Indian companies plan to make huge investments in Sri Lanka

NEW DELHI, December 26: Seven months after the bloody civil war ended in Sri Lanka, Indian companies that are already working in the island are now busy making plans to make huge investments to expand their business there.

They appear eager to participate in the anticipated post-war reconstruction boom, especially in core sectors, such as energy and information technology.

According to information available here, at least six such companies have finalized their plans.

They are: Power Grid Corporation of India Ltd (PGCIL), National Thermal Power Corporation (NTPC), Lanka India Oil Corporation (Lanka IOC), Cairn Lanka Pvt Ltd, Lanka Ashok Leyland, and Mphasis.

India is Sri Lanka’s largest trading partner. It is now the island’s largest source of imports, and the fourth largest export destination. Bilateral trade witnessed a boom after the India-Sri Lanka Free Trade agreement came into force on 1 March 2000. In 2008, the two-way trade shot up to $3,265 million or LKRs 3,72,210 million, from just $658 million or LKRs 75,012 million in 2000.

Nearly a hundred Indian companies are currently doing business in Sri Lanka. So far, they have invested $400 million , or LKRs 45,600 million. An additional investment of about $300 million or LKRs 34,200 million, is involved in projects that are in various stages of implementation after receiving due approvals from the Sri Lankan Board of Investment (BOI).

The proposed investment plans of the NTPC and PGCIL alone amount to a staggering one billion US dollars, or LKRs 114,000 million.

PGCIL plans to install power transmission lines between India and Sri Lanka to pave the way for eventual trading of electricity between the two countries. The proposed 285km line includes submarine cables over a stretch of 50km. Once ready, it will enable the two neighbours to trade their surplus power with each other, thereby offering a cheaper option to bridge a power generating deficit.

The project, estimated to cost US$500 million, or LKRs 57,000 million, will link the power grid in Tamil Nadu to the transmission system in Sri Lanka. Initially, the line will have a capacity of 500 Mw, and is proposed to be doubled later.

NTPC, India’s biggest power company, is in the process of signing a joint venture agreement with the Ceylon Electricity Board (CEB) to set up a 1,000-Mw coal-based power unit with an investment of $500 million.

The project got delayed due to differences over where to locate the plant. All issues have now been sorted out, and the joint venture is likely to be signed soon. Now that the security concerns have vanished, NTPC has agreed to set up the plant in Eastern Trincomalee.

Indian Oil, too, is looking to diversifying into the bitumen business in the island. SV Narasimhan, IOC’s Director (Finance) and Chairman of Lanka IOC, told "Business Standard" newspaper: "The Sri Lankan economy will be on a growth trajectory. We already have a presence in lubes, bunker and fuel retailing. Now, we are trying to get into bitumen business and also exploring other avenues. In the lube business, we are tying up with other parties for utilizing our surplus capacity."

Since the end of the civil war, Lanka Ashok Leyland, a joint venture company between Ashok Leyland and the Sri Lankan government, has been experience in demand. The company hopes to sell 1,300 vehicles in the next four months.

Says Lanka Ashok Leyland’s CEO Umesh Gautam: " We have witnessed a boom in the local economy during the past three months. The government is opening all the highways and there will be a demand for commercial vehicles to transport construction equipment for rehabilitation work (in the North and East). We are gearing up to be a part in all this."

Cairn India Pvt Ltd, a wholly-owned subsidiary of Cairn India, has already started a 3D seismic survey in the Mannar Basin. Drilling will follow in the first half of 2011.

Last fortnight, Indian IT services company Mphasis announced plans to set up a facility in Sri Lanka that will be operational by the middle of 2010. It plans to hire 2,000 professionals over the next three years.

In 2008, Sri Lanka attracted $889 million or LKRs 1,01,346 million in foreign direct investment (FDI). Of this, $126 million or LKRs 14,364 million came from India.

A recent study by the Federation of Indian Chambers of Commerce and Industry (FICCI) said that upcoming investments in Sri Lanka are likely to be in core sectors such as oil exploration and production, power, telecom, IT and real estate.

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