By: Staff Writer
October 19, Colombo (LNW): Sri Lanka’s ambitious plan to build a China National Petroleum Corporation (“Sinopec”)-backed oil refinery in the southern port city of Hambantota has entered a critical phase of gridlock, exposing a tangle of strategic and commercial challenges behind the touted US $3.7 billion investment.
Announced formally in January 2025, the project envisages a 200,000-barrel-per-day (bpd) greenfield facility, making it the largest foreign-direct-investment (FDI) venture in Sri Lankan history.
Land has reportedly been allocated and initial infrastructure push-forward underway, yet final investment agreements and construction commencement remain unscheduled.
At the heart of the delay is a dispute over domestic market access, equity structure, and export quotas. Initially the government insisted that only 20 % of output be sold domestically and 80 % earmarked for export. Sinopec, however, seeks a higher proportion for local sales, citing commercial viability.
The mismatch in expectations has triggered a negotiation stalemate.On top of commercial wrangling, the project sits amid a broader strategic contest: India, China and Sri Lanka’s Western partners are all vying for influence in Sri Lanka’s rapidly evolving energy and infrastructure landscape.
For China, the Hambantota port and adjacent refinery represent a toehold in the Indian Ocean energy-supply chain. For India, the project raises concerns of strategic entrenchment near its maritime periphery.
Sri Lankan officials publicly emphasise that most “major issues” — such as land, water and tax clearances have been resolved. Foreign Minister Vijitha Herath met with Sinopec Vice President Liu Liangong in recent weeks to “expedite the remaining hurdles”.
Yet, insiders warn of latent political risk: the government remains under pressure to balance foreign-investment openings with national economic sovereignty. A local energy-industry source described the state’s approach as “cautious rather than eager”.
Critics point to Sri Lanka’s previous heavy debt accumulation tied to Chinese infrastructure, notably the Hambantota port lease, as a cautionary backdrop. The refinery now reignites debate over whether major Chinese FDI carries long-term strategic strings.
Analysts note that if the refinery becomes fully operational, its impact could be transformative. Estimates suggest annual export revenues of US $6–8 billion, plus reduced import-bill burdens for refined fuels.
But for now the project remains suspended in limbo.It is not just Sinopec’s patience being tested: Sri Lanka’s ability to attract and structure mega-projects in a politically sensitive environment is being scrutinised. With global competitors queuing up, any further delay could push Sri Lanka into the margins of the very global investment recovery wave it hopes to ride.
