China’s Sinopec signs deal to enter crisis-hit Sri Lankan fuel retail market
COLOMBO, Sri Lanka — Chinese oil giant Sinopec signed a deal with Sri Lanka on Monday to enter the South Asian island nation’s retail fuel market as it seeks to address a worsening energy crisis amid unprecedented economic turmoil.
The contractual agreement would allow Sinopec to import, store, market and sell petroleum products in Sri Lanka, where fuel has been in short supply for more than a year.
The move comes as Beijing consolidates investment in Sri Lanka’s ports and energy sector amid growing security concerns raised by the island nation’s immediate neighbor India, which considers Sri Lanka its strategic backwater.
Struggling with a foreign exchange crisis, Sri Lanka hopes the deal will help solve its energy crisis.
The agreement, signed in Sri Lanka’s capital Colombo on Monday, was made to “ensure uninterrupted fuel supply to consumers,” the president’s office said in a press release.
Under the pact, Sinopec will receive a 20-year license to operate 150 fueling stations currently operated by Sri Lanka’s state-owned Ceylon Petroeulm Corporation, as well as to invest in 50 new fueling stations and to invest in the country’s power sector, the country’s Power and Energy division. – says the ministry’s statement.
“This development gives hope for a more stable and reliable fuel supply, boosting the country’s energy sector and providing security to consumers,” the ministry said.
When the economic crisis hit Sri Lanka last year, the government was unable to find foreign currency to import fuel, causing severe shortages that lasted more than two months and people had to endure long queues at petrol stations. Sri Lankans continue to receive a limited amount of fuel, which is distributed according to a QR code system.
To address the crisis, Sri Lanka opened its retail fuel market to foreign petroleum companies, asking them to use their own funds to purchase fuel without depending on Sri Lankan banks for currency exchange. The government has approved the entry of two other foreign companies – the Australian United Petroleum and the American RM Parks in cooperation with Shell – into the fuel market.
An Indian oil company already operates in Sri Lanka. But India is concerned about China’s growing influence in Sri Lanka, which lies along one of the world’s busiest shipping lanes.
Sri Lanka has borrowed heavily from China over the past decade for infrastructure projects such as a seaport, an airport and a city built on reclaimed land. The projects were unable to generate enough revenue to repay the loans, a factor in Sri Lanka’s economic woes. In 2017, Sri Lanka leased the Hambantota seaport to China because it could not repay the loan.
About 10% of Sri Lanka’s loans come from China, behind only Japan and the Asian Development Bank.
Severe shortages of medicine, fuel, cooking gas and food led to angry protests that forced then-president Gotabaya Rajapaksa to flee Sri Lanka and resign last summer.
Sri Lanka defaulted on foreign debt payments and sought support from international partners and organizations to resolve the crisis.
In March, the IMF approved a nearly $3 billion rescue program for four years. Sri Lankan authorities are now negotiating debt restructuring with foreign creditors.