Sri Lanka Will Seek Bids for Oil Exploration Licenses

April 5 (Bloomberg) -- Sri Lanka, a country that imports all its oil, will next month ask explorers to compete to develop a field that may contain 1 billion barrels of crude, 17 percent of neighboring India's reserves.

China and India's state oil companies have already been promised two of the Mannar basin's five blocks. Sri Lanka will seek bids to develop three remaining areas on May 1, said Neil De Silva, director general of petroleum resources development. Licenses will be awarded in early 2008, he said yesterday.

Sri Lanka needs to secure its own oil supplies to reduce petroleum imports. Costlier oil and military purchases to combat separatist Tamil Tiger rebels have fanned consumer prices, curbing growth in the island's $26 billion economy. China and India, Asia's two fastest-growing economies, are competing for overseas oil and gas reserves to meet soaring energy demand.

``Escalating oil and gas prices have not only led to the increase in the cost of living but also the reduction of competitiveness of Sri Lankan exports,'' the Ceylon Chamber of Commerce, the island's biggest industry grouping, said in a statement. ``The oil and gas industry has the potential to change the destiny of Sri Lanka.''

Demand for fuel is rising in line with economic expansion, projected at 7.5 percent this year. Oil prices in New York have risen 5.4 percent this year to trade at $64.35 a barrel today.

West Coast

The auction for the three remaining blocks in the basin off Sri Lanka's west coast will be launched at an offshore technology conference in Houston on May 1, De Silva said in a telephone interview yesterday. Bids will be open until early November, he said.

China National Offshore Oil Corp., parent of overseas- listed Cnooc Ltd., may develop one coast, Petroleum Minister A.H.M. Fowzie said in an interview in Shanghai on March 1. The basin contains the equivalent of one billion barrels of oil, he said. The Beijing-based company may start exploration off the Sri Lankan coast by 2008, he said.

``A block will also be going to the government of India,'' De Silva said. India had proved oil reserves of 5.9 billion barrels at the end of 2005, according to BP Plc's Statistical Review of World Energy.

China's Help

The Chinese government is helping Sri Lanka build its first coal-fired power plant at Norocholai, north of capital Colombo, as the island seeks cheaper electricity. The plant will produce 300 megawatts by 2010 and as much as 900 megawatts as demand rises. The electricity will cost half that of an oil-fired unit.

NTPC Ltd., India's largest power company, in December signed an agreement to build a 500 megawatt coal-fired power plant in the Sri Lankan port town of Trincomalee. The plant is expected to commence operations in 2011.

Surging crude oil prices raised Sri Lanka's oil import bill by 25 percent last year to $2.07 billion. Import costs have been boosted by a depreciating currency.

The Central Bank of Sri Lanka's last week maintained its 2007 growth forecast even as renewed fighting in the island's civil war and the highest interest rates in Asia slowed the pace of expansion in the fourth quarter.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net ;