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Hambantota oil refinery – From fairy tale to reality?
by Gomi Senadhira
“It is easier to fool people than convince them they have been fooled”– Mark Twain
The signing of US $3.7 billion deal to construct a “state-of-the-art oil refinery” oil refinery, with a capacity of 200,000 barrels, in Hambantota with Chinese state-run oil giant Sinopec during President Anura Kumara Dissanayake (AKD)’s state visit to China, is indeed an important achievement. This is significant because successive governments had tried but failed to attract such a large investment into petroleum refining in Sri Lanka. However, it is appropriate to ask will it become a reality or is it another false promise, a fairy tale? After all, we have been fooled before with “fairy tales” about an oil refinery in Hambantota. Hence, we need to be cautious. Particularly because the most recent attempt to build an oil refinery began as a badly-choreographed farce and ended as a tragedy.
To understand why I am saying so, let’s start with the most recent attempt to build an oil refinery in Hambantota.
Largest Investment under the SLSFTA
In July 2018 the former Minister of Development Strategies and International Trade Malik Samarawickrama announced, during the Parliamentary Debate on the Sri Lanka-Singapore Free Trade Agreement (SLSFTA) that “…. Already, thanks to this FTA, in just the past two-and-a-half months since the agreement came into effect we have received a proposal from Singapore for investment amounting to $ 14.8 billion in an oil refinery for export of petroleum products…. In principle approval has already been granted by the BOI and the investors are awaiting the release of land and environmental approvals to commence the project.”
US $3.85 billion investment by Singapore’s Silver Park International
Eight months after the statement by Minister Samarawickrama in the parliament, on 19th March 2019, Deputy Minister Nalin Bandara and technical advisor to the Ministry, Mangala Yapa, announced at a press conference that the construction of US $3.85 billion oil refinery in the Mirijjawila Export Processing Zone in Hambantota will begin shortly by a Singapore-based Silver Park International (Pte) Ltd with Oman’s Oil and Gas Ministry. The project was a joint venture between Silver Park International, with 70 percent stake in the company, and the Ministry of Oil and Gas of Sultanate of Oman, with 30 percent shares. The investment was billed as Sri Lanka’s largest Foreign Direct Investment (FDI), ever. The oil refinery with the capacity to refine 200,000 barrels of crude oil per day, was expected to generate additional US $7 billion of exports per annum when it becomes fully operational in 2023, by exporting a minimum of 9 million metric tons of petroleum products per year.
Within twenty-four hours of the announcement by the Sri Lankan government on the joint venture, officials of Oman’s Oil and Gas Ministry denied being part of a $3.85 billion plan to build an oil refinery in Sri Lanka. According to a report filed by Reuters, addressing a news conference in Muscat, Salim al-Aufi, undersecretary of Oman’s Ministry of Oil and Gas, stated “No one on this side of the panel is aware of this investment in Sri Lanka …. It came as news to me; I don’t know who is signing the cheque for $3.8 billion.” In addition to that, Sri Lankan and Indian media started to question the credentials of the Singaporean investor.
Despite the Omani government’s denial and the media exposure of questionable credentials of the Singaporean Investor, Sri Lanka’s Board of Investments (BOI) decided to go ahead with the “project for a joint venture of Singapore company and Oman.” And on March 24, 2019, the foundation stone for the petroleum refinery was ceremoniously laid by the Prime Minister Ranil Wickremesinghe at the Mirijjawila Export Processing Zone with the attendance of Omani Minister of Oil and Gas Mohammed bin Hamad Al Rumhy, a number of ministers including Sajith Premadasa and several local parliamentarians.
US $20 billion investment by Singaporean company Sugih Energy International
After that, in October 2019, Sri Lankan newspapers as well as international news websites reported, quoting minister Malik Samarawickrama and Finance Minister Mangala Samaraweera that “The Sri Lankan government has given its approval to the Singaporean company Sugih Energy International (SEI) to build a $20 billion refinery at the port (of Hambantota). The project’s value exceeds the total of all foreign direct investment in Sri Lanka over the past forty year.” Mr. Samarawickrama also stated “”The company will invest in two phases. In the first phase, they have committed an investment of $14.8 billion for the refinery, and further $4 to $5 billion for petrochemical and other projects.”
Fairy Tales to Sell the FTA
Unfortunately, or fortunately, none of these multibillion-dollar investments from Singapore due to the FTA ever saw the light of day. These and almost all other investments from Singapore “thanks to this FTA,” turned out to be “fairy tales” narrated by the government of Prime Minister Ranil Wickremesinghe to sell the Sri Lanka-Singapore FTA, to the parliament and the people of Sri Lanka. Though the “Silver Park” refinery was to become fully operational by 2023, it didn’t even progress beyond the foundation stone by then. The project by “Sugih Energy International Pte Ltd” couldn’t even reach that milestone. In August 2023 the Cabinet of Ministers approved two proposals presented by President Ranil Wickremesinghe in his capacity as the Minister of Investment Promotion to cancel the agreements with these two “Singapore based investors,” Silver Park International and “Sugih Energy International Pte Ltd”, due to their failure in implementing the projects!
