Business

New oil refinery in Hambantota to make Sri Lanka self-sufficient 

By Madhusha Thavapalakumar

The Sri Lankan Government is on the lookout for potential investors to build a second refinery in Hambantota, with the purpose of refining Sri Lanka’s entire fuel demand locally, the Ministry of Transportation, Power, and Energy told The Sunday Morning Business.
The Ministry has advised state-owned Ceylon Petroleum Corporation (CPC) to find a potential investor to undertake this project as a public-private partnership (PPP). The estimated cost of the project is $ 2.5 billion and the investor could either be a local or foreign investor, Ministry Spokesman Dharma Wanninayake stated.
According to Wanninayake, at the moment, Sri Lanka’s only refinery, the Sapugaskanda Oil Refinery, refines about 65,000 barrels per month, which caters to less than 20% of the national oil requirement.
“We are planning to build the new refinery at Hambantota with modern knowhow so that it could refine about 100,000 barrels per day and successfully accommodate the national requirement 100%,” he added.
Plans to build a second refinery at Hambantota were originally initiated in 2014, under the Presidency of current Prime Minister Mahinda Rajapaksa. According to Wanninayake, the project received the nod from the Cabinet of Ministers, the same year.
Nevertheless, the Government that was elected in January 2015 reportedly abandoned the project and as a result, the estimated cost of the project skyrocketed to $ 2.5 billion in 2020, from $ 95 million in 2014, Wanninayake further stated.
The project has now come alive as the Sri Lankan Government is concerned about the foreign exchange earnings splurged on refined fuel imports when the country has potential to refine its fuel requirement.
The Sapugaskanda Refinery is the single largest refinery in Sri Lanka, built by Iran under the guidance of the CPC in August 1969. The refinery was initially designed to process 38,000 barrels per stream day of Iranian Upper Zakum crude oil and Arabian light crude oil. Only these oils match the technical specifications of the refinery, and processing other types of oils requires modern technology which the refinery lacks.
The over-fifty- year-old refinery in its early years refined about 50,000 barrels per day, producing a mix of diesel, kerosene, gasoline, furnace oil, and naphtha. The complex has five oil tanks of 40,000 MT in a 165-acre land in Sapugaskanda. 
According to the CPC Trade Union, in 2002, the estimated cost to refurbish the refinery was $ 18 million, but now it would cost around $ 69 million. Nevertheless, as Wanninayake stated, the subject Ministry is looking into ways to revive the Sapugaskanda Refinery too.
Last year, the then Government announced plans to construct an oil refinery complex in the Mirijjawila Export Processing Zone with a Foreign Direct Investment (FDI) of $ 3.85 billion from Oman and Singapore. The Singaporean investor was Silver Park International Pte Ltd. and from Oman it was the Sultanate of Oman Ministry of Oil and Gas.
The refinery was expected to be the first oil refinery set up in the country after several decades, with the capability of generating $ 7 billion worth of export revenue per annum when fully operational.
The project created controversies on the legitimacy of the investor. At that point, Transparency International Sri Lanka stated that Silver Park International Pte Ltd. is a company controlled by the family of Tamil Nadu politician and former Indian Union Minister Dr. S. Jagathrakshakan, whose business interests have previously been implicated by Indian authorities and the media in several alleged corruption scandals.
Even though then Prime Minister Ranil Wickremesinghe laid the foundation stone to construct the first oil refinery in Mirijjawila in Hambantota on 24 March last year without signing a land lease agreement, the project was abandoned eventually.