The Sri Lankan government has signed a contract agreement with Chinese state fuel retailer and distributor Sinopec for the supply of fuel to the crisis-hit nations, the Sri Lankan President’s Office announced in a statement.
The pact was signed by Sri Lankan secretary of power and energy Mapa Pathirana and Chen Chengmin, Managing Director of Fuel Production and Marketing Department of Sinopec Company.
Under the terms of the pact, Sinopec has been awarded a 20-year license to import, store, distribute, and sell petroleum products in Sri Lanka.
President Ranil Wickremesinghe witnessed the signing of the pact, which Colombo said would be a “significant step” to address the country’s fuel supply challenges.
The Chinese fuel distribution giant will also set up 50 new stations at new locations across the country.
Colombo has said that a “key requirement” for the new retail suppliers is the ability to “secure forex requirements without depending on the domestic banking sector”.
“It was mandated that these companies source their own funds for fuel procurement through foreign sources, at least during the initial one-year period of operation,” the Sri Lankan statement underlined.
Sri Lanka’s Economic Crisis
Sri Lanka is in the throes of its worst financial crisis in over seven decades, which has been triggered by a shortage of forex reserves and global volatility in energy prices in the wake of Covid as well as Western government’s efforts to phase out Russian commodities from the global supply chains.
Last year, the country was on the verge of running out of essentials such as fuel, food, and medical supplies, which fomented political tensions at home.
Sri Lanka’s state-backed Ceylon Petroleum Corporation (CPC) and Lanka Oil, the Sri Lankan subsidiary of the New Delhi-backed Indian Oil Corporation (IOC), have traditionally maintained a duopoly in the Sri Lankan fuel-distribution market
In March, the Sri Lankan cabinet granted approval to three foreign companies to enter the domestic fuel-distribution market: besides Sinopec, Australia’s United Petroleum and US-based RM Parks have also been granted approvals by Colombo.
The Executive Board of the International Monetary Fund (IMF) this year sanctioned a 48-month loan worth $3 billion under the Extended Fund Facility (EFF) for the cash-strapped economy, per a statement.