Sri Lanka’s energy sector is bracing for a seismic shift as Sinopec’s $3.7 billion Hambantota refinery moves closer to reality, with the government weighing whether to allow up to 40% of its refined oil to flood the local market. The decision could redraw the power map of the island’s petroleum industry.
The Ceylon Petroleum Corporation (CPC) confirmed yesterday that it has no binding agreement to purchase products from Sinopec, the Chinese state-owned energy giant. Dr. Mayura Netthikumarage, Managing Director of CPC, explained that while talks are ongoing, no guaranteed off-take arrangement exists.
“The government is considering granting Sinopec the option to sell up to 40% of its refinery output locally. But this would not be a direct deal with CPC or Lanka IOC. Instead, participation will follow standard tender processes, and buyers will only purchase if prices are competitive. There is no obligation on CPC or any other company to buy,” Dr. Netthikumarage stated.
Market Impact
The potential entry of Sinopec into Sri Lanka’s fuel distribution market has raised questions about whether CPC’s role could be diminished. However, Dr. Netthikumarage was clear: “There are no plans to reduce CPC’s capacity. Our Sapugaskanda refinery remains operational at its full 50,000 barrels per day, and the market shares of CPC, LIOC, and others will not be directly affected.”
CPC currently holds over 50% of the domestic petroleum market and dominates Sri Lanka’s fuel distribution infrastructure. In the first half of 2025, it posted a profit of Rs. 18 billion, highlighting its financial resilience despite rising competition.
Meanwhile, Lanka IOC (LIOC), a subsidiary of the Indian Oil Corporation, controls 18-20% of the retail fuel market and operates more than 260 filling stations nationwide. LIOC also supplies 15.8% of lubricants and commands about 35% of the marine fuel supply market.
Sinopec’s Global Clout
Sinopec, headquartered in Beijing, is the world’s largest oil refiner with an unmatched global footprint. In 2023, it processed 258 million tons of crude oil, produced 70.92 million metric tons of oil and gas, and reported net income of 60.5 billion yuan (approximately $8.37 billion).
In January 2025, the company signed a landmark deal with the Sri Lankan government to build the Hambantota refinery, adjacent to the strategic Hambantota International Port. The project represents the largest single foreign investment in Sri Lanka’s energy sector, valued at $3.7 billion.
The Hambantota facility will have a refining capacity of 200,000 barrels per day, making it four times larger than the Sapugaskanda refinery. A large portion of its output will be earmarked for export, but the government’s willingness to allow up to 40% to enter the local market could reshape competition in a sector long dominated by CPC and LIOC.
Imports, Refined Products, and US Oil
Dr. Netthikumarage clarified that Sinopec’s involvement will not directly impact Sri Lanka’s crude oil imports, particularly from the United States. “Sinopec will produce refined petroleum products, not crude oil. Their purchases of crude are independent of ours. The crude we buy from the US is specifically for Sapugaskanda operations,” he explained.
Industry Shake-Ups
Sri Lanka’s petroleum sector has already seen significant changes. In 2024, Australian-owned United Petroleum exited the country, shutting down 64 filling stations that were subsequently acquired by CPC. In parallel, US-based RM Parks has partnered with Shell Brands International to launch Shell-branded fuel stations on the island, adding further competition.
Against this backdrop, Sinopec’s Hambantota refinery is poised to become a game-changer once operational. Authorities are even considering raising its domestic sales quota from the earlier 20% to 40%, a move that would give the Chinese giant unprecedented access to the local market.
For Sri Lanka, the stakes are high. Allowing Sinopec to capture a sizeable share of the domestic market could lower fuel costs if pricing is competitive, but it also risks intensifying geopolitical and economic dependency on Beijing.
As construction accelerates, the question remains: will Sri Lanka’s petroleum sector open the gates for Sinopec to carve out a dominant 40% of the local market, or will CPC and LIOC tighten their grip to preserve the existing balance of power?
