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The Sri Lanka Ports Authority (SLPA) plans to commence the sale of marine fuel during the first quarter of 2011, local news service Lanka Business Online reports.

According to the source, the SLPA would beging selling bunker fuel off Hambantota [pictured], where a new port and bunkering terminal is being built a few miles away from the principal sea route across the Indian Ocean.

The SLPA is understood to be planning to set up a subsidiary in Hambantota and hire barges to store and supply fuel to passing ships until onshore storage tanks are built as part of the Hambantota port project.

The SLPA is expected to initially target small and medium-sized vessels during the initial stages of the bunker supply project. Larger container vessels do not tend to use bunkering services in nearby Colombo, which is limited mainly to small feeder vessels calling at ports in the Indian subcontinent.

SLPA officials are reportedly expecting initial demand at Hambantota to be limited, especially given the lack of storage. However, efforts will be made to keep prices as competitive as possible in relation to nearby ports in the region.

Bunker prices would be on a break-even basis during the promotional phase of the bunkering facility at Hambantota, according to officials.

Earlier this year the Sri Lankan government confirmed that the country will receive a $US65 million loan from China's Exim Bank to build a bulk storage tank farm in Hambantota that will also be used to store marine fuel.

The new facility will supply and store marine fuel, aviation fuel and LP gas and provide bunkering services for vessels passing by Sri Lanka. It is expected to have a total storage capacity of 82,000 cubic metres.

The existing Hambantota Port Development Project commenced on January 15th 2008 and is scheduled to be completed on April 15th 2011.

The new bunkering terminal at Hambantota is expected to provide a major boost to the Sri Lankan bunker market. The terminal will be designed to handle up to 500,000 metric tonnes of oil products a year. Depending on the requirement the terminal can be further expanded up to one million metric tonnes.

The entire port development project is expected to be completed in 15 years in four phases with the first phase alone costing close to US$450 million.