{"id":240653,"date":"2025-01-24T11:05:40","date_gmt":"2025-01-24T05:35:40","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=240653"},"modified":"2025-02-04T04:50:07","modified_gmt":"2025-02-03T23:20:07","slug":"akd-npp-govt-significance-of-us-3-7-billion-oil-refinery","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/akd-npp-govt-significance-of-us-3-7-billion-oil-refinery\/","title":{"rendered":"AKD\/NPP Govt. Significance Of US$ 3.7 Billion Oil Refinery"},"content":{"rendered":"<p class=\"p1\"><span style=\"color: #ff6600;\"><strong>By\u00a0<a style=\"color: #ff6600;\" href=\"https:\/\/www.colombotelegraph.com\/?s=Asoka+S.+Seneviratne\">Asoka S. Seneviratne<\/a>\u00a0\u2013<\/strong><\/span><\/p>\n<div id=\"attachment_236887\" style=\"width: 160px\" class=\"wp-caption alignright\"><img loading=\"lazy\" decoding=\"async\" aria-describedby=\"caption-attachment-236887\" class=\"size-thumbnail wp-image-236887\" src=\"https:\/\/www.colombotelegraph.com\/wp-content\/uploads\/2024\/05\/Prof.-Asoka.S.-Seneviratne-150x150.jpg\" alt=\"\" width=\"150\" height=\"150\" srcset=\"https:\/\/www.colombotelegraph.com\/wp-content\/uploads\/2024\/05\/Prof.-Asoka.S.-Seneviratne-150x150.jpg 150w, https:\/\/www.colombotelegraph.com\/wp-content\/uploads\/2024\/05\/Prof.-Asoka.S.-Seneviratne-45x45.jpg 45w\" sizes=\"auto, (max-width: 150px) 100vw, 150px\" \/><p id=\"caption-attachment-236887\" class=\"wp-caption-text\">Prof. Asoka.S. Seneviratne<\/p><\/div>\n<p class=\"p2\"><i>\u201cIf you actions inspire others to dream more, learn more, do more, and become more, you are a leader.\u201d <\/i><i><\/i>\u2013 John Quincy Adams<\/p>\n<p class=\"p2\">Under the leadership and strategic thinking of President <span style=\"color: #ff6600;\"><a style=\"color: #ff6600;\" href=\"https:\/\/www.colombotelegraph.com\/?s=Anura+Kumara+Dissanayake\">Anura Kumara Dissanayake<\/a><\/span> (AKD), Sri Lanka is fortunate to have so far the most significant Foreign Direct Investment (FDI) from <span style=\"color: #ff6600;\"><a style=\"color: #ff6600;\" href=\"https:\/\/www.colombotelegraph.com\/?s=China\">China<\/a><\/span> under China\u2019s Belt and Road Initiative (BRI). This article aims to indicate the significance of the US$3.7 billion oil refinery that will be built in Hambamthota. Chinese state-owned oil giant <b>China Petroleum and Chemicals Corporation (Sinopec<\/b>) will go global in a big way along with this refinery because this is the first large project outside China. This refinery will have a capacity of two lakh barrels. (200,000). Through FDI, Sri Lanka usually expects to maximize benefits in employment creation, use of local materials, foreign exchange earnings\/savings, and regional development, which apply to the US$ 3.7 billion investment in the country.<\/p>\n<p class=\"p3\"><strong><span style=\"color: #ff6600;\">Sinopec in the context of Petrochemical Industry in Sri Lanka<\/span><\/strong><\/p>\n<p class=\"p2\">Regarding the US$ 3.7 billion oil refinery and its significance in the country, having an idea about China Petrochemical Corporation (Sinopec) is critical. Sinopec was established in 1983 and has operated for over 40 years. Sinopec has adhered to the mission of serving the national expectation<span class=\"Apple-converted-space\">\u00a0 <\/span>and the purpose of meeting the people&#8217;s needs, apart from strengthening and prospering the country and striving to build with cutting-edge technologies, advanced management, and high competitiveness in d foreign markets as well. In other words, Sinopec is the largest producer of petrochemicals in China; it is the second-largest producer of petrochemicals in the world, having acquired assets in Saudi Arabia, Russia, and Indonesia.<\/p>\n<p class=\"p2\">According to Sinopec, it states that in the past four decades, Sinopec has successfully established and developed China&#8217;s modern petrochemical industry system through continuous probes and practices; made historic contributions to ensuring Ii) national energy security, (ii) promoting national economic development,<span class=\"Apple-converted-space\">\u00a0 <\/span>(iii) resolving the problem of feeding and dressing the people, (iv) and (v) improving the people&#8217;s livelihood. Since entering the new stage of development, Sinopec has implemented the new development concept; identified its position while building a new development pattern; accelerated the construction of the &#8220;one basis, two directions and three growth poles&#8221; industrial pattern; adhered to the fulfillment of economic, political and social responsibilities; and embarked on a new journey to build itself into a world-leading clean energy and chemical company.