COLOMBO, Sri Lanka –
Chinese oil giant Sinopec signed a deal with Sri Lanka on Monday to enter the South Asian island country’s fuel retail market as it struggles to resolve a worsening energy crisis amid unprecedented economic turmoil.
The contract agreement would allow Sinopec to import, store, distribute and sell petroleum products in Sri Lanka, which has been experiencing fuel shortages for more than a year.
The move comes as Beijing seeks to consolidate investments in Sri Lanka’s ports and energy sector amid growing security concerns raised by the island’s immediate neighbor India, which views Sri Lanka as its strategic backyard.
Sri Lanka, which is facing a currency crisis, hopes the deal will help solve its energy crisis.
The agreement signed in the Sri Lankan capital Colombo on Monday was made to “ensure uninterrupted supply of fuel to consumers,” the president’s office said in a press release.
Under the deal, Sinopec will be granted a 20-year license to operate 150 fueling stations currently operated by Sri Lanka’s state-owned Ceylon Petroleum Corporation, and to invest in 50 new fueling stations and in the country’s energy sector, Power and Energy of the nation. Ministry said in a statement.
Sinopec can start operating within 45 days after the license is issued and “this development brings hope for a more stable and reliable fuel supply, boosting the country’s energy sector and providing security for consumers,” the company said. office of the president
When the economic crisis hit Sri Lanka last year, the government was unable to find hard currency to import fuel, leading to severe shortages that lasted for more than two months and forcing people to endure long lines at gas stations. Sri Lankans are still allocated limited amounts of fuel which is distributed according to a QR code system.
In an effort to resolve the crisis, Sri Lanka opened its retail fuel market to foreign oil companies, asking them to use their own funds to purchase fuel, without relying on Sri Lankan banks for foreign exchange. The government has given its approval to two other foreign companies, Australia’s United Petroleum and US RM Parks in collaboration with Shell, to enter its 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 including a seaport, airport and a city being built on reclaimed land. The projects did not earn enough income to repay the loans, a factor in Sri Lanka’s economic woes. In 2017, Sri Lanka leased the Hambantota seaport from China because it could not repay the loan.
China accounts for about 10% of Sri Lanka’s loans, behind only Japan and the Asian Development Bank.
Sri Lanka’s economic crisis led to severe shortages of basic goods such as medicines, fuel, cooking gas and food, prompting angry protests that forced then-President Gotabaya Rajapaksa to flee Sri Lanka and resign last summer.
Sri Lanka defaulted on external debts and sought support from international partners and organizations to resolve the crisis.
The IMF approved a rescue program of almost 3,000 million dollars for March that will last four years. The Sri Lankan authorities are now discussing debt restructuring with foreign creditors.
This story has been updated to correct that the quote beginning, “This development brings hope…” is from the office of the president, not the Ministry of Power and Energy.