Global Energy Secures First Private Refinery Deal in Sri Lanka. A Plant Twice the Size of State Run Sapugaskanda Refinery to be Built in Trincomalee

15th march 2011, www.thebottomline.lk, By Santhush Fernando

US-based Global Energy & Industrial Operations, Inc. has secured the first private oil refinery deal in Sri Lanka, under which a plant twice the size of the current state-run Sapugaskanda Refinery will be built in Trincomalee.

Although the project was earlier earmarked for Hambanthota and anticipated to process 150,000 bpd (barrels per day), it had been shifted to Trincomalee due to environmental concerns while production capacity had been brought down to 100,000 bpd.

The Bottom Line on March 13, 2011, exclusively reported that Global Energy & Industrial Operations, Inc. has signed a Memorandum of Understanding (MoU) to set up a 150,000 BPD (Barrels Per Day) refinery in the emerging port city of Hambantota.

The Bottom Line learns that the Company had requested a guarantee from the government that it (CPC) will purchase 50 percent of the output (which is the gap between Sri Lanka’s requirement and the production capacity of the out-dated Sapugaskanda plant run by Ceylon Petroleum Corporation) while the remaining half would be intended for export.

The project is to kick start end 2011, with the financial closure expected by December. Although the project developers were negotiating with the banks it is learnt that, the venture faces several financial constraints.

However it is learnt that the Petroleum Industries Ministry would request modifications to GE&IO’s original proposal that the government purchases refined products at Singapore plats plus a premium of US $ 2.1 per barrel.

Earlier the refinery estimated to cost between US $ 1.5 to 2bn (Rs. 166.5 to 222bn), was projected to be thrice the size of the CPC Refinery and was mainly intended to refine crude oil for the export market, with Hambantota being poised to become a mega global hub in energy, shipping and aviation.

“It is highly commendable that this project was finally given the green light by authorities, as Sri Lanka’s energy security was facing a grave threat with authorities turning a blind eye to modifying the outdated Sapugaskanda refinery,” an energy expert told The Bottom Line on grounds of anonymity.

However, he lamented that it was unfortunate that the line ministry was not kept informed that when GE&IO singed an MoU on a petroleum industry-related project.

“Even the Ministry Secretary Titus Jayawardene was not aware of these developments.
How can the ministry take a proper decision on whether to go ahead with the US $ 2.2bn Sapugaskanda Project if it is not aware that an MoU was signed with a private party? The Ministry or the CPC cannot gamble with funds because these are public moneys which the country must repay later on. If the private refinery is coming up, it is good because we may not have to find a staggering amount such as Rs. 244.2bn (US$ 2.2bn),” he added.

Numerous energy experts and think tanks have time and again emphasised that Sri Lanka needs to properly implement its energy policy in transparent and investor-friendly manner, if the country was to emerge as a global player in the energy industry.

Meanwhile, the Rs. 244bn Sapugaskanda Oil Refinery Expansion and Modernisation (SOREM) project has been in the limbo since 2007 as Iranian and Sri Lankan authorities failed to agree on an exact modus operandi to implement the project. “Rather than the CPC, already embroiled in a major financial crisis, bearing a staggering cost of US$ 2.2 to upgrade Sapugaskanda, it is more prudent and commendable that a private party was allowed to proceed with an alternative, at an estimated cost of nearly half of the former,” he added.

Related Info :

• Global Energy to Set up a 150,000 bpd Refinery in Hambantota Magampura Port City

• Sri Lanka May Get $1.5bn from Iran to Expand Refinery

Global Energy to Set up a 150,000 bpd Refinery in Hambantota Magampura Port City

13th March 2011, www.thebottomline.lk, By Santhush Fernando

World renowned Global Energy has signed a Memorandum of Understanding (MoU) to set up a 150,000 bpd (Barrels Per Day) refinery in the emerging port city of Hambantota.

The refinery estimated to cost between US $ 1.5 to 2bn (Rs.166.5 to 222bn), is said to be thrice the size of the current state-run Sapugaskanda Refinery and will mainly refine crude oil for the export market, with Hambantota poised to become a mega global hub in energy, shipping and aviation.

