Facing financial constraints, Sri Lanka has declared the cancellation of a $3.85 billion contract to construct an oil refinery, a deal that was anticipated to represent the country's largest foreign investment.

According to Energy Minister Kanchana Wijesekera, the cabinet took the decision to terminate the agreement, citing the failure of Singapore-registered Silver Park International to commence construction despite a ground-breaking ceremony held in 2019.

Originally intended to be a collaborative effort funded by Silver Park (owned by an Indian family company) and Oman, the project had a targeted completion date for this year.

As per the Energy Minister Kanchana Wijesekera, the Sri Lankan government has announced its intention to find an alternative foreign partner for the establishment of a petroleum product export-oriented refinery.

China's Sinopec and Vitol have been short-listed for the construction of the country's second oil refinery, situated close to the Chinese-managed Hambantota port in the southern region, he confirmed.

The identity of the new partner is expected to be disclosed within a matter of weeks.

"The cabinet cancelled the agreement with (Silver Park's) Hambantota Refinery Company because they did not proceed with the construction," Wijesekera stated.

The revoked agreement led to the reclamation of approximately 1,200 acres (485 hectares) of land that was initially allocated for the refinery.

Former Prime Minister, now President, Ranil Wickremesinghe, participated in the November 2019 ground-breaking ceremony for the project. Wickremesinghe's vision was to attract increased investment to the Hambantota area through the establishment of the refinery, strategically located near bustling shipping routes between Asia and Europe.

However, the port of Hambantota was controversially leased to a Chinese state-owned company for a period of 99 years in 2017, for a sum of $1.12 billion, a value lower than the $1.4 billion paid by Sri Lanka to a Chinese firm for its construction.

Sri Lanka found itself in a financial crisis, defaulting on its $46 billion external debt in April 2022, as foreign exchange reserves dwindled, making it difficult to fund essential commodities like food, fuel, and medicines.

As a solution, the country secured a $2.9 billion bailout from the International Monetary Fund.

Image source: Indian Express