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|19 March, 2019

Indian-Omani group strikes $3.85bln deal to build Sri Lanka oil refinery

Sri Lankan officials said the 200,000 barrel-per-day refinery will be built on 585 acres near the site of the new Hambantota international port

Petroleum Development Oman (PDO). Image for illustrative purposes.

Petroleum Development Oman (PDO). Image for illustrative purposes.

COLOMBO- India's Accord Group and Oman's Ministry of Oil and Gas have signed a $3.85 billion deal to build an oil refinery in Sri Lanka, the biggest single pledge of foreign direct investment ever made in the country.

Sri Lankan officials said the 200,000 barrel-per-day refinery will be built on 585 acres near the site of the new Hambantota international port and a related industrial zone on the nation's southern coast.

The refinery, construction of which is expected to begin on March 24 and be completed in 44 months, is expected to produce 9 million metric tonnes of refined products a year for export from the Hambantota port, which serves the busiest East-West shipping route.

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Privately owned Accord Group will control 70 percent of the joint venture and the Sultanate of Oman's Ministry of Oil and Gas the rest.

Accord's ownership comes through a Singapore investment vehicle which is 90-percent owned by its Silver Park International Pvt Ltd operation.

The deal represents a challenge to China, which had been on track to be the dominant foreign investor on the island.

China Merchants Port Holdings , China Harbour Engineering Corp and other Chinese companies are investors in the port and industrial zone.

China's separate $1.4 billion financing of facilities on reclaimed land near the nation's main Colombo port is currently the island's biggest single foreign direct investment.

New Delhi has been concerned about China muscling into Sri Lanka and other countries in the region where India is the traditional power. India fears Sri Lanka, just off its southern coast, could become a Chinese military outpost.

Tensions between India and China are creating political turmoil in Sri Lanka. A bust-up between President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe over how far to accommodate Indian interests led to months of political chaos late last year.

The refinery will be Chennai-based Accord's first foray into oil refining. Its current interests include power generation, brewing and healthcare.

The joint venture plans to invest $1.89 billion in share capital and $1.96 billion via loans, the project document seen by Reuters showed.

"With this refinery, our exports will grow by $7 billion per year," Nalin Bandara Jayamaha, Sri Lanka's deputy minister of development strategies and international trade, told reporters at a news conference in Colombo.

The industrial zone at Hambantota has been delayed by a land acquisition process which has been hit by protests by local residents.

Mangala Yapa, an advisor to Sri Lanka's development strategies ministry, said 200 acres to house the venture's oil tanks were already available and another 385 acres are being acquired, while an environmental impact assessment is underway.

"We are doing a site-specific EIA (environmental impact assessment). Since already there are oil tanks in Hambantota, we do not see any issues," Yapa said.

An official at Singapore-based Silver Park International Pte Ltd confirmed the refinery investment, but declined to comment further. The company has been registered in Singapore since June 2017.

The Omani government entity was not immediately available for comment.

(Additional reporting by Jessica Jaganathan in Singapore and Nidhi Verma in New Delhi; Edited by Martin Howell and Jan Harvey) ((shihar.aneez@thomsonreuters.com; +94-11-232-5540; Reuters Messaging: shihar.aneez.thomsonreuters.com@reuters.net twitter:@shiharaneez))

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