Talks with two Chinese firms for $4 billion refinery

Sri Lanka is in talks with two Chinese companies about investing up to US$3 billion (S$4 billion) to build a new refinery at its Chinese-controlled port, a top government official has said.

Sri Lanka wants to build a new refinery in its southern Hambantota port, where China Merchants Port Holdings (CMPH) has a 99-year lease to handle commercial operations.

Located near the main shipping route from Asia to Europe, Hambantota port is likely to play a key role in China’s Belt and Road (B&R) trade route initiative.

Mr Mangala Yapa, a director at the state-run Board of Investment, said two Chinese companies had put forward a joint venture proposal for the refinery, which is expected to produce 5 million tonnes per annum with an investment between US$2.5 billion and US$3 billion.

He did not name the Chinese companies.

“The investment is large and we are discussing with the two companies on that basis,” he told Reuters on Friday, adding that the joint venture plan was chosen from three bids, including one from a United States company through a local partner.

“The refinery needs around 500 acres (200ha) of land and we can’t reserve the land. Many people try to get the land first and then look for investors,” he said. Mr Yapa did not elaborate on the plans of the proposed refinery.

China’s influence over Hambantota port has sparked widespread anger in Sri Lanka. The deal with CMPH, which has a majority stake in the lease, fuelled speculation that the port could be used for China’s naval vessels.

CMPH is also in talks with the government to develop an industrial zone next door.

This year, the government revised its original deal with CMPH to give greater influence to the Sri Lankan Ports Authority, in an effort to allay concerns – including from Japan, the US and India – that the port might be used for military purposes.

The investment zone deal is yet to be signed.

The Hambantota refinery will be the second new refinery the island nation has planned.

Sri Lanka already has a deal for a 100,000 barrel-per-day (bpd) refinery with Indian Oil Corp at the country’s eastern port city of Trincomalee with the aim of exporting fuel.

Sri Lanka’s sole oil refinery, the state-run Ceylon Petroleum Corporation’s decades-old 50,000- bpd plant, was originally configured to run on Iranian crude.

But Sri Lanka has had to import more refined oil products after US sanctions led it to stop imports from Iran. (Reuters)

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