Proposed oil refinery in Hambantota: Shrouded in controversy?

14 Aug 2021

Proposed oil refinery in Hambantota: Shrouded in controversy?

14 Aug 2021

By Maheesha Mudugamuwa Concerns have been raised over the controversial billion-rupee Hambantota Oil Refinery project, a joint venture between Singapore’s Silver Park International Pte. Ltd. (70%) and Oman’s Ministry of Oil and Gas (30%), at the Mirijjawila Export Processing Zone (EPZ). The project, which was dubbed the largest foreign direct investment (FDI) in the country’s history, as it was said to be an investment worth around Rs. 687 billion, has been mired in controversy since its inception a few years ago. The foundation stone was laid by then Prime Minister Ranil Wickremesinghe in March 2019 at the Mirijjawila EPZ in the presence of Omani Minister of Oil and Gas Dr. Mohammed bin Hamad Al-Rumhy, but a day later, it was reported in the international media that Oman denied involvement in the project by contradicting multiple documents, including those of the Cabinet and the Board of Investment of Sri Lanka (BOI) that mentioned Oman holding a 30% stake. Following the Omani Ministry’s denial, the BOI issued a statement clarifying that there was no agreement signed between Oman’s Ministry of Oil and Gas and investor Silver Park International with regard to equity arrangements of the project. However, Silver Park International had conveyed their full confidence in implementing the project. The BOI further stated that they were aware that Oman Oil Company had registered their firm intention to participate in equity up to 30%, subject to reaching an agreement between the parties. Furthermore, they were aware that Oman Trading International was willing to supply the entire feedstock requirement of the project as well as carry out the marketing for the products, upon reaching mutually agreed terms. Nevertheless, a few months later, in November 2019, the BOI announced that it had signed the agreement with Sugih Energy International Pte. Ltd., which is a privately owned petroleum and coal trading company based in Singapore, for the construction of the oil refinery. It’s been over a year since the agreements have been signed between the BOI and the Singaporean company, but the project has not yet been implemented, it is learnt. Speaking on the matter, Janatha Vimukthi Peramuna (JVP)-affiliated Petroleum Common Workers’ Union (PCWU) President Asoka Ranwala said the project has not been implemented and as far as the unions are aware, the project couldn’t be implemented without amending the Ceylon Petroleum Act. “We were informed that the project would generate a number of direct and indirect jobs in Sri Lanka, but after that, it was not even discussed,” he stressed. According to Ranwala, the initial plan for the Hambantota Oil Refinery was to conduct its operations and distributions within the country, but later on, the plans had been changed, as they said they would refine petroleum products within the country and distribute it to international markets without distributing locally due to the legal impediments. “But none of these things were implemented,” Ranwala stressed, also noting that the prevailing laws should be amended to allow the implementation of such projects within the country. He further noted that the project had also faced environmental issues, as the refinery was to be constructed in Mirijjawila, Hambantota. “As far as we know, not even a feasibility study has been conducted for the project as yet,” he added. According to the BOI, the refinery has projected demand for employment ranging from medium to high-end skill levels (operators, technicians, graduates, engineers, chemists, etc.), with direct employment opportunities for almost 6,500 Sri Lankans while creating further indirect employment opportunities in support services. The refinery was to enable the transformation of the Port of Hambantota as a marine bunker port, taking full advantage of its proximity to international maritime routes. While there’s no news on the implementation of the said FDI project in Sri Lanka, there is also no news on the steps that have been taken by Sri Lanka to investigate the corruption charges against the main investor of the project. In such a backdrop, Transparency International Sri Lanka (TISL) alleged that the project could have a negative impact on Sri Lanka’s efforts to remove itself from the Financial Action Task Force’s (FATF) “Grey List” of countries that are vulnerable to money laundering and terrorism financing, as the main investor in the project, Singapore-based Silver Park International, is a company controlled by the family of Tamil Nadu politicians and former Indian Union Minister Dr. S. Jagathrakshakan, whose business interests have been previously implicated by Indian authorities and the media in several alleged corruption scandals. It also revealed that of the 40 FATF recommendations that set the international standards on combating money laundering, the 12th recommendation requires that reasonable measures be taken to ascertain the source of wealth and funds in transactions involving politically exposed persons. However, the BOI denied the allegations, claiming the FDI brought into Sri Lanka, including the Hambantota Oil Refinery project, was channelled through the approved local banking system via inward investment accounts (IIA), as per the Foreign Exchange Act and its regulations in Sri Lanka. In the case of the project, all financial transactions by the investor are routed through a reputed commercial bank in Sri Lanka. All commercial banks have their own AML/CFT regulations, which are also carefully monitored by the Financial Intelligence Unit of the Central Bank of Sri Lanka (CBSL), the BOI said. Meanwhile, when contacted by The Sunday Morning, Minister of Energy Udaya Gammanpila said the BOI had not obtained approval from the Ministry of Energy for the construction of an oil refinery in Hambantota prior to signing the agreement with the aforementioned Singaporean company in 2019. “It is shown in our records that the officials of BOI at the time had not obtained approval from the Ministry of Energy to build a refinery in Sri Lanka. Therefore, we have no information about the project,” he reiterated. Elaborating further, Gammanpila said the previous Government had laid the foundation stone without obtaining permission from the Ministry of Energy. “It reflected that they were under the impression they could establish a refinery without obtaining approval from the line ministry. Unfortunately, the BOI has not educated the investor on the fact that they have to obtain a license from our ministry before starting a refinery,” he stressed. The Minister further said that by commencing the construction of refineries without obtaining approvals from the Ministry of Energy, the BOI had misled the investors in the past, reflecting a bad image of the country. “I urge that the BOI should inform the investors about the proper procedures,” he added. Furthermore, he said the Ministry was planning to build two refineries for strategic reasons in Trincomalee and Hambantota, for which the work had not yet initiated. As for the new refinery in Sapugaskanda, the Ministry is awaiting the feasibility study report which is expected to be completed by mid-October. Numerous attempts made by The Sunday Morning to get a response from the BOI regarding the refinery project, were futile.

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Proposed oil refinery in Hambantota: Shrouded in controversy?

Proposed oil refinery in Hambantota: Shrouded in controversy?

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