Government drags its feet on mega $ 3 b FDI

• Promoters of UAE-based consortium’s oil refinery project in Hambantota with related industries allege undue delay in final approvals

The Government is alleged to be dragging its feet on a massive and highly beneficial private sector-run oil refinery project with foreign investment of $ 3 billion, biggest ever on its table and three times the size of individual Chinese commitment on projects such as the Port City and Hambantota Port. 

The oil refinery project envisages refining 200,000 barrels per day (10 million metric tonnes per annum) for export with first right of refusal for Ceylon Petroleum Corporation (CPC) if it wants to buy. The venture was to supply barge mounted bunkering for ships passing the seas off Hambantota as well.  Another benefit is the availability of 150 MW of power to the national grid since the refinery will be operated by a 300 MW power plant. The promoters have also proposed as a CSR initiative to supply excess capacity of desalinated water required for the refinery to the people. The byproducts of the oil refinery include LPG, bitumen and urea with the latter having big markets in India and Pakistan. 

Land required, amounting to 30 hectares, has been identified inside the Hambantota Port as well as 200 hectares outside the port belonging to the Mahaweli Authority. The project will create around 20,000 direct and indirect jobs, mostly within Hambantota.

Given the size of the investment and multiple socioeconomic benefits, the Prime Minister-chaired Cabinet Committee on Economic Management had approved the project in principle in November 2016. As a further step, it was included in the Hambantota Integrated Development Plan which the Government was firming up and eventually announced on 8 January this year, when President Maithripala Sirisena marked his second year in office.

But since then the authorities are alleged to have been dragging their feet.

The CPC has said there was no objection to the venture since it is 100% export-based. The Central Environmental Authority had also held a meeting with 14 relevant agencies for the purpose of approval and representatives visited the two sites indentified for inspection. Most of them had consented, provided some of the paddy and banana cultivators are relocated. The Presidential Secretariat also wrote to the Mahaweli Authority for its opinion on the release of the land.

Upon receiving all approvals, the first tranche of the investment has been assured within 120 days and the project will start construction within 180 days with the completion period estimated to be from 24-30 months. 

Promoters said that given the fact that no preconditions had been set for the project, unlike some of the contentious Chinese investments, the delay in fast-tracking the project remains a mystery. This is a green field investment with considerable potential for foreign exchange earnings as well as savings. 

The investing consortium for the proposed oil refinery is based in the UAE and has enlisted technical partners from Japan and Italy among others. The oil to be refined is EU standard 98 Octane. 

Once completed, promoters said they can supply refined products at a much cheaper price than what the CPC is currently sourcing at, thereby saving valuable foreign exchange. 

For ships, the current alternatives are Singapore and Fujairah but Hambantota is a more competitive and less time consuming option given Sri Lanka’s strategic geographic location. 

The quantum of investment from this single project is 60% of what the Chinese Ambassador had promised for the Chinese-funded industrial zones in Hambantota. China Merchant’s investment planned for Hambantota is only $ 1.2 billion (for 80% stake) and that figure too is likely to be revised as certain sections within the coalition Government want a higher stake for the Sri Lanka Ports Authority while China Harbour’s investment in the Port City is $ 1.4 billion.