Business Times

Sapugaskanda oil refinery project meets Iranian hurdle

The Sapugaskanda oil refinery expansion project has encountered a financial hurdle even before it gets off the ground with Iranian funding. The Sri Lankan Government has requested Iran to reconsider its conditions on financial commitments of both countries imposed in the MOU signed in 2008. Minister of Petroleum Industries Susil Premajayantha said that this financial hurdle comes following a latest feasibility study conducted by KBS Technologies of Singapore which has estimated the project cost to run up to US$2 billion. Earlier it has been estimated at $1.5 billion and Iran has put a condition on Sri Lanka to commit $500 million which is 30% of the total cost.

With the new cost, the Sri Lankan government’s share goes up to around $667 million. However the Treasury is not in favour of immediately committing such a vast sum, up front, Mr Premajayantha said.
The project did not progress very far and Iran said sometime back that there are some ‘technical issues’ to be resolved before releasing the funds. The issue of financial commitment was raised by Iran later without mentioning about technical issues. Under these circumstances the Sri Lankan Government has to find some other investor to bear the balance cost of $667 million, he said.

He told the Business Times that the Government has sent details of the feasibility study report to Iran, and informed them that it cannot accept the Iranian request to commit a huge sum of money as the country’s share of the project. The government has to find an alternate financial source if Iran is insisting on the payment of $667 million, he added.

Finance Ministry sources said that Iran is unlikely to change their conditions and the Iran funding for the project is doubtful at the moment. The 42 year-old refinery which has a daily output of 50,000 barrels producing a mix of diesel, kerosene, gasoline, furnace oil and naphtha is currently operating at very low capacity of as one of its major sections is closed for repairs, he said adding that an essential spare part called ‘catalyst’ has been imported from Italy recently to get the system running again.

Once the expansion is completed, Sapugaskanda refinery will be able to refine around 100,000 barrels of crude oil per day from the current 50,000 barrels per day. Outlining the progress of the project up to now, the minister said that approximately 15 hectares of land required for the proposed expansion project has been acquired. Rs. 1 billion has been allocated for compensation payment for the affected parties and about Rs.350 million has been disbursed by now.

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