NEW DELHI: The stage is set for a long-drawn India-China proxy duel in Sri Lanka as Chinese major Sinopec begins retailing automotive fuels in the island nation from next month, challenging the position of Lanka IOC - the wholly-owned arm of Indian state-run giant IndianOil Corporation.Lanka IOC has responded by mobilising expansion of its retail network and has floated EoIs for adding 30 new petrol pumps to its existing network of 250 outlets over the coming months.Lanka IOC entered Sri Lanka in 2003 and cornered 16% of petrol and diesel sales as well as 35% of lubricants, bitumen and bunkering (marine fuel) last year in a duopoly with Cypetco.Sinopec is the first of the three companies, chosen by Colombo through the EoI (expression of interest) route, to set up operations.

Australia's United Petroleum and US company RM Parks - with Shell - were the other two.Under Colombo's liberalisation policy, Sinopec will get control of 150 of the 1,200 retail outlets operated by Sri Lanka's national oil company Cypetco (Ceylon Petroleum Corporation) for 20 years.

Another 150 will go to RM Parks, seen taking 3-4 months to begin operation, while United Petroleum's plans remain unclear.Sinopec is also one of the two companies - the other being Vitol - shortlisted by Colombo for a proposed $4 billion refinery at Hambantota, where a deepwater port has been given to China on a 99-year lease - something that still rankles in India from time to time.A refinery, people in the know said, could give Sinopec an edge against Lanka IOC, which imports products from the parent's refineries as Sri Lanka has a small refining capacity.

Sinopec can price out Lanka IOC, especially under the new regime wherein Colombo prescribes the 'maximum selling price'.The move to open up the market, the people cited above said, was prompted by the fact that during last year's economic crisis, when Colombo ran out of foreign exchange for importing fuel, Lanka IOC was the only company maintaining supply in the June-July period.

India had then extended a $3 billion credit line for fuel, food and other essentials.

Seeing the possibility, Colombo in March decided to open up the market with a view to "easing the burden" on the exchequer.