own experience in India’s Cauvery basin would help them to explore oil and gas in the neighbouring Sri Lanka. It has been speculated by geologists that the same Cauvery oil deposit string also runs beneath Sri Lanka’s Mannar bay."

In a press interview on March 4, 2007, Dr.Neil de Silva was asked what was the reason for the decision to offer one block to the ONGC without bidding. He replied as follows: 

"We have to collaborate with the Indian government in the management of oil in the border area.  This is because all over the world, oil and gas fields do not know the country boundaries and in many instances they span over country boundaries. Countries have agreements to exchange technical data. India has found oil fields but not close to our border. India is not tapping our oil."

He was then asked why a block was being offered to China without bidding. He replied as follows: " It is thegovernment's decision. Maybe to strengthen relations with China. However, we have to live with regional politics. What we have to do is to manage them to get the maximum benefits to the country."

In other words, the policy of the Rajapakse government is whatever benefit is offered to India, an equal benefit will be offered to China.

In the meanwhile, the US Embassy in Colombo has disseminated the following advisory to American oil companies: 

"Sri Lanka is hoping to begin offshore oil prospecting soon. Licensing to open 6 drilling plots in the Mannar basin will be handled through a competitive bidding process. According to current plans, the exploration round will be announced in May 2007 with bids closing in December 2007. The government hopes to do a road show after opening the bid round, including stops in the US, London, Dubai, and Singapore. The US stop will likely be Houston during the May 1 Offshore Technology Conference. In addition to the exploration round, the government is planning to procure the following services in Spring 2007:A. Designing the production sharing agreement;B. Designing a computer model to analyze and evaluate the exploration bids;C. Designing of the regulatory regime governing petroleum exploration (to be funded through a US Trade and Development Agency (USTDA) grant); and D. Designing and executing a marketing campaign to promote the bid round."

A press release issued by the US Embassy on March 14, 2007, stated as follows: 

"Promoting energy security in Sri Lanka through the development of the nation's oil and gas sector is the goal of a grant from the U.S. Trade and Development Agency awarded today to the Ministry of Finance and Planning. The 51 million Rs., ($474,000), grant will fund technical assistance to the Ministry of Petroleum and Petroleum Resources Development in support of its efforts to develop a comprehensive oil and gas regulatory system and establish an organizational structure for the regulatory authority. The USTDA grant was conferred in a signing ceremony at the Finance Ministry in Colombo. U.S. Ambassador to Sri Lanka Robert Blake and Dr. P.B. Jayasundera, Secretary for the Ministry of Finance and Planning, signed the grant on behalf of the U.S. and Sri Lankan governments, respectively. The USTDA grant awarded today will help Sri Lanka transition from a consumer-driven to a production-oriented oil and gas regulatory structure, based on the Sri Lankan government's plans to open up promising offshore oil and gas blocks for exploration and development. 

"Development of the offshore oil and gas sector could be an important opportunity for Sri Lanka to reduce energy imports, generate revenue and create jobs. The United States wants to help Sri Lanka maximize its potential gain from oil and gas exploration," said Ambassador Blake. Sri Lanka presently has no oil or gas production of its own and imports approximately 80,000 barrels per day. The establishment of a sound regulatory regime will contribute to Sri Lanka's nascent petroleum industry and reduce the nation's dependence on imports. 

"A well-developed regulatory structure is essential to attracting and keeping high-quality investors in the oil sector," remarked the Ambassador; "We hope our assistance will help Sri Lanka establish an open and transparent regulatory system that both protects Sri Lanka's interests and gives investors confidence that they can earn a worthwhile return on their investment."

B. Raman is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies.