Chinese, Middle East, Russian firms in talks to build refinery in Sri Lanka

Employees perform quality inspections on top of a tank at the Ceylon Petroleum Corporation’s (CPC) Sapugaskanda Oil Refinery in Colombo

• Four investors in discussion for up to US $2.7bn refinery
• Sri Lanka needs to upgrade from 50-year-old, 50,000 bpd refinery
• China, India also in discussion on other refinery proposals

REUTERS: Chinese, Middle East and Russian companies are in ‘preliminary discussions’ to build an up to US $2.7 billion, 100,000 barrel-per-day (bpd) refinery for Sri Lanka’s State-owned Ceylon Petroleum Corporation (CPC), the head of the fuel retailer said.

Sri Lanka has a single, nearly-fifty-year-old 50,000 bpd oil refinery in Colombo suburb Sapugaskanda, built originally to refine Iranian light crude. However, when toughened sanctions were imposed on Tehran in 2012 to curb its nuclear ambitions, CPC was forced to look for other light crudes.

CPC Chairman Dammika Ranatunga said the State-owned fuel retailer is looking for a partner to build a state-of-the-art 100,000 bpd refinery on a build-operate-transfer (BOT) basis.

“It is going to cost anything between US $2.3 billion and US $2.7 billion,” Ranatunga told Reuters in an interview.

A Chinese firm, two Middle Eastern companies, and a Russian company have all expressed interest to invest in the new refinery. Ranatunga declined to name the potential investors, but said the discussions are in a “preliminary stage”.

Ranatunga said a 100,000 bpd refinery could knock US $500 million a year off of Sri Lanka’s import bill for refined fuels. The country spent US $3.43 billion on fuel imports in 2017.

Investors would have the option of building a refinery with a capacity greater than 100,000 bpd and exporting any excess refined fuels, he said.

Sri Lanka had earlier planned to upgrade its sole refinery, which accounts for 30 percent of the country’s fuel requirement, and double its capacity to boost output and reduce the cost of importing refined fuels.

“Upgrading the refinery may not be the solution. It is important for us to refine all types of crude. That is the way we can get crude at a competitive price,” Ranatunga said.

Russia’s energy ministry said in March its officials have discussed an oil refinery project in Sri Lanka.

Two Chinese companies have jointly bid for a separate 100,000 bpd refinery with an annual output of around 5 million tonnes a year, or 100,000 bpd, in the southern town of Hambantota, near an important shipping route, where China controls a sea port and plans an industrial zone.

Sri Lanka is still in discussion on the Hambantota refinery, although the government has blocked a proposal by the Chinese companies bidding on the refinery there to sell fuel locally.

Sri Lanka has also discussed another 100,000 bpd refinery in partnership with Indian Oil Corp, but there has been no progress on that plan.