BOI’s Failure to exercise Due diligence on these “largest Foreign Direct Investments”
It is difficult to understand as to why the BOI failed so miserably, to exercise DUE DILIGENCE on these “largest Foreign Direct Investments” in Sri Lanka. Due diligence on an investor by BOI is essential to understand the potential risks of the investment and to make informed decisions about whether to allow an investment in or not. More importantly, it is necessary to comply with Anti-Money Laundering regulations and to prevent financial crime. At the very least, the BOI should have ascertained if the investor is a Politically Exposed Person (PEP) and what the sources of the investor’s funds were? If the BOI had undertaken even a cursory appraisal of these two companies, like a simple google search, they would have discovered enough red flags on these two investors.
However, it is necessary to state that it is difficult to find much information on Sugih Energy International through a simple google search. Only news reports on this company are on its “US $20 billion investment in an Oil refinery in Hambantota.” Then there is a reference to a company, based on data from Panama Papers, named Sugih Energy International registered in the British Virgin Islands (which is well-known for its offshore companies) with links to Singapore, in the “Offshore Leaks Database,”. There is also a reference to a Sugih Energy International in the Singapore Business Directory. However, this company had changed its name to AETURNUM ENERGY INTERNATIONAL PTE. LTD. On 10 August 2024. On the same day it had changed its Entity Status from “Live Company” to “In Liquidation – Compulsory Winding Up (Insolvency).”
In contrast, it is possible to get a substantial amount of information on Silver Park International (Pte) Ltd through a simple google search. For example; the registered address of Silver Park International (Pte) Ltd, which is 18, Roberts Lane, #03-01 Singapore, shows the building in Singapore’s Little India where this company is located. #03-01 could be a room number within that building. More interestingly, it reveals the names of nearly a hundred other companies which have 18, Roberts Lane, #03-01 Singapore (218297), as their registered address. This includes an entity specialising in setting up shell companies. Can a shell company located at a shared address, invest US$3.85 billion in Sri Lanka? A cursory appraisal would have also revealed that most of the directors of Silver Park International (Pte) Ltd were Politically Exposed Persons (PEPs) and information on the investigations carried out by India’s Enforcement Directorate on these individuals.
Investigation by India’ s Enforcement Directorate (ED)
Though Sri Lankan authorities failed to carry out due diligence, after an explosive report by ‘The Hindu’ newspaper on ‘single largest foreign investment’ in Sri Lanka by a Singapore based investment company with links to an Indian politician’s family, the authorities across the Palk Strait started to investigate the Indian directors of Silver Park International (Pte) Ltd, namely, Mr S.Jagathrakshakan, a DMK Member of Indian Parliament and former union minister of state for information and Broadcasting, and his family members for their involvement money laundering activities. This was reported widely in the Indian media. And according to these reports in August 2024, Mr. Jagathrakshakan and his family members were fined ₹908 crore ( Sri Lankan Rupees 31 billion) for violation of India’s Foreign Exchange Management Act (FEMA) and the charges were related to “….an investment of ₹42 crore in a shell company, Silver Park International Pte Ltd, incorporated in Singapore in 2017, and an investment of ₹9 crore (Sri Lankan Rupees 308million) in a Sri Lankan company.”
US$ 4.5 billion Oil Refinery by Sinopec
Though the government scrapped these controversial agreements with Silver Park International and “Sugih Energy International Pte Ltd” in August 2023, these agreements with controversial shell companies seriously damaged Sri Lanka’s image as an investment destination. Law-abiding countries do not permit investments, particularly such large investments, without doing a reasonable appraisal of the investors and the sources of the investor’s funds.
After scrapping the agreements with the controversial shell companies in November 2023, the Cabinet of Ministers approved awarding a contract to China Petroleum and Chemical Corporation (SINOPEC) to build a petroleum refinery in Hambantota. It was also announced that the refinery is expected to attract an investment of at least $4.5 billion. However, since then no tangible progress has been reported on this project.
US$ 3.7 billion oil refinery by Sinopec
Now, we have the MOU signed between Sri Lanka’s Ministry of Power and Energy and China’s Sinopec Corporation to build US$ 3.7 billion oil refinery, capable of producing 200,000 barrels of oil per day. Though this was signed during President Anura Kumara Dissanayake’s four-day state visit to China, given the history of this project it is still appropriate to ask will it become a reality this time around or will it be another false promise, a fairy tale?
Conclusion
Given the high-profile manner in which this MOU was signed we can be optimistic about the success of the project. After all, Sinopec is one of the biggest petroleum companies in the world and with a revenue of $429.7billion in 2023, is the fifth on Fortune Global 500 list. We cannot even think about comparing it with shell companies like Silver Park International or Sugih Energy International.
Finally, however, there is one unanswered question about the amount of the investment. The cost of this project appears to have substantially reduced since it was first mooted in November 2023; from US$4.5 billion to US$3.7 billion. Will the Ministry of Power and Energy explain the reasons for this change?
(The writer, a former public servant and a diplomat, can be reached at )