Is the Sinopec Oil Refinery Project in Sri Lanka's Hambantota Port in Trouble?

Colombo, June 6 (NationPress) The intended $3.7 million oil refinery to be established by China's Sinopec at Sri Lanka's Hambantota port is experiencing considerable delays due to various challenges, including disputes regarding equity structure, tax incentives, market entry, and land allocation for the project.

The inland port is situated in a natural harbor near the town of Hambantota in the district of the same name on the southeastern coast of Sri Lanka, approximately 250 kilometres from Colombo. Struggling to manage its debt, Sri Lanka granted China a controlling equity stake and a 99-year lease for Hambantota port, which was handed over in December 2017.

During a visit to Beijing by Sri Lankan President Anura Kumara Dissanayake from January 14 to 17, 2025, following his trip to India in December 2024, a pact was signed on January 16, 2025, in which China Petroleum and Chemical Corporation, known as Sinopec, the largest refinery worldwide, committed to expanding its economic and energy influence by constructing a large oil refinery in Hambantota.

The agreement included a promise for a facility capable of processing 200,000 barrels of crude oil daily. Initially, the Sri Lankan government had projected a 100,000 barrels per day refinery when the Expressions of Interest (EoI) were sought. While hailed by Sri Lankan officials as a significant foreign investment, the deal raised serious concerns about sovereignty, environmental sustainability, and long-term economic autonomy.

This expansion has raised alarm bells regarding China's control over a major deep-water port and a potential mega refinery.

Nonetheless, the project remains a high priority for Sinopec. The refinery is planned to be located next to the Hambantota port, which is under the control of China Merchant Port Holdings, also on a 99-year lease. This refinery initiative is part of the strategy by the leading Chinese and global refiner to secure additional international markets.

The investment by Sinopec was approved in November 2023 during the administration of Dissanayake's predecessor, Ranil Wickremesinghe. Under the concept of debt-trap diplomacy, China attracts foreign leaders and formalizes agreements that can serve dual purposes.

The original Request for Proposal (RFP) had set a limit of 20 percent for foreign equity and required 80 percent of the anticipated daily output to be designated for exports. However, Sinopec is requesting a larger equity share and a relaxation of the 80 percent export requirement to gain broader access to the domestic Sri Lankan market. Thus far, Sri Lankan authorities have ruled out any modifications to the RFP.

In a separate matter, the Ceylon Petroleum Corporation (CPC) has expressed concerns that unrestricted market access for Sinopec could significantly disrupt Sri Lanka's petroleum sector and compromise energy security.

The Sri Lankan government initially offered 500 acres of land for the project in Arabokka, Hambantota, but Sinopec subsequently requested an additional 200 acres of land located just 3.5 kilometers from the Chinese-controlled port.

The relevant authorities have yet to determine the amount of land to be allocated, and there is also the related question of the lease duration for the land that will be granted. As a result, no formal agreement has been established in this regard.

Meanwhile, the Central Environment Authority (CEA) has issued terms of reference to Sinopec to conduct an environmental impact assessment and submit the findings.