Sapugaskanda Oil Refinery to operate as a SOE

• Power and Energy Minister Kanchana Wijesekera says Cabinet approved to call EoIs to select suitable investment partner, explore option of relocating Sapugaskanda Oil Refinery to Trincomalee

The Government has decided to operate the Sapugaskanda Oil Refinery as a public enterprise independent of the Ceylon Petroleum Corporation (CPC). 

The proposal to this effect submitted by Power and Energy Minister Kanchana Wijesekera was approved by the Cabinet of Ministers at its meeting on Monday.

“The rationale behind the move stems from the necessity of a ‘critical investment’ to modernise and upgrade the ageing infrastructure of the refinery. The aim is to ensure its operational efficiency and viability for at least another 25 years,” the statement comprising weekly Cabinet decisions issued by the Government Information Department noted. 

Separately taking to ‘X’, Minister Wijesekera announced that it was decided to issue Expressions of Interest (EoIs) to select a suitable investment partner to upgrade the infrastructure facilities to address the existing operational challenges. 

“It was also decided to explore the option of relocating the Sapugaskanda Oil Refinery to Trincomalee in the future with upgraded and modern facilities along with expansion of the Tank Farm,” he added.

The move comes following Minister Wijesekera›s revelation last month that discussions were held with the Indian Oil Company (IOC) regarding a proposed multi-product oil pipeline connecting Nagapattnam, Trincomalee Tank Farm and Colombo. (https://www.ft.lk/front-page/Sri-Lanka-discusses-multi-product-oil-pipeline-proposal-from-India/44-758318)

Earlier this year, the Cabinet approved the initiation of the procurement process to select a prospective investor for the proposed development plan’s phase one in the Upper Tank area of China Harbour, Trincomalee and to lease 61 tanks of 99 fuel container tanks of the Upper Tank area to Trincomalee Terminal Ltd., for a period of 50 years.

The feasibility study aimed at developing the 61 oil tanks recommends a comprehensive 16-year plan divided into seven phases. Under the first phase, the focus is on renovating nine productive tanks, laying a pipeline spanning around 1.75 kilometres and constructing essential supporting facilities. The project will be developed as a Build, Operate and Transfer (BOT) basis.

The Sapugaskanda Oil Refinery is the sole facility of its kind in the country, built with assistance from Iran in 1969. Despite several attempts by successive Governments to expand it, all were sidelined due to high costs involved. In 2010, a feasibility study said it would cost an estimated $ 2 billion to upgrade and expand the facility. 

The refinery in its current capacity only meets 25% of the local demand for refined petroleum products with the remainder largely imported. It supplies oil to the CPC.

By transforming the refinery into a separate public enterprise, the aim is to facilitate essential investments from both domestic and foreign private sectors. 

The strategic move also reflects a broader trend of the Government in restructuring and modernising State-owned enterprises (SOEs) to overcome the financial burden of those on economic growth and efficiency.

In November 2023, the Cabinet approved to award a contract to China Petroleum and Chemical Corporation (SINOPEC), to enter into an agreement to establish a new petroleum refinery and associated product processing centre in Hambantota. The $ 4.5 billion contract was the single biggest investment in the country that was secured since the ongoing economic crisis.