By: Staff Writer
November 09, Colombo (LNW): Sri Lanka’s proposed US$3.7 billion petroleum refinery investment in Hambantota has reached a critical turning point, following a recommendation by a Cabinet-appointed negotiating committee to terminate the existing agreement with Chinese petroleum giant Sinopec and invite fresh international investment proposals.
The recommendation raises important questions about the country’s ability to attract large-scale foreign investment without compromising public revenue, domestic economic interests and long-term control over strategic industries.
The project, originally awarded to China Petroleum and Chemical Corporation (Sinopec) following a Cabinet decision on November 27, 2023, was expected to become one of the largest foreign direct investments in Sri Lanka’s history.
Designed to process approximately 200,000 barrels of crude oil daily, the refinery was primarily intended to supply international export markets, generate foreign exchange and establish Hambantota as a regional petroleum and energy hub.
An investment agreement was signed during President Anura Kumara Dissanayake’s state visit to China in January 2025. However, the commercial and fiscal conditions surrounding the investment subsequently became a major source of disagreement.
According to information contained in the negotiating committee’s assessment, Sinopec presented ten major demands covering taxation, land allocation, domestic petroleum sales, foreign exchange arrangements, import exemptions, electricity sales and preferential treatment for associated investors.
One of the most contentious issues concerned the request for Strategic Development Project status, which could have provided extensive tax concessions over a period of 15 to 25 years.
The committee reportedly rejected a request for a 25-year corporate income tax holiday, together with exemptions covering dividends, interest, technical service fees and royalties. Proposed personal income tax concessions for expatriate employees also came under scrutiny.
These demands acquire particular significance because Sri Lanka remains committed to strengthening government revenue under its US$2.9 billion International Monetary Fund-supported programme.
Following the country’s economic crisis, revenue mobilisation has become one of the most important conditions for restoring fiscal stability. Any substantial tax concessions granted to a major foreign investor must therefore be evaluated against their long-term impact on government income and the country’s ability to finance public services.
The central question is whether the economic benefits generated by a multibillion-dollar investment would adequately compensate for the revenue sacrificed through extensive tax exemptions.
The negotiating committee, chaired by Presidential Chief of Staff B. K. Prabhath Chandrakeerthi, appears to have taken the position that investment incentives should not undermine the country’s fiscal obligations.
Another disputed issue concerned the proposed land allocation. Although the initial allocation covered approximately 500 acres in Arabokka, Sinopec reportedly sought an additional 200 acres near Hambantota Port.
The document also identifies disagreements concerning a proposed 99-year lease arrangement covering approximately 700 acres and the possible removal of a one per cent state royalty payment.
Such arrangements raise questions about the long-term value of public land and whether the financial benefits to the State would justify the concessions.
The committee did not reject every investor request. It accepted certain proposals relating to additional land, import exemptions, associated investors’ rights and other concessions. This suggests that negotiations involved an attempt to accommodate commercially reasonable requirements while rejecting conditions considered financially or strategically unacceptable.
Following the committee’s earlier position in February 2026, Sinopec reiterated its negotiating position in a letter dated March 15, 2026.
The committee subsequently concluded that the project could not proceed under the prevailing circumstances and recommended terminating the November 2023 award.
However, the final Cabinet decision remains pending.
The proposed fresh international Request for Proposals process could provide Sri Lanka with an opportunity to negotiate a more balanced investment agreement.
The challenge is to secure the promised employment, export earnings, industrial development and technology transfer without creating long-term fiscal liabilities.
Ultimately, the Hambantota refinery negotiations will test whether Sri Lanka has learnt that the headline value of an investment cannot be allowed to overshadow the actual economic benefits retained by the country.
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