By: Staff Writer
September 21, Colombo (LNW): Sri Lanka’s energy landscape is once again at the centre of geopolitical currents, as Chinese state-owned oil giant Sinopec prepares to invest $3.7 billion in a refinery at Hambantota, a project that promises major economic benefits but raises strategic anxieties particularly in New Delhi.
The Ceylon Petroleum Corporation (CPC) clarified this week that it would not be bound to purchase refined fuel products from Sinopec once the refinery begins operations.
CPC Managing Director Mayura Neththikumarage stressed that the government was merely considering allowing Sinopec to sell up to 40% of its refined output domestically. “There is no guaranteed commitment from CPC or any other player,” he said, noting that local purchases would depend entirely on competitive pricing through open tenders.
This stance highlights Colombo’s effort to present the refinery project as a commercial venture rather than a strategic concession.
Sinopec, headquartered in Beijing and the world’s largest oil refiner by capacity, has agreed to fast-track the Hambantota refinery with a daily processing capacity of 200,000 barrels four times the size of Sri Lanka’s existing Sapugaskanda facility.
Most of the production is expected to be exported, but even a 40% local allocation would reshape the island’s petroleum market, now dominated by CPC and Lanka IOC (LIOC), the subsidiary of India’s state-run oil major.
For Sri Lanka, the stakes are high. CPC still holds more than half of the retail fuel market and operates the sole refinery at Sapugaskanda, which processes 50,000 barrels daily.
It reported profits of Rs. 18 billion in the first half of 2025, showing resilience even under debt pressure. LIOC commands around 18–20% of the retail market and has expanded aggressively, particularly in lubricants and marine fuel. In recent years, new entrants such as Shell (through US-based RM Parks) have attempted to diversify the market, though Australian firm United Petroleum withdrew in 2024.
Against this competitive backdrop, Sinopec’s entry represents not only an economic opportunity but also a political balancing act. India has long been wary of China’s presence in Sri Lanka’s southern Hambantota region, already home to a Chinese-built and leased port. Energy infrastructure at the same location could heighten Indian concerns of a dual-use facility, blending commercial and strategic purposes.
The challenge for Sri Lanka’s National People’s Power (NPP)-led government is to manage these competing pressures.
On one hand, Hambantota’s refinery could boost foreign direct investment, create jobs, and reduce import dependency for refined fuel. On the other, it risks aggravating India, Sri Lanka’s largest neighbour and crucial economic partner, especially as New Delhi has supported Colombo with credit lines during its economic crisis.
Analysts suggest that the refinery’s implementation will depend on Colombo’s ability to keep it within a transparent commercial framework while offering assurances to India that its security concerns will not be undermined. “This is less about fuel supply and more about geopolitics,” one Colombo-based economist noted, arguing that Sri Lanka cannot afford to antagonize either China or India in the current climate.
Construction of the refinery is scheduled for completion within three years, with ongoing negotiations over the extent of domestic sales. Whether this ambitious project moves smoothly forward or stalls under geopolitical pressure will test the NPP government’s ability to balance economic recovery with regional sensitivities.
