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Sri Lanka Equity Forum » Stock Market Talk » Export Processing Zone -cost of USD 3.95 billion, : Hambantota oil refinery project runs into initial headwinds

Export Processing Zone -cost of USD 3.95 billion, : Hambantota oil refinery project runs into initial headwinds

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Manager - Equity Analytics
Manager - Equity Analytics
The Government last week announced Sri Lanka’s single largest Foreign Direct Investment pledge to build an oil refinery in the Mirijjawila Export Processing Zone in Hambantota at a cost of USD 3.95 billion, but within hours of the announcement, questions cropped up about how the project would be funded, and expertise of the company approved to run the project by the Board of Investment of Sri Lanka.
The FDI value for the Hambantota oil refinery is nearly double the investment for the Colombo Port City. The refinery, which is to be built near the Hambantota International Port and an industrial zone in the Southern coast, will produce 200,000 barrels per day. The refinery will also reportedly produce nine million tonnes of refined petroleum products annually.
The BOI announced on Wednesday at a press briefing that Oman’s Oil Ministry would take a 30 percent stake in the oil refinery project.
The project ran into almost immediate headwinds, when an official of the Ministry of Oil and Gas of the Sultnate of Oman told the Reuters news agency the Ministry had no intention of investing in the facility causing ripples in Colombo.
However, three days later, Dr. Mohammed Hamad Al Rumhy, Minister of Oil and Gas of the Sultanate of Oman arrived in Colombo, yesterday to take part in the ground breaking ceremony of the Green Field Oil Refinery as the Guest of Honour. Dr. Rumhy was accompanied by Musab bin Abdullah Al-Muhrooqi CEO of Oman Oil Refineries and Petroleum Industries Co (ORPIC). According to the BOI, and documents seen by Sunday Observer, the Oman Oil Ministry has expressed a firm interest in partnering with the Green-field Oil Refinery to be constructed by Silver Park International.
Officials said it was unclear why the Omani Ministry official had responded to questions about the project on Thursday, but owned that discussions might have still been at a ministerial level.
While the Omani tangle may have been ironed out for the moment, questions have also surfaced about India’s Accord Group that owns Silver Park International – a company registered in Singapore.
Stakes in the Singapore based company are held by family members of former Union Minister of State of India, S. Jagathrakshkan of the Tamil Nadu political party DMK, The Hindu newspaper reported yesterday. Silverpark’s portfolio of projects listed on its official website includes sand mining, cement manufacture and oil refinery, although there is no evidence that the company has ever undertaken a refinery venture of this magnitude before. Directors of the Singaporean company are immediate family members of the DMK politico, including his wife.
According to the terms of the agreement, Silverpark International will invest 70 percent of the share capital for the Hambantota refinery project, with part of it to be raised as loan capital.
The Omani Oil Ministry is expected to chip in 30 percent of the project’s capital if the deal is finalised.
However, clarifying matters after the Omani ministry official denied involvement in the Sri Lankan refinery the BOI said that equity shares among the involved parties had not been discussed.
In a statement the BOI said, “We are aware that there is no agreement that has been signed between Oman’s Ministry of Oil and Gas and Silver Park International PTE Ltd with regard to equity arrangements of the project.”
It added that the BOI is aware the Oman Oil Company has registered their firm intention to participate in equity up to 30 percent, subject to reaching agreement between the parties, and also, that Oman Trading International is willing to supply the entire feedstock requirement of the project as well as do the marketing for the products, upon reaching mutually agreed terms.
“The investor - Silver Park International PTE Ltd - has conveyed to the Board of Investment their full confidence in implementing the project.” 

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