By: Staff Writer
September 18, Colombo (LNW): Sri Lanka is on the verge of embarking on a $3.7 billion oil refinery project with Chinese state-owned Sinopec, but the deal has raised alarm bells over energy sovereignty, market control, and mounting geopolitical influence. Approved in 2023, the proposed Hambantota refinery will process up to 200,000 barrels of crude oil per day, positioning the southern port city as a central hub in Sri Lanka’s energy landscape.
While Energy Minister Kumara Jayakody insists that the government has completed land allocations and preparatory facilities, the project’s start date hinges on unresolved negotiations with Sinopec regarding domestic fuel sales. Sources familiar with the discussions say the company has long sought greater access to Sri Lanka’s local fuel market. Originally restricted to selling only 20% of output domestically, Sinopec may now be allowed to sell up to 40% locally—a compromise that could tip the balance between national energy security and corporate profitability.
Arjuna Herath, chair of the Board of Investment, noted the delicacy of the negotiations: “If they don’t have greater market access, feasibility and viability in the current context could be challenging. That’s the point being negotiated.” Sinopec has declined public comment. Observers warn that excessive reliance on a foreign state-owned enterprise could leave Sri Lanka vulnerable to supply and pricing pressures.
In parallel, the government plans a $3 billion expansion of its Colombo-based state refinery, aiming to increase capacity from 38,000 barrels per day to 150,000 barrels per day. While this expansion is intended to bolster domestic energy security, Sinopec and other foreign companies from India, Qatar, and China have shown interest, raising concerns that foreign influence may overshadow state-run operations.
Geopolitical stakes further complicate the issue. Sri Lanka sits along critical maritime routes linking Asia, Africa, and Europe, drawing interest from both China and India. With India establishing plans for an energy hub on the eastern coast, the Hambantota refinery could become a strategic foothold for China, reinforcing fears that Sri Lanka’s energy policy is increasingly shaped by external powers rather than domestic needs.
Critics also highlight economic risks. The refinery deal could saddle Sri Lanka with high financial exposure, given Sinopec’s scale and the associated infrastructure costs. Additionally, if the majority of fuel output is exported, domestic supply could remain limited, keeping local prices high and undermining energy independence.
Experts argue that the success of Sri Lanka’s energy strategy will depend on how well the government balances foreign investment with national control. Allowing Sinopec significant market influence without robust regulatory safeguards may deliver short-term capacity gains but could lock the country into long-term dependence on a single foreign player.
As construction timelines loom, Sri Lanka faces a critical test: ensuring that its energy ambitions enhance national security and economic stability, rather than serving the strategic and commercial interests of foreign powers. The next few months of negotiation with Sinopec will be decisive in determining whether the refinery becomes a pillar of domestic energy resilience—or a geopolitical lever that leaves the country vulnerable.
