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New Sapugaskanda refinery: Bids after feasibility study

27 Dec 2020

After the completion of the proposed feasibility study for the planned new refinery in Sapugaskanda, the Ministry of Energy is expected to call for bids for an investor to launch the project, according to the Ministry. Ministry Secretary K.D.R. Olga told The Sunday Morning Business last week that competitive bids will be called under the build-operate-transfer (BOT) basis for the selection of a suitable investor for the new refinery. The investment could be made either by a local or a foreign investor, and the project would be a public-private partnership (PPP). The amount of the investment is yet to be decided, and Olga stated that it would be a result of the feasibility study. However, she did not disclose when the feasibility study will be completed. In November, the Cabinet of Ministers approved a proposal to conduct a feasibility study to determine the scope as well as technical, operational, and financial feasibility of this proposed project. The proposal was submitted by Minister of Energy Udaya Gammanpila. In September, Olga told us that the Government is looking for investors to construct two oil refineries in Sri Lanka, with one of them being expected to be built exclusively for export purposes while the other one is to fully cater to the local oil demand. Hambantota was confirmed as the location of the refinery that would be built for export purposes. To cater to the local demand, a refinery has been planned to be built on the premises of the Sapugaskanda Oil Refinery. This new refinery is expected to be larger than the existing Sapugaskanda refinery. Following the general election in August this year, the Ministry advised state-owned Ceylon Petroleum Corporation (CPC) to find potential investors to undertake these projects as a PPP. The estimated cost of the Hambantota project is $ 2.5 billion. According to the Ministry of Energy, the Sapugaskanda Oil Refinery refines about 65,000 barrels per month, which caters to less than 20% of the national oil requirement. Upon the construction of the new refinery on the same premises, the country could refine about 100,000 barrels per day and successfully accommodate the national requirement 100%. The Sapugaskanda Oil Refinery is the single largest refinery in Sri Lanka, built by Iran under the guidance of the CPC in August 1969. The refinery was initially designed to process 38,000 barrels per stream per day of Iranian Upper Zakum crude oil and Arabian light crude oil. Only these oils match the technical specifications of the refinery, and processing other types of oils requires modern technology which the refinery lacks. The over-50-years-old refinery, in its early years, refined about 50,000 barrels per day, producing a mix of diesel, kerosene, gasoline, furnace oil, and naphtha. The complex has five oil tanks of 40,000 MT in a 165-acre land in Sapugaskanda. According to the CPC trade union, in 2002, the estimated cost to refurbish the refinery was $ 18 million, but now it would cost around $ 69 million. Nevertheless, the Ministry is looking at ways to revive the old Sapugaskanda refinery too. Last year, the then Government announced plans to construct an oil refinery complex in the Mirijjawila Export Processing Zone via a foreign direct investment (FDI) of $ 3.85 billion from Oman and Singapore. The Singaporean investor was Silver Park International (Pvt.) Ltd. and from Oman, it was the Sultanate of the Oman Ministry of Oil and Gas. The project created controversies on the legitimacy of the investor. At that point, Transparency International Sri Lanka (TISL) stated that Silver Park International is a company controlled by the family of Tamil Nadu politician and former Indian Union Minister Dr. S. Jagathrakshakan, whose business interests have previously been implicated by Indian authorities and the media in several alleged corruption scandals. Even though then Prime Minister Ranil Wickremesinghe laid the foundation stone to construct the first oil refinery in Mirijjawila, Hambantota on 24 March last year, without signing a land lease agreement, the project was ultimately abandoned.  


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