Refinery may take five years: official

Colombo: Sri Lanka's plans to double its refinery capacity which were dealt a severe blow after politicians fixed fuel prices in last August would take off with Iranian help in 2008, officials said. The government of Iran would first fund and conduct a feasibility study and give a loan with a ten year pay-back to fund the expansion which will see the refinery capacity boosted to 100,000 barrels a day from the current 50,000.
'It is expected to cost around 700 million dollars but we will know the exact amount after the feasibility study which will be conducted free by Iran,' Petroleum minister A H M Fowzie said.
Iran itself is suffering from a severe shortage of refinery capacity forcing the country to import petrol – which is subsidized – at the cost of billions of dollars.
In late 2007 the state-owned Ceylon Petroleum Corporation (CPC) advertised for consultants to conduct a feasibility study but the plan went off the rails after politicians fixed fuel prices again in July.
The automatic pricing formula died a premature death after being in operation for only two months.
CPC Chairman Ashantha de Mel is hoping to install a hydro-cracker which will boost the output of high value diesel and petrol from refinery which is now producing a large volume of low-value heavy fuels.
De Mel says the Iranian feasibility will take at least six months.
'The construction of the refinery would take at least 4 years,' de Mel told LBO. 'So we are looking at five years from now.'
Due to a poor knowledge of economics, Sri Lanka's politicians believe that subsidizing imported commodities could reduce inflation, though it eventually increases economic imbalances and makes inflation shoot up.
In the last three months Sri Lanka has seen some of the highest inflation in its history despite fuel prices being fixed. In October consumer prices shot up by 3.8 percent and in the 30 days of November it rocketed by 4.4 percent again.
CPC wanted to put in place an automatic pricing formula which will protect is finances and convince lenders to give money to the new refinery.
But the fixing of prices till December according to promises made by top politicians has put the firm back in the red. Fowzie says CPC is now losing 2,000 million rupees a month.
'We are losing 2.05 rupees on petrol, 17.00 rupees on diesel and 24 rupees on kerosene,' Fowzie said.
'We will hold the current selling prices till at least January.'
CPC has also got suppliers credit from Iran to finance oil purchases. On average the country imports about 90 million dollars of oil from Iran a month. Four months worth credit or 360 million dollars would come interest free.
Sri Lanka could delay payments for another three months and get 270 million dollars more at interest.
'We can manage with four months of interest free credit,' says Fowzie.
In Sri Lanka petrol is heavily taxed and Diesel is priced around a third less again because politicians believe that high priced diesel cause 'inflation', despite the energy that can be generated from diesel being higher than petrol.