A protestor shouts
A protestor shouts as a policeman stands guard during an anti-government demonstration by the university students demanding the release of their leaders, in Colombo on October 18, 2022. Image Credit: AFP

Colombo: Sri Lanka's parliament on Tuesday approved legislation allowing foreign competition in the local fuel market, ending a 19-year duopoly as the bankrupt island struggles to import oil.

The move cleared the way for international oil firms to re-enter Sri Lanka for the first time since the nationalisation of oil companies in the early 1960s, with the exception of the Indian Oil Corporation which has operated there since 2003.

"This will allow global suppliers to enter as retail operators," energy minister Kanchana Wijesekera said. "This will liberalise the energy sector."

Officials said private companies will have to finance the import of oil from their own foreign exchange reserves and agree to retain their profits in Sri Lanka for at least a year.

The new law was rushed through as the government is out of foreign exchange to import fuel, a predicament that has brought acute shortages and strict rationing.

The shortages sparked widespread protests that toppled president Gotabaya Rajapaksa in July as Sri Lanka plunged into its worst economic crisis since independence from Britain in 1948.

Sri Lanka nationalised foreign oil firms in the early 1960s, handing a monopoly to the state-owned Ceylon Petroleum Corporation (CPC).

CPC's monopoly ended in 2003 when Colombo introduced limited competition by allowing India's state-owned Indian Oil Corporation to enter the local retail market.

The Indian company's Sri Lankan arm now controls about a third of the domestic fuel market while the rest is held by CPC, which is seeing huge losses and is out of dollars to pay for new imports.