Eric Watkins
Senior Correspondent

LOS ANGELES, May 2 -- Iranian President Mahmoud Ahmadinejad launched a $1.2 billion project to upgrade Sri Lanka's sole refinery at Sapugaskande, outside Colombo, the island nation's capital.

Sri Lanka's petroleum minister A.H.M. Fowzie said the 4-year upgrade will triple his country's refinery capacity to 150,000 b/d from the current 50,000 b/d. Earlier plans had called for an increase to 100,000 b/d.

Iran, which supplies 70% of Sri Lanka's oil needs, agreed to finance $700 million of the upgrade in the form of a 10-year loan, with a 5-year exemption period from payment of the loan's installments. Sri Lanka will provide the remaining $500,000 for the project.

In March, Saudi Arabia expressed its willingness to assist Sri Lanka with its oil needs—including the Sapugaskande refinery—following a meeting in Riyadh between Fowsie and his Saudi counterpart, oil minister Ali al-Naimi.

"We have plans to improve our refining capacity from 50,000 b/d to 100,000 b/d and getting Saudi expertise for the proposed expansion will facilitate the successful implementation of the project," said Fowzie.