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Sri Lanka in Talks for Refinery at Port of Hambantota

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Port of Hambantota (File image)

Published Sep 27, 2017 8:38 PM by The Maritime Executive

Sri Lanka's agreement to lease the port of Hambantota to a Chinese state-owned enterprise could soon blossom into a much larger economic development strategy. Colombo is reportedly in talks with two unnamed Chinese firms for the construction of a $3 billion oil refinery near Hambantota – a larger investment than the value of the port itself. Mangala Yapa, a director on Sri Lanka's Board of Investment, told Reuters that the board is in talks over the land for the refinery, which would take up 500 acres of the new Hambantota Industrial Zone. 

The news of the potential refinery deal comes as China Merchants Port Holdings (CMPH) is closing in on the final agreement for a 99-year lease at Hambantota. The government has already negotiated most of the financial terms, which will essentially satisfy the nation's debt for the port's construction. The final signing should take place by the end of October, said chairman of Sri Lanka's ports authority Parakrama Dissanayake in a recent interview. This timeline would allow CMPH to take over operations at the port as early as November 1. 

Hambantota is located right on the busy lane between the Suez Canal and the Strait of Malacca, putting it in a strategic location for merchant shipping. It has little traffic at present, but some analysts suggest that its potential has not yet been fully realized. With CMPH's deep resources and connections to the Chinese maritime industry, it could blossom into a busy hub for bunkering, transshipment and vessel repair services, argues Peter Fuhrman, CEO of China First Capital. "While much of China’s OBOR policy remains nebulous and progress uncertain, Chinese control of Hambantota seems more than likely to become a world-altering fact," Fuhrman asserted in a recent op-ed. 

While it may prove to be a success, the transfer of Hambantota to a Chinese operator is controversial in Sri Lanka and in India, where it is viewed as a strategic liability. It is also controversial at the port itself: over 400 workers went on strike Wednesday to demand continued employment when CMPH takes over.