Sri Lanka signs landmark US$3.7 billion deal with Chinese state oil giant
A “substantial portion” of the refinery’s output would be earmarked for export to shore up Sri Lanka’s foreign exchange earnings
SRI Lanka has secured its biggest-ever foreign investment after signing a deal with Chinese state-run oil giant Sinopec, officials said on Thursday (Jan 16).
Sinopec has agreed to invest US$3.7 billion to construct a “state-of-the-art oil refinery” with a capacity of 200,000 barrels in the southern Hambantota region, according to the Sri Lanka president’s media division.
“During President Anura Kumara Dissanayake’s four-day state visit to China, Sri Lanka marked a significant milestone by securing the largest foreign direct investment to date,” it said.
A “substantial portion” of the refinery’s output would be earmarked for export as part of efforts to shore up Sri Lanka’s foreign exchange earnings, a statement said.
“This major investment from China is expected to bolster Sri Lanka’s economic growth while uplifting the livelihoods of low-income communities in the Hambantota area,” it added.
The port of Hambantota was handed to a Beijing company on a 99-year lease for US$1.12 billion in 2017 after Sri Lanka was unable to repay a huge Chinese loan, a controversial decision which raised questions about Chinese investments in the country.
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Sri Lanka also defaulted on its foreign borrowings in 2022 during a crisis that caused months of food, fuel and medicine shortages.
China accounted for more than half the country’s bilateral debt at the time of the economic crash.
Leftist Dissanayake came to power in September and consolidated his position after his party won by a landslide in snap parliamentary polls last November.
His four-day visit to China comes after he was given a red-carpet welcome to India by Prime Minister Narendra Modi during his first overseas trip as premier in December.
In a meeting with Dissanayake on Wednesday, Chinese President Xi Jinping said the two countries “face a historical opportunity to build on the past and forge ahead”.
The two sides should see ties from “a strategic perspective and build a China-Sri Lanka community with a shared future”, Xi said, according to state media.
“I am willing to work with you, Mr President, to chart a new vision for the development of bilateral relations and promote new and greater achievements in China-Sri Lanka’s friendship and cooperation,” Xi told Dissanayake speaking at the Great Hall of the People.
Welcoming more Chinese investment, Dissanayake told his host: “China has supported important and valuable infrastructure development in Sri Lanka via the Belt and Road Initiative and China has been and remains a key development partner.”
But during his visit to Delhi in December, Dissanayake struck a wide range of energy and security cooperation agreements with the other regional superpower, signalling his new government wants to become less reliant on Beijing.
Sri Lanka’s economy has begun a tentative recovery, but the high cost of living is still a critical issue for many, especially the poor.
China, the world’s second-largest economy, could give an economic helping hand by buying more Sri Lankan goods, of which it mostly buys tea, clothing, chemicals and other commodities, according to UN COMTRADE data, and through encouraging more Chinese tourists to consider holidaying there.
Sri Lanka had originally awarded the refinery project in 2019 to an Indian family-owned company based in Singapore, but terminated the agreement after the firm failed to start construction.
Officials signalled in 2023 that they would award the contract to Sinopec after another bidder pulled out.
Sri Lanka sits astride the world’s busiest shipping route, which links the Middle East and East Asia, giving its maritime assets strategic importance. AFP, REUTERS
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