<\/p>\n<p class=\"p2\">I have given the above to help you understand Sri Lanka\u2019s petrochemical industry in the proper context. Iran built a Sri Lankan oil refinery in 1969, which can process 38,000 barrels daily. As with most refineries, the Sapugaskanda Refinery has an in-house utilities section that supplies (i) electricity, (ii) water, (iii) steam, (iv)<span class=\"Apple-converted-space\">\u00a0 <\/span>instrument air, and (v) other necessities for operations. In total, 65 storage tanks are located at the premises for storage of crude oil, finished, and other products, five of which have a capacity of 40,000 tons (39,000 <span style=\"color: #ff6600;\"><a style=\"color: #ff6600;\" href=\"https:\/\/en.wikipedia.org\/wiki\/Long_ton\">long tons<\/a><\/span>). Four crude oil tanks are located in the separate Orugodawatta tank farm. The refinery is owned by <span class=\"Apple-converted-space\">\u00a0 <\/span>Sri Lankan government-owned Ceylon Petroleum Corporation (CEYPETCO) and employs well over 1,100 people. Having all the above, Sri Lanka is not self-sufficient with the refinery and imports crude and refined fuel. Sapugaskanda refinery supplies on 20 percent of the domestic requirement. This the sad situation of Sri Lanka, having an oil refinery for well over more than 50 years since 1969.<\/p>\n<p class=\"p2\">Given the above, a US$3.7 billion investment by Sinopec with 200,000 barrels processing capacity a day will no doubt mark a milestone in the petrochemical industry in Sri Lanka in many ways, not only meeting the domestic demand and exporting.<span class=\"Apple-converted-space\"> B<\/span>ut also possibility is there for carrying out more livelihood programs in<span class=\"Apple-converted-space\">\u00a0 <\/span>Sri Lanka by the principles of (i) planning together, (ii) building together and<span class=\"Apple-converted-space\">\u00a0 <\/span>(iii) benefiting together, (iv) open, green and clean cooperation, and (vi) high-standard, (vii) people-centered and sustainable development of vision 2030 and following the eight significant steps supporting high-quality Belt and Road Initiative (BRI).<\/p>\n<p class=\"p3\"><span style=\"color: #ff6600;\"><b>Benefits of the Oil Refinery \u2013Employment Creation <\/b><\/span><\/p>\n<p class=\"p2\">Employment creation by the proposed refinery is a sensitive subject. In theory, employment creation depends on backward linkages (i.e., in the case of the garment industry, if it could produce and procure all inputs locally, from cotton growing to fabric for garment manufacturing, backward linkages would be high) that create more employment than the garment industry itself. All fabric and other inputs are imported, which is a backward linkage; hence, employment creation is minimal. In other words, backward linkages related to the garment industry occur abroad, not in Sri Lanka. Another theoretical aspect is the forward linkages. In the case of the garment industry, they relate to employment creation in transport, banking, insurance, harbor facilities, etc.<\/p>\n<p class=\"p2\">The oil refinery is a highly capital-intensive industry, so it is not the garment manufacturing industry that has created substantial employment, irrespective of little backward and forward linkages. Sinopec will most likely hire most of the labor requirements from China, mainly for operation and maintenance. However, employment creation may depend on the terms and conditions of the agreement. A substantial part of labor is hired locally, and it is beneficial. However, US$3.7 billion is a considerable investment. So, its impact on employment creation possibilities cannot simply be presented based on forward and backward linkages, as indicated above. As noted above, the oil refinery in Sri Lanka has five in-house utilities. Sinopec also needs them, so there it is possible to create employment in the five (5) areas mentioned above or in the broad terms of infrastructure development. In the case of infrastructure development, Sinopec needs cement, sand, metal, bricks, water, power, and many more that have massive potential for local activities or performance, leading to employment creation.