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Sri Lanka’s cabinet has endorsed the awarding of a contract to China Petroleum & Chemical Corp. (Sinopec) to build a new refinery, the energy minister said.
The project is planned to rise in the same port area where Sinopec has already set up bunkering operations, and follows an earlier deal between the South Asian country’s government and Chinese state-owned Sinopec for fuel retailing.
“Cabinet approval was granted today to award the contract to China Petroleum & Chemical Corporation (SINOPEC) of China, to enter into an agreement to establish a new Petroleum Refinery & Associated Product Processing center in Hambantota”, Sri Lanka Power and Energy Minister Kanchana Wijesekera said on social media platform X, formerly Twitter, on Monday.
At the Hambantota Port, Sinopec put into service its oil depot in 2020. “Located on the southern tip of Sri Lanka, Hambantota Port is only ten nautical miles from the central Indian Ocean sea lane and is therefore of prime geographical importance”, Sinopec said in a press release April 9, 2020, announcing the startup. “More than 1/2 of the world’s container freight takes this route, as does 1/3 of bulk shipments and 2/3 of oil shipments. Given its strategic location, Hambantota Port has emerged as a key port on the Belt and Road”.
In May Colombo signed an agreement with Sinopec allowing the Chinese company to enter Sri Lanka’s retail fuel suppliers.
The agreement comes after the government opened up to foreign fuel sellers as a solution to local suppliers’ shortage in foreign currency for imports amid an economic crisis in the country.
It allows Sinopec’s local subsidiary, Sinopec Fuel Oil Lanka Ltd., to import and sell petroleum products to the Sri Lankan market. “Sinopec, along with its affiliated companies, is set to commence operations in Sri Lanka within 45 days following the issuance of the license”, the office of President Ranil Wickremesinghe said in a press release May 22.
“This development brings hope for a more stable and reliable fuel supply, boosting the country’s energy sector and providing assurance to consumers”.
The pact gives Sinopec a 20-year license to operate 150 fuel stations currently run by Ceylon Petroleum Corp., Wijesekera said on X at the time. It also provides for Sinopec investment into 50 new fuel stations, the energy minister said.
The fuel retailing deal was part of the energy ministry’s efforts to ensure domestic supply amid the debt-ridden nation’s foreign exchange crisis, which has hit traditional suppliers Ceylon Petroleum and Lanka Indian Oil Co., according to the president’s office.
“One of the key requirements for new retail suppliers entering the market was their ability to secure forex requirements without depending on the domestic banking sector”, it noted. “It was mandated that these companies source their own funds for fuel procurement through foreign sources, at least during the initial one-year period of operation”.
The United States’ RM Parks Inc. and Australia’s United Petroleum Pty. Ltd. have also received government approval to enter Sri Lanka’s retail fuel market.
In 2022 amid what the central bank said was Sri Lanka’s worst economic crisis post-independence, days of lining for fuel were reported in the capital.
Gross domestic product shrank 7.8 percent last year, according to estimates by the Census and Statistics Department released March 15. That is Sri Lanka’s worst annual contraction since independence from Britain in 1948—the result of delays in policy responses to persistent deficits in budget and external current account, as well as untimely and ill-equipped tax and agriculture reforms, the Central Bank of Sri Lanka said in its annual report for 2022.
“Acute fuel shortages due to the dearth of foreign exchange caused a significant drag on activities, as a result of hampered supply chains, prolonged power outages, scarcity of raw materials amidst imports compression, and a surge in the cost of production”, the April 20 report stated.
“Further, significant upward revisions in major utility prices amidst soaring global energy prices and the depreciation of the exchange rate exacerbated supply side pressures, while accelerated inflation and tax hikes affected the disposable income of households”.
To contact the author, email jov.onsat@rigzone.com
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