The Cabinet has appointed a project committee and a negotiation committee to discuss and finalise the conditions, rules, and regulations of the $ 3.7 billion investment by the leading Chinese global petroleum firm Sinopec to build an oil refinery in Hambantota.

According to Ministry of Energy Secretary Udayanga Hemapala, the agreement had been made as a Memorandum of Understanding (MOU), with the conditions and offers for the MOU yet to be finalised.

“The project committee and the Cabinet-appointed negotiation committee are expected to finalise the conditions within the next 2-3 weeks,” Hemapala told The Sunday Morning.  

These recommendations will then be submitted to the Cabinet for approval.

The MOU for the refinery was signed during the four-day visit of President Anura Kumara Dissanayake to Beijing, marking the highest foreign investment secured by the Government, as revealed by the President’s Media Division (PMD).

According to the PMD release, a state-of-the-art oil refinery with a capacity of 200,000 barrels per day will be constructed under this investment in the Hambantota region.

This investment from China is envisioned to boost the country’s economic growth while elevating the living conditions of low-income communities in the area.

Hemapala further stated that the previously submitted projects had been cancelled by the former Government. Following this, an Expression of Interest (EOI) was called by the Government in 2023. 

Under the previous Government, Sri Lanka received seven responses to an EOI to establish an export-oriented oil refinery in Hambantota, located on the island’s southern coast near a Chinese-owned port. 

The then Ministry of Power and Energy had invited EOIs in February 2023, aiming to attract qualified investors for this critical project.

Sri Lanka presented the final Cabinet paper seeking approval to enter into agreements with China Petroleum and Chemical Corporation (Sinopec) in early 2024 for the construction of a state-of-the-art petroleum refinery and an associated product processing centre in Hambantota. 

Sinopec is one of the world’s leading refineries and one of the largest petrochemical producers. The company, which already owns refinery assets in Saudi Arabia and engages in petrochemical production in Russia, is set to invest in a breakthrough project in Sri Lanka.

Following the evaluation of proposals, two institutions were shortlisted to submit detailed proposals; however, only one institution followed through. The project committee and a Cabinet-appointed negotiating committee had been finalising terms with the selected investor.

Former Secretary to the Ministry of Power and Energy Sulakshana Jayawardena said last year that there had been several proposals that had come through the EOI process.

The China National Aviation Corporation (CNAC) had selected one out of six proposals, considering the terms and conditions issued to them to submit their Requests for Proposal (RFPs).

The proposed refinery project in Sri Lanka was set to have a minimum capacity of 100,000 barrels per day, with an expected investment ranging between $ 1.5 billion and $ 2 billion.

The project was scheduled to be implemented during the 2024-’27 period.

Meanwhile, there has been some debate regarding the discrepancies in reported investments for the Hambantota oil refinery project, with the National People’s Power (NPP) Government mentioning a $ 3.7 billion proposal while the United National Party (UNP) had announced a $ 4.5 billion agreement. 

The UNP later clarified the situation by providing the historical and factual context of the project, stating that the $ 4.5 billion deal had emerged after the termination of a previous project with Silver Park International of Singapore in late 2023 due to construction delays.

In November 2023, a new agreement was finalised with Sinopec to develop a refinery at the same site. The UNP highlighted this as a key achievement under the leadership of President Ranil Wickremesinghe and Minister of Power and Energy Kanchana Wijesekera.

The original proposal, known as the Greenfield Oil Refinery in Mirijjawila, Hambantota, was part of a broader economic development plan. 

In March 2019, an agreement was signed for a $ 3.85 billion investment led by Silver Park International, in collaboration with Oman’s Ministry of Oil and Gas.

The project aimed to construct a refinery with a capacity of 200,000 barrels per day on 585 acres of land, with Silver Park International holding 70% ownership and Oman retaining 30%. 

It was initially celebrated as Sri Lanka’s largest single Foreign Direct Investment, expected to generate $ 7 billion in annual export revenue and create thousands of jobs. 

Despite a promising start with a groundbreaking ceremony in March 2019, construction delays led to the project’s termination in 2023. Subsequently, in November 2023, a new $ 4.5 billion deal was approved with Sinopec to build a refinery at the same location.