China has told the Sri Lankan government that the China Petroleum and Chemical Corporation (SINOPEC) will not proceed with the USD 3.7 billion Hambantota oil refinery project unless the share of output that can be sold domestically is raised from 20% to 30%, sources familiar with the negotiations told The Island.
The original framework agreement, announced in January 2025 after President Anura Kumara Dissanayake’s three-day Beijing state visit, stipulated that 80% of refinery output be exported and 20% sold in the Sri Lankan market. SINOPEC, which currently holds about 12% of the domestic fuel retail market, considers the 20% local share insufficient to sustain a facility designed to process 200,000 barrels of crude per day at full operation.
“The Chinese are of the view that 20% share is not sufficient to sustain the project,” sources told the newspaper. The standoff over the local-market formula has now extended for approximately 15 months without resolution.
SINOPEC ranks third among foreign fuel retailers in Sri Lanka behind Lanka India Oil Company (LIOC) — which entered the market in 2003 with 211 stations — and ahead of the joint venture between Shell Brands International AG and RM Parks (Private) Limited. The Ceylon Petroleum Corporation (CPC) remains the dominant player with around 800 stations.
The Beijing delegation that finalised the project framework included Foreign Affairs Minister Vijitha Herath, Transport and Civil Aviation Minister Bimal Rathnayake, and Sri Lanka’s Ambassador to China Majintha Jayesinghe. Chinese Ambassador to Sri Lanka Qi Zhenhong was present at all key meetings with SINOPEC, China Communications Construction Company, China Merchants Group, Huawei and BYD Auto.
Sri Lanka is simultaneously under pressure from India to expedite the Trincomalee oil tank farm development under the early-April 2025 trilateral agreement with India and the United Arab Emirates. Sources suggest the Trincomalee and Hambantota projects could ultimately be on a collision course over storage and refining priorities.
President Dissanayake used his May Day address to disclose the difficulty in ensuring uninterrupted oil supplies, attributing fuel quota increases to recent shipment arrivals against limited storage capacity. The continuing instability in global oil markets driven by US enforcement actions in the Strait of Hormuz has heightened the urgency of expanding storage and refining capacity.
Newly-appointed Energy Minister Anura Karunathilake is reported to be in active consultations with relevant parties. The portfolio was previously held by Punyakumara Dissanayake, who resigned over the coal scandal.
Source: The Island — Shamindra Ferdinando.
