What a Chinese oil refinery in Hambantota means for India

On the face of it, the recent decision of the Sri Lankan cabinet to allow China’s Sinopec to set up a $ 4.5-billion petroleum refinery in the southernmost Hambantota Port on lease to Beijing for 99 years is a matter of concern to India. With American media reports constantly speculating on China setting up a military base in Hambantota along with one in Pakistan’s Gwadar Port whenever, now or later, the Indian concerns could get a more definite shape, requiring a more robust response than already, if it came to that. Or, would it? Apart from being a security threat to India for sure, especially if there is a Chinese military establishment in the future, Hambantota also faces the US military base in Diego Garcia, around 1,500 km, across the open Indian Ocean. It is thus an avoidable tension for the US, whose base is well-stocked, equipped and manned, going by reports from time to time. China, if at all, it succeeds in convincing the Sri Lankan government to allow it to have men and machines in strength, will take much more time. It will also be difficult for the PLA, PLA-N and PLA Air Force to move avoiding the watchful eyes of the US and India. Yet, it is a situation that all three can do without – more so, the Sri Lankan host of China. Sri Lanka’s Energy Minister Kanchana Wijesekara, who briefed newsmen on the cabinet decision to allow Sinopec to put up a refinery in Hambantota, reiterated that the government would sign the formal agreement only after getting China to submit the draft agreement and discussing it in detail. This is the SOP for all agreements, whether involving governments, corporations or individuals. By reiterating the obvious, the minister hoped to bring added weight to the matter, as if to convince the unconvinced, both inside the country and outside. The former is mostly silent, as always, for reasons better known to them. The latter is not. White elephant project What could an oil refinery in Hambantota mean for Sri Lanka first, and China, next? One can safely assume that from a purely Sri Lankan perspective, it could well be a white elephant project like many others, including the Hambantota Port and SEZ, expressways projects and the much-hyped Colombo Port City (CPC), whose progress has been slow since the collapse of the Sri Lankan economy last year. The phrase ‘white elephant’ may not be apt to some, as the refinery project does not involve any debt quotient, as is known at present. Though the reasons are not far to seek, one would need to wait and watch until the details of the Sinopec agreement are made known in public – if at all. It remains to be seen if the agreement provides for revenue-sharing in some form, or accumulation of duties and taxes for the Sri Lankan exchequer. That is to say, there will be no duty concessions bordering on total write-off. Then, there is the need to find out if the Sinopec project will provide jobs to Sri Lankans, and thus boost family incomes. Considering that the proposed refinery is set to come up in Hambantota, where Beijing may not want non-Chinese ‘peeping around’, the chance of jobs for the locals may not even be under consideration. However, details need to be known here too, as in the prestigious CPC project, the agreement has provided for a majority of jobs, across all levels, to the locals. This apart, CPC has had its share of controversies through the past few years. The latest one involved former British prime minister David Cameron after he signed in on an advisory role of some kind and presence in a CPC roadshow in the Gulf some months back. His return to active politics and public administration as the new foreign secretary of British Prime Minister Rishi Sunak has already caused eyebrows to rise in multiple capitals, starting with London. As an aside, apart from the CPC and China angle, there are the ‘Sri Lanka war crimes probe and accountability issues’. Here, the UK has been a strong proponent for bringing the culprits to book at the UNHRC, along with the US all along. At times, the UK also stood in for the US, so to say, after Washington under president Donald Trump had boycotted the UNHRC in between. Unhealthy competition Like the Hambantota port project, the idea of a refinery does not make great economic sense with the Sri Lankan market alone in mind. Already, public sector Ceylon Petroleum Corporation (CPC) and its refineries, and also India-backed Lanka IOC are serving the Sri Lankan market. Sinopec entered the market earlier this year as a retailer. An American firm, RK Parker, is due to enter the retail market soon, to market Shell products. Unless the Colombo dispensation visualises a situation where unhealthy competition among the existing players and new ones entering the field leads to their selling oil products for a song to Sri Lankan consumers, both individuals and industries (or, whatever is there), it does not make political or economic sense for them all to be in the field – or, stay here for long. In the end, one or many of them might end up winding up their operations in the country. There is a catch, especially for Lanka IOC and India. Under IMF conditionalities, Sri Lanka is set to privatise many, if not all ‘state-owned enterprises’ (SoE), otherwise known as ‘public sector units’ (PSU). If the axe falls on the CPC, even if it is not full-fledged privatisation, whoever picks up the stakes on offer may want to have a say on Lanka IOC operations. From an Indian standpoint, it could have larger consequences than is visible on the retail front. During President Ranil