Amid Debt Troubles, Sri Lanka To Hand Billion-Dollar Oil Refinery Project To Chinese State-Owned Firm

Sri Lanka is poised to grant a substantial oil refinery project worth billions of dollars to a Chinese state-owned company, as confirmed by the country's energy minister.

Kanchana Wijesekera announced on Tuesday (31 October) that the government is preparing to finalise an investment agreement with Sinopec for the construction of the refinery, situated adjacent to the Chinese-operated port in Hambantota, a southern town.

Wijesekera informed reporters in Colombo that only two bidders had been shortlisted for the project, and when Vitol withdrew its bid, Sinopec remained as the sole contender, as per reports by The Hindu.

The agreement with Sinopec is expected to be concluded within the next few weeks.

Originally, in 2019, Sri Lanka had awarded the project to a family-owned Indian company based in Singapore, Silver Park International, with an estimated cost of $3.85 billion.

However, when Silver Park International failed to commence construction, the government terminated the agreement in August, reclaiming the 1,200 acres (485 hectares) of land earmarked for the refinery.

This lease came about as Sri Lanka faced difficulties servicing a $1.4 billion loan taken for the port's development.

Sri Lanka grappled with an unprecedented economic crisis last year, marked by a default on its $46 billion external debt.

Chinese loans used for several infrastructure projects between 2005 and 2015 were partially attributed to the crisis, as these projects were deemed financially unsustainable.

Notably, China holds a majority share of 52 per cent in Sri Lanka's bilateral debt, and Beijing's consent remains crucial for any efforts by Colombo to restructure its outstanding loans.

The decision to award the oil refinery project to a Chinese state-owned company underscores the continuing Chinese influence in Sri Lanka's major infrastructure initiatives.