Costa Rica, China eye USD 1 billion refinery deal

Watch CNBC-TV18 live only on MYTV >>

Costa Rica and China's top state oil company CNPC are hammering out the details of a planned refinery upgrade that could cost up to USD 1 billion, the head of Costa Rica's national oil company said.

The project, which would triple the size of the Central American nation's only oil refinery by 2015, is likely to be approved by the two companies sometime in 2011 after further engineering studies are completed, Jose Desanti, the head of Costa Rican state oil refiner Recope, said on Friday.

"We're just a few weeks from bringing (the joint venture) to life," Desanti told Reuters in an interview. "We think it will be 14 to 18 months to give the green light to start the project," he added.

The deal with CNPC evolved out of conversations between the two companies when Costa Rica dropped its diplomatic recognition of Taiwan in favour of China in 2007.

In return for the switch, Beijing has already made low interest loans to the Central American nation and is building a soccer stadium in the capital San Jose.

Chinese oil companies have been expanding in the Americas as they seek to build up global businesses and secure new sources of supply for China's rapidly growing economy. CNPC has a long-standing interest in Venezuela and most recently Petrochina, a subsidiary of CNPC, took over a strategic oil storage terminal lease in the Netherlands Antilles.

However, China's entry into Costa Rica's energy sector is unlikely to provide it with access to new reserves for the foreseeable future as public opinion in the environmentally conscious nation is strongly opposed to oil drilling.

Joint Venture

Recope, which is Costa Rica's monopoly oil refiner and distributor, has wanted to expand its existing 20,000 barrels per day refinery for some time to reduce its reliance on oil product imports, but has lacked the financial strength to do so on its own alongside other projects.

The refinery upgrade will be carried out by a 50-50 joint venture between Recope and CNPC that will then lease the plant back to Recope upon completion. The two sides hope to finance 70% of the cost of the upgrade.

"From feasibility studies, we estimate a range of USD 800 million to USD 1 billion," said Desanti.

Financing from the project is likely to be provided in part by China at "attractive terms," he added.

The expansion plan comes as global refining margins have fallen sharply, forcing the closure of several refineries in the United States and elsewhere. Recope is confident refining margins will recover in the medium term, Desanti said.

Recope is also working on a modernization of its terminal facilities in the Caribbean to allow it to receive tankers capable of carrying up to 80,000 tonnes of refined products.

A new crude oil loading monobuoy is also being studied.