Foreign Media: Sri Lanka's 3.7 Billion Dollar Major China Investment Project Stalls

Since the agreement was signed at the beginning of this year, Sri Lanka's largest foreign economic intervention project has stalled. Due to a disagreement with the government over the allocation of local market share, Sinopec, a multinational giant, has halted the oil refinery project in Hambantota. The project was once hailed as an "economic revival plan," but now there are concerns that it may harm the petroleum industry and energy security.

Colombo (Asia News) – Sri Lanka's largest foreign direct investment - Sinopec, a Chinese oil company, investing 3.7 billion dollars in Hambantota (Southern Province) - has stalled after six months. Although the project agreement was signed by the Ministry of Energy and Sinopec at the beginning of this year, the main reason is the disagreement between the government and Sinopec over the allocation of local market share.

The project has encountered delays due to multiple issues. These disputes include the shareholder structure, tax incentives, land allocation for the project, and market access. Sinopec has been trying to allow its finished oil products to enter the Sri Lankan market without restrictions, while the Sri Lankan government limits domestic sales to within 20%. This 3.7 billion dollar Chinese oil refining project is located in Hambantota, a large-scale, technologically advanced facility, which was initially approved during the previous government's tenure in 2023.

Theoretically, this major investment project is expected to promote economic growth in Sri Lanka and improve the living conditions of low-income communities in Hambantota. Analysts say the reason behind the Sri Lankan government's restrictive measures is to protect the emerging state-owned Ceylon Petroleum Corporation (CPC), which is currently deep in losses, aging infrastructure, and corruption scandals.

Scholars believe that the agreement was once hailed as an "economic recovery plan." However, due to the key issue of domestic market access, the project is currently stalled. Therefore, it is a "conflict between commercial and political priorities." According to Professor K.T.M.U. Hemapala, the Minister of Energy, Sinopec and the Chinese government have made several demands, including allocating more land for the project and providing water to the government.

Initially, the government allocated 500 acres of land in Alabokka, Hambantota, for the project. However, Sinopec later requested an additional 200 acres of land about three kilometers from the controversial China Hambantota Port. Meanwhile, the Central Environmental Authority (CEA) has notified Sinopec of the scope of authority for conducting an environmental impact assessment and submitting a report. Sinopec Fuel Oil Lanka (Private) Limited (SFOL), established in 2019, is a large Chinese international oil company registered with the Investment Board (BOI), and is a hub company based in Hambantota.

Petroleum engineers Ramesh Punchihewa and Akalanka Sugathadasa told Asia News Agency, "The plant has a daily processing capacity of 200,000 barrels, mainly serving the export market, thus increasing the country's foreign exchange earnings." The project was initially proposed during the presidency of Ranil Wickremesinghe. The former Minister of Energy and Power, Kanchana Wijesekera, met with representatives of Sinopec, who expressed interest in doubling the capacity of the refinery from the previous estimate." A feasibility study on building an oil refinery with a daily processing capacity of 160,000 barrels or two crude oil plants with a daily processing capacity of 100,000 barrels was completed in mid-2024. The Cabinet approved the investment in November 2023, with an initial valuation of 4.5 billion dollars."

"Currently, the Sapugaskanda Refinery in Sri Lanka has a refining capacity of only 38,000 barrels per day, built by CPC led by Iran in 1969," the engineers added. "The new refinery is expected to fill this gap and strengthen the country's energy infrastructure. It is estimated that 70% of the refinery's output will be used for exports, especially to South Asian and African markets, while up to 30% of the output will be used to meet Sri Lanka's domestic fuel demand."

Meanwhile, senior officials of Ceylon Petroleum Corporation expressed concerns that "if Sinopec gains unrestricted market access, it could severely disrupt the island nation's petroleum industry and have adverse effects on energy security." In short, allowing giants like Sinopec to gain unrestricted market access could limit the local capacity and make energy supply subject to foreign control.

Author: Arundathie Abeysinghe

Original: https://www.toutiao.com/article/1836835320300556/

Statement: This article represents the views of the author.