By: Staff Writer
October 13, Colombo (LNW): The future of Sri Lanka’s petroleum refining sector hangs in balance as the Sapugaskanda Oil Refinery modernisation project becomes a key test of investor confidence and energy security. While the government has received 20 Expressions of Interest (EOIs) to expand the country’s only refinery, the outcome could directly influence Sinopec’s $3.7 billion Hambantota refinery investment, currently under review.
Built in 1969, the Sapugaskanda Refinery operated by the Ceylon Petroleum Corporation (CPC) has long struggled with outdated technology, limited refining capacity, and dependence on imported refined fuels. Despite minor upgrades, it continues to process only 38,000 barrels per day, meeting less than 30% of the nation’s fuel demand. The remaining requirement—nearly 2.5 million tonnes of refined products annually is met through costly imports, straining foreign reserves and energy stability.
The government’s EOI call earlier this year sought global investors to modernize and expand Sapugaskanda’s capacity to 100,000 barrels per day under a public-private partnership model. Industry sources say major energy players, including Sinopec, Vitol, and Indian Oil Corporation, have expressed interest.
However, the evaluation results expected this month are viewed as a “decisive signal” for foreign partners. Sinopec, which signed an agreement to build the 200,000-barrel-per-day Hambantota refinery, has reportedly tied part of its decision to the direction of Sapugaskanda’s development. The Chinese state-owned company is also seeking an increased local market share from 20% to 40%, a request yet to be approved by the government.
Analysts warn that the government’s hesitation could deter further investment, especially at a time when Sri Lanka needs long-term energy partnerships to reduce import dependency. The Hambantota refinery if completed would be the largest in South Asia, capable of generating significant export revenue and enhancing the island’s refining self-sufficiency.
Meanwhile, Sapugaskanda continues to operate at near full capacity, but with outdated infrastructure. According to the Public Utilities Commission of Sri Lanka (PUCSL), annual production efficiency has fallen by nearly 15% over the past decade due to frequent maintenance shutdowns and declining crude processing flexibility.
The facility also faces challenges in handling different crude blends, limiting its competitiveness. Industry experts stress that modernization is essential to accommodate low-sulfur and alternative crude grades, which would align Sri Lanka with global energy transition trends.
The success or failure of the Sapugaskanda expansion will determine whether the island can finally transition from being a net importer of refined fuels to a regional energy hub. With total refinery-linked investments exceeding USD 6.7 billion across Hambantota and Sapugaskanda, the coming months will reveal whether Sri Lanka’s energy sector can balance foreign partnerships, modernization goals, and market liberalization without compromising sovereignty or transparency.
