CPC seeks investment and supply linkages for US$ 2 bn refinery expansion

The state-run Ceylon Petroleum Corporation (CPC) will be seeking foreign investment linked to long-term crude supply contracts to construct the US$ 2 billion expansion at the Sapugaskanda Oil Refinery, according to the organization’s head.

“If you take the refinery, we’re looking at other means. Say if we can go into a long term crude supply arrangement with a country, and in turn, they invest and build the refinery, that would be an ideal situation, but those are farfetched things where we have to keep working towards that,” CPC Chairman Dammika Ranatunga said.

Speaking to Mirror Business at a recent media briefing, he said that the government is not interested in drawing commercial loans for the US$ 2 billion project, and the state-run fuel supplier will also find it difficult to accommodate such commercial borrowings on its balance sheet.

“We have no intention in doing that but if we get a commercial loan that is close to where we are, and ROI (return on investment) and things show that is a feasible arrangement, then we would,” Ranatunga said.

The expansion plan would more than double the current 50,000 barrels of crude per day processing capacity at the refinery, which now caters to around 30 percent of the local demand.

Government estimates so far project the upgraded facility to derive US$ 400 million in profits annually after the upgrade, which would result in the investors recovering their investment within six years.
The expansion plan has been on the cards since at least 2011. The previous regime had plans to market the expansions investment programme to entities in Russia and South Korea, after an initial deal with Iran to complete the project for US$ 1.7 billion fell through.

At the start of this year, the then Petroleum Resource Development Minister Chandima Weerakkody had said that 28 foreign companies had placed bids for this expansion project.

A cabinet reshuffle occurred this May, with Arjuna Ranatunga becoming the Petroleum Resource Development Minister, and his brother Dammika Ranatunga becoming Chairman at the ministry’s largest institution; the CPC.

Dammika Ranatunga said that smarter procurement of crude supplies to break the past monopoly held by the Abu Dhabi National Oil Company, and efficiencies at the 48-year old Sapugaskanda Refinery has seen CPC making profits after May this year. (CW)