<\/p>\n<p class=\"p2\">Another important aspect is the creation of employment in the context of socio-economic or community development or poverty reduction in the Hambanthota district or region. Along with local supplies in the area for infrastructure development, local employment creation, and through Chinese labor, substantial income will be spent in the region, increasing demand for consumption leading forward and backward linkages. For example, given the new income generation, demand for poultry products may increase so that production of poultry producta. Producers procure input locally, creating backward linkages and employment creation accordingly. Poultry production creates forward linkages regarding transport, storage, insurance, banking, etc, leading to employment creation. As stated above, the impact of US$ 3.7 billion cannot be assessed easily due to cyclical implications, so many economic activities and businesses will be initiated, causing a vast socioeconomic impact in the region and employment creation. It is relevant to focus on the 4 decades of Sinopec&#8217;s operation in China and its effect on the Chinese economy, as explained above. It is reasonable that Sri Lanka could also expect such a development.<\/p>\n<p class=\"p3\"><strong><span style=\"color: #ff6600;\">Impact of foreign reserves, foreign exchange savings and foreign exchange earnings of US$ 3.7 billion investment<\/span><\/strong><\/p>\n<p class=\"p2\">US$3.7 billion in FDI does not mean the above sum will be added to Sri Lanka&#8217;s foreign reserves as the last destination.\u00a0<b>US$3.7 billion is the value of the investment<\/b>. Machine, equipment, and technology imports will consume a substantial part of this sum, which will not add to the country&#8217;s banking system. However, Sinopec will bring funds for infrastructure development, local procurement, and operational costs that will be added to the country&#8217;s banking system.<span class=\"Apple-converted-space\">\u00a0 <\/span>In short, any funds bought in will be added to the banking system by strengthening the foreign exchange situation in the country. At the same time, when oil is exported, Sri Lanka earns foreign exchange. When dividends are exported, the earned foreign exchange will leave the country. It is vital to note that the extent to which oil is exported and foreign exchange is earned will help to keep the value of the Sri Lankan Rupee (SLR) stable. This is a significant benefit that people hardly notice via US$ 3.7 billion investment.<\/p>\n<p class=\"p2\">The next concern is the amount of foreign exchange that could be saved due to the US$3.7 billion investment. Sri Lanka imported crude and refined oil, costing about US$4 billion in 2024. CEYPECTCO, Indian Oil Corporation Lanka IOC PLC, and Sinopec are in the market. Lanka IOC PLC is the largest operator next to CEYPETCO. When Sinopec resumes its local production and supply, it is difficult to state that CEYPETCO will continue to import as usual. If it would reduce imports, Sri Lanka can save foreign exchange on fuel imports.<\/p>\n<p class=\"p2\">Regarding Sinopec&#8217;s fuel exports, foreign exchange earnings are the center of a US$3.7 billion investment. It is expected, about 20 percent of Sinopec&#8217;s production will be sold in the local market, and the rest will be exported, and accordingly, Sri Lanka will earn foreign exchange. Foreign exchange earnings by Sinopec are crucial for the country because of the foreign exchange requirement for imports and debt repayment obligations. However, the amount of foreign exchange that could be retained in Sri Lanka is in question. <span class=\"Apple-converted-space\">\u00a0 <\/span>Sinopec needs to recover its investment of US$ 3.7 billion and wants to take the said amount overseas as dividends. Given the above scenario, what is essential is the net foreign exchange that could be retained in the country. In short, as Sri Lanka is grappling with a dearth of foreign exchange, the US$ 3.7 billion investment will undoubtedly help Sri Lanka.