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India and UAE will develop an energy hub in Sri Lanka as Delhi competes against China's influence

India's Foreign Ministry announced on Saturday that India and the United Arab Emirates had agreed to build an energy hub in Sri Lanka. This comes as New Delhi's rivalry with China in the Indian Ocean Island nation grows.

The three nations signed a pact to create the hub during Indian PM Narendra Modi’s visit to Sri Lanka. This was the first time a world leader visited Sri Lanka since Anura Kumara dissanayake became president in September.

New Delhi and Colombo are working to strengthen their ties, as India's southern neighbor recovers from the severe financial crisis that was triggered in 2022. During this time, India gave $4 billion of financial assistance.

The agreement signed on Saturday increases New Delhi's competitiveness with China. Sinopec, the state-owned energy company of China (600028.SS), has agreed to build an oil refinery worth $3.2-billion in Hambantota, Sri Lanka's southernmost port city.

Vikram Mihiri, Indian Foreign Minister, told reporters in Colombo that the energy hub will be built in Trincomalee - a strategic city in Sri Lanka's eastern province and a natural port - by building a multiproduct pipeline. It may also involve the use of an old tank farm from World War Two, which is partly owned by a Sri Lankan subsidiary Indian Oil Corp.

Misri stated that the UAE was a strategic partner of India in the energy sector and as such, it was the ideal partner to work with for this first-ever exercise in the region. The exact contours of UAE’s role will be outlined once business-to-business discussions begin.

He said that the three nations would then choose the business entities who will evaluate the feasibility and financing of the projects for the hub.

Modi inaugurated also a $100-million solar power project. It is a joint venture of Ceylon Electricity Board with India's National Thermal Power Corp.

India and Sri Lanka have also completed their debt restructuring processes, said Foreign Secretary Misri. Sri Lanka is owed about $1.36bn in loans by EXIM Bank of India (and State Bank of India), according to data from the Sri Lanka Finance Ministry.

Colombo began debt restructuring negotiations after defaulting on its debts in May 2022. A preliminary agreement was signed with bilateral creditors Japan India and China in June last year.

India and Sri Lanka have also signed pacts in the areas of digitalisation, healthcare, and security. Reporting by Uditha Jayasinghe and Shivam Patel in Colombo; editing by William Mallard

(source: Reuters)