Cairn Lanka, a wholly-owned subsidiary of Cairn India, has begun drilling in one of eight blocks in the Mannar Basin off the island’s north-western coast.
Sri Lanka’s government claims that seismic data shows potential for more than 1 billion barrels of oil in the Gulf of Mannar.
By way of comparison, Sudan’s proven oil reserves of 6 billion barrels (0.5% of world reserves).
Of the eight blocks, two have been granted to China and India. Russia’s largest oil company, Gazprom, has also indicated an interest, as has Malaysia’s Petronas.
Economic development minister Basil Rajapakse says that if oil is found, Sri Lanka would no longer be dependent on imports from other countries.
Bizarrely, he also warned that some western countries may pose a threat to Sri Lanka, like they have done in the Middle East, if Sri Lanka is successful.
Perhaps he’s forgotten that Cairn Energy, which owns half of spin off Cairn India, is a British company, which has been trying for over year to off load Cairn India to the Indian company metals and mining giant Vendanta.
Both Cairn Energy and Vendata are in the FTSE-100 index of the London Stock Exchange.
Meanwhile, Cairn Lanka has been exempted from taxes and import duties until 2016. The decision was introduced by Basil Rajapakse and passed in parliament with 58 votes against four.
Exemptions on taxes include all capital goods imported by Cairn Lanka and its sub-contractors, including equipment, machinery and required supplies and consumables.
Democratic National Alliance (DNA) leader Anura Dissanayake claims that the exceptions mean that if oil is found, Sri Lanka would only receive 10% of the profit, compared to the 38% without the concessions.
But Basil Rajapakse defended the decision saying that all clauses in the Cairin agreement were in accordance with international norms.
This was his explanation:
“If a gem is found in a mine, it does not belong solely to the land owner concerned. The profit has to be shared among license holder, land owner and workers. Oil dredging is a similar business. There is an accepted way of doing it. We have stuck to that criterion.”
In a related development, Russia’s giant, Gazprom, is interested in oil exploration and the purchase of liquid natural gas with Sri Lanka, the government said, without elaborating.
In June, President Mahinda Rajapaksa had invited Gazprom to partner in achieving self-sufficiency in petroleum products, The Hindu reported.
Gazprom recently sent a delegation, which met with Minister of External Affairs G.L. Peiris and the President Mahinda Rajapakse during their visit.
American and Russian companies from the mid-1960s to 1984 undertook exploration in the Mannar basin, but no commercial oil was produced, Reuters said.