Sri Lanka May Get $1.5bn from Iran to Expand Refinery

25th May 2010, www.bloomberg.com, By Anusha Ondaatjie

Sri Lanka, which imports all its oil, may get a $1.5 billion loan from Iran to fully fund a project to double capacity at the South Asian island’s only refinery, the petroleum minister said.

“The earlier understanding was for us to come up with 30 percent, but Iran may come in to completely finance the expansion,” Susil Premajayantha said in an interview in the capital Colombo.

Sri Lanka plans to start the two-year construction to increase state-run Ceylon Petroleum Corp. refinery’s processing capacity to 100,000 barrels a day by early 2011, Premajayantha said May 21. China Huanqiu Contracting and Engineering Corp. has submitted a proposal to set up a refinery in Sri Lanka’s southern Hambantota district that would export products, he said.

The end of Sri Lanka’s three-decade civil war last year is attracting overseas aid and investment, stoking an economic recovery. Cairn India Ltd., a unit of U.K. explorer Cairn Energy Plc, is investing $100 million to look for oil in a field off Sri Lanka’s northwestern coast that may hold 1 billion barrels of oil.

Preliminary seismic tests indicated “possible deposits of oil or gas” in Sri Lanka’s territorial waters within the Cauvery Basin in the Palk Straits and in the island’s southeastern waters, Premajayantha said.

Sri Lanka will offer four blocks in those areas after calling for tenders from overseas companies to explore six more blocks in the offshore Mannar basin, the minister said.

“If we strike oil, we could have the refineries already here,” Premajayantha said.

Sri Lanka currently imports as much as 60 percent of the island’s crude oil requirements from Iran and is holding discussions on purchases from Russian companies, Premajayantha said.

Local petroleum prices are likely to be “stable” in the coming weeks while following global market rates, he said.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net.