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Hambantota refinery and Port City logistics centre projects face delays over new demands
View(s):Two Chinese projects—the proposed Sinopec oil refinery in Hambantota and a logistics centre at the Colombo Port—are still stuck in the pipeline, largely over benefits such as sweeping tax concessions that the investors are seeking.
Sri Lanka has signed an initial agreement with Sinopec, the Chinese state energy giant, to build a US$ 3.7bn refinery in Hambantota. But while the request for proposals (RFP) issued by Sri Lanka’s Ministry of Power and Energy had specified that only 20 percent of output from the refinery should be for the local market and the rest for export, Sinopec is seeking that condition to be dropped, authoritative sources said.
Earlier, Sinopec had also asked for significantly more land in Hambantota. “The RFP clearly said the project should be export-oriented,” a senior official said. “Sinopec is now telling the Sri Lankan government not to place any restrictions.”
Apart from huge tax breaks, the company is demanding the ability to dump all volatile fuel in the local market. These facilities had earlier been requested by other bidders but rejected by the Sri Lankan government. Sinopec was the only offer left after everyone else—including Vitol, which also picked up an RFP—dropped out.
“We cannot deviate from the procurement because we followed a procedure,” the official said. “It’s not an unsolicited proposal. It is a tender.”
One of the concerns was that if Sinopec was given unrestricted access to the domestic market, they could edge out the others (as they had a cost advantage) and create a monopoly. The government has told the company they could not allow that because that would impact the country’s energy security.
Sinopec has also brought up concerns regarding water shortages in Hambantota.
Meanwhile, the proposed Chinese-led logistics centre for the Colombo Port is stuck after its Strategic Development Project (SDP) status was not confirmed by the Sri Lanka Government. A special purpose vehicle was to be set up to run the initiative with China Merchants Port Holdings Company (CMPort) owning 70 percent, the Sri Lanka Ports Authority (SLPA) 15 percent and Access Engineering PLC the remaining 15 percent.
In 2023, the Government gazetted it as an SDP project, granting generous 15-year exemptions on corporate income tax and tax on dividends. However, this status was not confirmed via a follow-up gazette owing to IMF opposition to the SDP favoured status in the manner it is now granted.
“They couldn’t get SDP status, so they tried to get Board of Investment status,” a senior SLPA official said. “And while BOI is willing to grant it, the parties are not satisfied, as the facilities they get from the BOI—which are only customs duty waivers—will not allow them to break even as fast as they had hoped to.”
The company has sought the input of SLPA Chairman Admiral (Rtd) Sirimevan Ranasinghe, who obtained World Bank assistance on the feasibility of a logistics centre for transshipment cargo at the Colombo Port. Once the report is made available, he will respond to CMPort, he told the Sunday Times.
CMPort has already downgraded its plan from a five-storey to a two-storey building and engaged in rent negotiations with the SLPA. They have also shut down the office at the World Trade Centre, and their Chief Executive Officer has left. A skeletal staff is now working out of the Colombo International Container Terminals (CICT) office.
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