Wickremesinghe’s New Delhi visit earlier this year, the two sides signed an MoU for India to help ensure ‘energy security’ for Sri Lanka, by reviving discussions for a vast increase in storage of imported products in the two oil tank farms in the eastern port town of Trincomalee. In October 2021, during the Sri Lanka visit of then foreign secretary Harsh Vardhan Shringla, India also signed MoUs for setting up non-conventional energy installations in the country. Though IOC may or may not be involved, the two nations are also working on a pipeline project for the supply and storage of oil and oil products from India for storage in the Trinco tank farms of the Second World War vintage. Panic reaction On the face of it, Sri Lanka invited many foreign companies to float retail business in petroleum products in the country, and now for Sinopec to set up a refinery seems to be a panic reaction to the unprecedented fuel shortage that accompanied the economic crisis last year. Policymakers in Colombo instead need to acknowledge that the crisis was caused not by shortage or storage problems, but owing to the government’s inability to earn and pay in dollars, for all imported goods. Along with fuel, food and medicines also faced huge shortages in the domestic market for days and weeks. India consistently, and once even war-borne Russia (against Ukraine), helped out with unlimited supplies just as New Delhi was extending new dollar credit and restructuring existing repayment schedules, etc. The question thus arises if letting in more retailers or even refiners could help in the future if a situation like last year were to emerge in the future, even if theoretically. The answer is a firm ‘No’. Incidentally, if there is no domestic or international market for Sinopec’s refined products from Hambantota, what are the options available to China? According to some reports, it may have used for China’s bunkering project at Hambantota, but then that itself has not taken off in the few years of its full-fledged existence. China has the highest number of ocean liners in business and unless they all send their ocean-going vessels for bunkering in Hambantota, without getting it done back home, there is going to be little or no business in the Sri Lankan end. China would still assume that western liners may not want to do it in Hambantota, both owing to political reasons and comfort zones that they have established with other bunkering operators elsewhere in these parts. Anyway, Hambantota is way off the Indian Ocean Sea Lines of Communication (SLOC) for long-distance tanker liners to take an inward deviation for bunkering work. It is unlike container vessels visiting Colombo Port, as the latter still caters to India. According to official estimates, 70 per cent of the Colombo Port’s business pertains to India. Playing Paul against Peter What does it all mean in terms of India’s security concerns? With a refinery in place in Hambantota, an easy target for an enemy fighter aircraft, China may not be tempted to set up a military base of any consequence in those parts. A larger base with air defence systems, which would be there anyway, alone makes sense. Yet, China would (have to) be equally aware that in Hambantota or thereabouts, it would be trapped in an Indian Ocean pond in these parts, militarily controlled by adversaries and non-friends, like India (mainland and the Andamans base), Diego Garcia and French Reunion Island. After his recent China visit, where he met his counterpart Xi Jinping and confabulations with visiting special envoy and State Councillor Shen Yiqin, Wickremesinghe reiterated the Sri Lankan State’s continued commitment to ‘One China Policy’, though the immediate need and urgency for such reiteration is not known. For her part, Shen Yiqin outlined Beijing’s desire to extend the China-Myanmar BRI to include Sri Lanka and also take forward bilateral discussions on a long-pending FDI. With Shen Yiqin, President Wickremesinghe talked about bringing in more investments to the country but after ensuring that there was no security threat to neighbouring India. In this context, he ‘clarified’ to an Indian interviewer that no Chinese spy ships had been in Sri Lankan waters. What they have had were two research vessels and periodic visits by PLA-N military ships. According to the Sri Lankan official statement on the meeting with Shen Yiqin, the host also reiterated the nation’s commitment to keeping the neighbourhood Indian Ocean as a peaceful region and supporting good order in the seas. It is a position taken by the US and other western nations, going beyond the Quad and Indo-Pacific with Indian participation. New Delhi has subscribed to the same views. It thus remains to be seen what had provoked Wickremesinghe to reiterate his nation’s position on a sensitive issue, in his talks with the visitor, especially when he was supposed to have thrashed it all out with President Xi in Beijing only weeks earlier. That Wickremesinghe was in New Delhi and then the US before visiting Xi in Beijing should be a message in itself. However, Colombo would be foolish to think that it can continue to play global Peter against regional Paul, or run with the hare and hunt with the hare, and still stay safe and secure, over the medium and long terms – which is what a nation’s history is all about and what that history too dictates! The writer is a Chennai-based policy analyst and political commentator. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News , India News  and  Entertainment News  here. Follow us on  Facebook ,  Twitter  and  Instagram .