A former Chairman of Ceylon Petroleum Corporation and a current director of Chevron Lubricants Lanka Plc is the local coordinator for the project while a former DGM of CPC and a Geology professor of University of Peradeniya is also involved in the project. Already they have 24 employees with them,” a high ranking official of the Ministry of Petroleum Industry told The Bottom Line.

However, he added that it was unfortunate that the line ministry was not kept informed that a MoU on a petroleum industry-related project was signed.

“No one knows which government institution has signed this MoU. The Ministry Secretary Titus Jayawardene was not aware of these developments. How can the ministry take a proper decision on whether to go ahead with the US $ 2.2bn Sapugaskanda Project if it is not aware of the private project! The Ministry or the CPC cannot gamble with funds because these are public moneys which the country must repay later on. If the private refinery is coming up, it is good because we may not have to find a staggering amount such as Rs. 244.2bn (US $ 2.2bn),” he lamented.

Numerous energy experts and think tanks have time and again emphasised the need to have a refinery in Hambantota if the country was to emerge as a global player in the energy industry.

“Various parties have applied for refineries in Hambantota. South Korea, ETA Ascon of Dubai and Petrochina subsidiary - China HuanQiu Contracting and Engineering Corporation that built the Muthurajawela tank farm, are among them. But Global Energy is said to have been eying this since 2000 and had also concluded a preliminary feasibility study. They seem to be very serious about the refinery project,” he added.

Meanwhile The Bottom Line exclusively reported last week that a high-powered government delegation was scheduled to visit Iran, in a bid to revive the Rs. 244bn Sapugaskanda Oil Refinery Expansion and Modernisation (SOREM) project that has been in the limbo since 2007 and to appeal Iranian authorities to extend repayment period up to twenty years.

In 2007, The Nation exclusively reported that UAE-based ETA Aston Group was planning to invest US 1.2bn in mega oil refinery in Hambantota, and had also identified a 400 acres of Mahaweli land in Mirrijjawila.

Last year, Petroleum Industries Minister Susil Premajayantha announced that he had received a proposal from Petrochina subsidiary - China Huanqiu Contracting and Engineering Corp to set up a refinery in the Hambantota district targeting the export market. Petrochina or China National Petroleum Corporation (CNPC) is China’s largest oil and gas producer and supplier, as well as one of the world’s major oilfield service providers and a globally reputed contractor in engineering construction, with a presence in nearly 70 countries.

Sri Lanka May Get $1.5bn from Iran to Expand Refinery

25th May 2010, www.bloomberg.com, By Anusha Ondaatjie

Sri Lanka, which imports all its oil, may get a $1.5 billion loan from Iran to fully fund a project to double capacity at the South Asian island’s only refinery, the petroleum minister said.

“The earlier understanding was for us to come up with 30 percent, but Iran may come in to completely finance the expansion,” Susil Premajayantha said in an interview in the capital Colombo.

Sri Lanka plans to start the two-year construction to increase state-run Ceylon Petroleum Corp. refinery’s processing capacity to 100,000 barrels a day by early 2011, Premajayantha said May 21. China Huanqiu Contracting and Engineering Corp. has submitted a proposal to set up a refinery in Sri Lanka’s southern Hambantota district that would export products, he said.

The end of Sri Lanka’s three-decade civil war last year is attracting overseas aid and investment, stoking an economic recovery. Cairn India Ltd., a unit of U.K. explorer Cairn Energy Plc, is investing $100 million to look for oil in a field off Sri Lanka’s northwestern coast that may hold 1 billion barrels of oil.

Preliminary seismic tests indicated “possible deposits of oil or gas” in Sri Lanka’s territorial waters within the Cauvery Basin in the Palk Straits and in the island’s southeastern waters, Premajayantha said.

Sri Lanka will offer four blocks in those areas after calling for tenders from overseas companies to explore six more blocks in the offshore Mannar basin, the minister said.

“If we strike oil, we could have the refineries already here,” Premajayantha said.

Sri Lanka currently imports as much as 60 percent of the island’s crude oil requirements from Iran and is holding discussions on purchases from Russian companies, Premajayantha said.

Local petroleum prices are likely to be “stable” in the coming weeks while following global market rates, he said.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net.