Pact signed with Cairn India for oil exploration

The Sri Lankan government today (July 07th) signed an agreement with Cairn India Ltd. to explore and produce hydro-carbon and natural gas in the Mannar Basin in Northern Sri Lanka.

According to the Petroleum Resources Agreement, Cairn India will start exploration activities in Block SL2007/01/001 in the Mannar Basin, which covers 3,400 sq. km. at depths between 200 to 1,800 m within 6 months from today

Minister of Petroleum and Petroleum Resources A.H.M. Fowzie and Cairn India's Chief Financial Officer Indrajith Benerijee signed the agreement on behalf of the two parties, in the presence of President Mahinda Rajapaksa.

Mr. Benerijee handed over USD 1 million as Signature Bonus on the agreement to President Rajapaksa at the agreement signing ceremony held at Temple Trees this morning.

The exploration spending schedule of the company in the next three years is expected to be USD 112 million.  

Once commercial extraction commences, the oil company is allowed up to 65 percent of the revenue to cover its investment.

The government will receive a 10 percent royalty, USD 50 million Production Bonus, the profit share based on the investment multiple, and 15 % tax on Contractor Profit and other necessary taxes.  

The Exploration licence is valid for eight years and divided into three stages of three, two, and three years.

The Government of Sri Lanka will receive all exploration data, and the Contractor will be required to support education and training of staff, support environmental studies and transfer related technology to Sri Lanka.

Meanwhile, the JVP has voiced its strong opposition to this agreement in a letter to President Rajapaksa.

Signed by the party's parliamentary group leader Anura Kumara Dissanayake, it calls for the tabling of the agreement before Parliament prior to its signing.

The JVP says a transparent and extensive dialogue is needed with regard to the procedure of selection of the Indian company, Sri Lanka's profit share as well the socio-political, economic and environmental impact of this exploration project.