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Oil & Gas Journal

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.

The Sri Lankan minister added that his country also needed a cracker to convert crude oil into diesel and gasoline which would cost the government some $400 million. He asked the Saudi oil minister to request funds from the Organization of Petroleum Exporting Countries to enable Sri Lanka to purchase the facility.

The importance of the refinery upgrade was underlined in January when Sri Lanka, which has to import all of its oil needs, saw its trade deficit double to $610.8 million as higher oil import costs exceeded export gains.

Sri Lanka bought $302.1 million worth of oil in January, when the island's sole refinery shut down for upkeep work, compared to $54.2 million a year earlier.

In February, the Sri Lankan central bank said the country's trade deficit widened to $3.56 billion in 2007 from $3.37 billion in 2006 due to the high cost of importing petroleum products. It said the country's oil import bill stood at $2.49 billion for 2007, a 20.6% increase over the cost of imports in 2006.

Contact Eric Watkins at hippalus@yahoo.com.