SINOPEC has emerged as the preferred bidder in Hambantota International Port Group’s tenders for marine bunkering projects in the harbour on the southern tip of Sri Lanka.

The Chinese oil major outbid in both tenders, one for operating the tank terminal and one for using the facilities to trade fuel oils, against several other competitors, according to Saliya Wickramasuriya, senior adviser to the HIPG chief executive.

“They were significantly better on oil trade, and marginally better on the operator,” Mr Wickramasuriya said, speaking on the sideline of the Lloyd’s List Smartport Forum, as part of the Singapore Maritime Week events.

“We evaluate the proposals by fixed income as rent for using the facilities as well as throughput-based variable income in a 10-year timeframe. Also we look at how aggressive their plans are to expand the business.”

He added that the board of HIPG, now part of Chinese port giant China Merchants Port, has approved Sinopec’s offers while a letter of award has been issued.

A formal contract is expected to be signed within months after the two parties finalise the agreement.

The deal comes as the nine-year-old Hambantota port is keen to prove its commercial potential.

In 2017, CM Port signed a $1.1bn, 99-year concession agreement with Sri Lanka Ports Authority to lease 85% of the equity of the port, which the South Asian island country had borrowed heavily to build and could not repay the loans.

Hambantota port has been positioned as an expansion to the nearby Colombo port — a regional transhipment hub also operated by CM Port — not only in terms of container lines, but also including ro-ro and break bulk shipping. But none of these has made much progress over the years.

Sinopec’s proposal has given hope for establishment in the port’s bunkering business, which was also one of SLPA’s primary objectives, especially at the time when the looming 2020 sulphur cap is set to boost demand for low-sulphur fuels.

SLPA earlier took up the bunkering business on its own for about a year, without much success, Mr Wickramasuriya admitted.

But when CM Port came, bunkering regained focus as an earlier source of revenue.

“It has also become more strategically important as the marine fuel markets are going to change rapidly in the near future so we have to reposition the story of Hambantota in the context of 2020.” he said, “that requires us to seek the right partner.”

The 10-year plan of HIPG targets a sale of 1m tonnes of marine fuel at the port, where a storage capacity of 750,000 cu m needs to be expanded.

Several options are available, such as building more tanks by the port or using floating storage, according to Mr Wickramasuriya.

A third solution would be to bring in refineries that can build their own facilities and do the production locally. That will spare HIPG from investing heavily by itself and, at the same time, make the fuel offered by the port cheaper.

Two Singapore-based entities have delivered their offers separately to set up new refineries that can produce about 650,000 barrels per day in total.

It is now pending the government’s approval for the land allocation for those projects, said Mr Wickramasuriya.

Still, sitting in between two of the world’s largest bunking hubs — Fujairah and Singapore, which together sold about 90m tonnes of marine fuel last year — Hambantota has a lot more to do than just provision compliant fuel, in order to enter that market and eventually become a regional bunkering hub, he added.

“The 2020 requirement for us also means the provision of services that support conversion, maintaining and fuel testing. So there are lots of technique upgrades that we have do.

“Currently, the business goes perfectly well without us.”

The Chinese-operated Sri Lankan port must find its own competitiveness.

One potential opportunity, according to the adviser, was those tanker vessels that call at Singapore just for bunkering. The saving on deviation costs may offer a good reason for them to seek fuel at Hambantota if the port can provide competitive service.

 “This is the reason why we partner with Sinopec to leverage their global networks.”