Chinese Petroleum Corp Enters Sri Lanka Retail Fuel Market

Sri Lanka signed Monday a deal with China Petroleum & Chemical Corp. (Sinopec) adding it to the energy-starved country’s retail fuel suppliers, the president’s office said.

The agreement comes after the government opened up to foreign fuel sellers as a solution to local suppliers’ shortage in foreign currency for imports amid an economic crisis in the South Asian nation.

China state-owned Sinopec through Sinopec Fuel Oil Lanka (Pvt.) Ltd. can now import and sell petroleum products to the Sri Lankan market. “Sinopec, along with its affiliated companies, is set to commence operations in Sri Lanka within 45 days following the issuance of the license”, the office of President Ranil Wickremesinghe said in a press release.

“This development brings hope for a more stable and reliable fuel supply, boosting the country’s energy sector and providing assurance to consumers”.

The pact gives Sinopec a 20-year license to operate 150 fuel stations currently run by Ceylon Petroleum Corp., according to Power and Energy Minister Kanchana Wijesekera in a tweet Monday. It also provides for Sinopec investment into 50 new fuel stations, he said.

Financial Crisis

The deal resulted from the energy ministry’s efforts to ensure domestic supply amid the debt-ridden country’s foreign exchange crisis, which has hit traditional suppliers Ceylon Petroleum Corp. and Lanka Indian Oil Co., according to the office.

“One of the key requirements for new retail suppliers entering the market was their ability to secure forex requirements without depending on the domestic banking sector”, it noted. “It was mandated that these companies source their own funds for fuel procurement through foreign sources, at least during the initial one-year period of operation”.

The new entrants are to sell at pre-determined distribution dealer-operated networks.

Besides the Chinese global energy giant, the USA’s RM Parks Inc. and Australia’s United Petroleum Pty. Ltd. have received government approval to enter Sri Lanka’s retail fuel market.

Last year amid what the central bank said was the country’s worst economic crisis post-independence, days of lining for fuel were reported in Colombo.

Gross domestic product contracted 7.8 percent 2022, with the fourth-quarter economy down 12.4 percent, according to estimates by the Census and Statistics Department released March 15. That is Sri Lanka’s worst annual contraction since independence from Britain in 1948—the result of delays in policy responses to persistent deficits in budget and external current account, as well as untimely and ill-equipped tax and agriculture reforms, the Central Bank of Sri Lanka said in its annual report for 2022.

“Acute fuel shortages due to the dearth of foreign exchange caused a significant drag on activities, as a result of hampered supply chains, prolonged power outages, scarcity of raw materials amidst imports compression, and a surge in the cost of production”, the April 20 publication stated.

“Further, significant upward revisions in major utility prices amidst soaring global energy prices and the depreciation of the exchange rate exacerbated supply side pressures, while accelerated inflation and tax hikes affected the disposable income of households”.

China v India

Monday’s signing signals Sri Lanka’s intent to leverage China as a key partner in its development agenda, particularly in trade. Sri Lanka’s 2030 vision sees China’s “Belt and Road” global infrastructure project as a platform to promote the South Asian island state’s trading position in the Indian Ocean. And while China and India have been locked in geopolitical tensions, including over border and New Delhi’s Quad alliances with Washington, Sri Lanka is also seeking to bolster its economic cooperation with neighboring India.

Sri Lanka projects a Belt and Road-led surge in trade volume between China and South Asia. “Sri Lanka must look to take advantage of these shifting trade patterns to increase its own trade in the region. However, this must not be to the detriment of trade between India and Sri Lanka”, stated Sri Lanka’s 2030 development roadmap published January 2019.

Sri Lankan government newspaper Daily News reported April 24 a planned tie-up between Sinopec and China Merchants Port Holdings Co. Ltd. (CMPort) for bunkering operations in Sri Lanka. Sinopec already has a port business in Sri Lanka. It started up its oil depot at the Hambantota Port in 2020, Sinopec announced April 9, 2020.

On April 21 Hong Kong-based CMPort said it has entered a 50-year build-operate-transfer agreement with the Sri Lanka Ports Authority for a regional logistics facility at the Colombo Port.

Rigzone

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