Sinopec proposes to fully finance Sri Lanka refinery

Chinese state-owned Sinopec has proposed to fully finance the construction of a refinery in Hambantota district in Sri Lanka, the island nation said on 13 March.

Representatives from Sinopec presented Sri Lankan president Ranil Wickremesinghe with a proposal, and also confirmed their "readiness to invest in the import, storage, distribution, and marketing of fuel to cater to Sri Lanka's energy requirements", the president's media division said on 13 March.

The Sri Lankan government had last month invited expressions of interest to set up an oil refinery and oil product processing plant near the strategic Hambantota port. Interested parties are expected to build, own and operate the refinery. The government expects the export-oriented project to have a minimum capacity of 100,000 b/d.

During the discussion with the Sinopec representatives, the Sri Lankan government had taken a "principled decision" to expand the distribution of fuel, which will commence soon, the president's media division said.

Sri Lanka has been dealing with its worst foreign exchange crisis since gaining independence in 1948, resulting in fuel, food and power shortages. The country consumes 110,000 b/d of oil products but only produces around 35,000 b/d from its ageing 50,000 b/d Kelaniya refinery. Sri Lanka is completely dependent on crude imports, and its inability to pay for these during the continuing foreign exchange crisis has led to frequent shutdowns at Kelaniya and fuel shortages. Sri Lanka's retail fuel market is currently dominated by state-controlled importer Ceylon Petroleum (Ceypetco) and fellow fuel importer Lanka IOC, the Sri Lankan subsidiary of Indian state-controlled refiner IOC.

Other potential energy sector investments were also discussed with the Sinopec representatives, Sri Lankan minister of power and energy Kanchana Wijesekera said on 14 March, but did not provide further details.

Officials from Sinopec as well as Chinese state-owned shipping firm China Merchants are on a visit to Sri Lanka to "enhance cooperation and further investment on petroleum and chemicals, trade, and port and industrial park operations", the Chinese embassy in Sri Lanka had said on 12 March, without disclosing further details.

China Merchants Port, a subsidiary of China Merchants, is the majority owner of Hambantota International Port, which operates the deepwater port. Sri Lanka handed control of Hambantota port to China under a 99-year lease in December 2017 after being hit with crippling debts to Beijing.

Sinopec created a Sri Lankan unit, Sinopec Fuel Oil Lanka, in 2019, and began considering investing in a refinery at Hambantota port. Sinopec commenced operations at the oil depot in Hambantota port in April 2020, refuelling its first ship. The port also received its first bunker fuel cargo that month.

By Pranav Joshi