<\/p>\n<p class=\"p3\"><strong><span style=\"color: #ff6600;\">Oil refinery and its contribution to Economic Growth <\/span><\/strong><\/p>\n<p class=\"p2\">Economic Growth is related to factor payments (i.e., rent, wages, interest, and profit) using land, labor, capital, and entrepreneurship or management. Also, various sources of tax revenue, such as import tax, income tax, VAT, etc., are in the context. However, what tax concession, if any, is included in the agreement is unknown. However, US$3.7 billion will be a good source of tax revenue for the government. As the government is committed to increasing tax revenue, investment in the oil refinery is a good and promising source of tax revenue. Forward and backward linkages are also on the radar. Given all the above, the US$ 3.7 billion investment will contribute about 0.7 percent to economic growth (assuming a US$ 1 billion value addition), which is convenient. It has been substantial and stable for many long years.<span class=\"Apple-converted-space\">\u00a0 <\/span>It should be noted that Singapore has a total crude oil refining capacity of 1.5 million barrels per day and contributes five (5) percent to GDP.<span class=\"Apple-converted-space\">\u00a0 <\/span>Sinopec in Sri Lanka will work similarly to Singapore, refining crude oil and exporting fuel with continuous operation. This is a significant factor as Sri Lanka needs stable and increasing economic growth to face its economic development challenges in many ways, particularly not facing any fuel crisis, as witnessed in 2022.<\/p>\n<p class=\"p3\"><strong><span style=\"color: #ff6600;\">US$ 3.7 billion FDI will work as a magnet<\/span><\/strong><\/p>\n<p class=\"p2\">As the most significant FDI in the country, it is a strong signal that it is attracting an increasing number of such FDI. In short, it will boost the country&#8217;s image and attract FDI. The idea for a second oil refinery has existed for a long time, along with the regimes of Maiththripa Sirisena-Ranil Wickremesinghe, Gotabaya Rajapaksa, and Ranil Wickremesinghe (RW). But the idea was not realized. However, President Anura Kumara Dissanayake succeeded in securing it, given his leadership qualities, strategic thinking, and corrupt free hands. Along with the oil refinery, the president managed to get another 15 development programs within four months in office. According to the Right to Information Commission, the former President, RW, made 24 foreign trips within 26 months of office, costing Rs. 178 million. Indeed, this is not the cost of all trips made by RW, and it does not include the price of the presidential delegation&#8217;s flight ticket. <b>The point is that former president RW failed to secure at least US$ 1 FDI<\/b>. The above information suggests the ability and capability of President AKD to fulfill the mandate given to him by the country&#8217;s people. Following the most significant FDI investment with the Hambanthota oil refinery, it is convenient to conclude that the AKD\/NPP government will secure more such FDI in the future, creating employment, saving and earning foreign exchange, and fostering the country&#8217;s socio-economic development, and poverty eradication. In short, US$ 3.7 billion in FDI will be a magnet to attract FDI. Sri Lanka should find more advanced tech investments that can use its mineral resources (either exported in raw form or just abandoned), and export finished products to the world. That will give a real boost to the economy.<\/p>\n<p class=\"p2\"><span style=\"color: #ff6600;\"><b><i>*The writer, among many, worked as the Special Advisor to the Office of the President of Namibia and was a Senior Consultant with UNDP for 16 years. He worked as a Senior Economist with the Central Bank of Sri Lanka (1972-1993) before he migrated to New Zealand due to a family tragedy. The author can be contacted: <\/i><\/b><\/span><span class=\"s2\"><span style=\"color: #ff6600;\"><b><i>asoka.seneviratne@gmail.com<\/i><\/b><\/span><b><i><\/i><\/b><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p> [&hellip;]<\/p>\n","protected":false},"author":2725,"featured_media":240654,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,46,8],"tags":[],"class_list":["post-240653","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-colombotelegraph","category-constitutional-reforms","category-editorial"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>AKD\/NPP Govt. 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