Sri Lanka Gives Go-Ahead for $20B Refinery at Port of Hambantota

Ro/ro traffic at Hambantota (file image)

Published Oct 4, 2019 10:52 PM by The Maritime Executive

The underutilized port of Hambantota, Sri Lanka is set to gain a major new tenant. The Sri Lankan government has given its approval to the Singaporean company Sugih Energy International (SEI) to build a $20 billion refinery at the port. The project's value exceeds the total of all foreign direct investment in Sri Lanka over the past forty year, development minister Malik Samarawickrama told Sri Lankan outlet Daily FT.

In 2010, with financial backing from China and the assistance of Chinese construction companies, Sri Lanka built a greenfield port development at the quiet fishing community of Hambantota. The port project attracted limited use, and it - along with many other infrastructure initiatives - left Sri Lanka deeply indebted to Chinese state banks. In 2017, Sri Lanka gave the final go-ahead to sell 70 percent of the port to state-controlled China Merchants Port Holdings for $1.1 billion, satisfying a portion of its debt burden. 

Western analysts have often described Hambantota as a "white elephant" project lacking in commercial viability, but CMPH's managers insist that they are turning it around. The refinery deal is one of several recent energy-related development announcements at the port. In March, the Sri Lankan government green-lighted a proposal to build a smaller, $3.8 billion refinery complex at Hambantota, with backing from the government of Oman and another Singaporean firm. In addition, in 2018, Chinese investors were cleared to build a $700 million natural gas-powered electrical station at Hambantota. The 400-gigawatt power plant will be fueled with LNG. 

Chinese oil major Sinopec holds the rights to provide bunkering at the port of Hambantota. The port's Chinese managers have signaled their intention to make bunkering - which is a natural complement to oil refining - into a key part of the development strategy for Hambantota. The port is adjacent to the busy east-west sea lanes across the Indian Ocean, and it is roughly at the halfway point between the bunkering mega-hubs of Fujairah and Singapore.