COLOMBO [AFP] - Sri Lanka has opened talks with China on expanding the Island’s oil refinery and the possibility of a joint-venture petro-chemical industry, the state oil company said Friday.

The official Ceylon Petroleum Corporation [CPC] said it had signed a memorandum of understanding [MOU] with China’s State Administration for Petroleum and Chemical industries for three projects.

CPC chairman Anil Obeysekere said one of the projects was to increase the capacity of the present refinery which handles 2.2 million tonnes of crude oil annually. China would set up a hydro-cracker system so that the refinery could handle more crude oil.

The refinery was currently only able to produce 700,000 tonnes of diesel which was about half the annual consumption forcing the CPC to import refined diesel for the shortfall, Obeysekere said.

"If we increase the capacity of the refinery through a hydro cracker, we will be able to have sufficient by-product to have a petro-chemical industry," he said.

The CPC was also exploring the possibilities of entering into a joint-venture with the Chinese to establish a petro-chemical industry.

Sri Lanka’s energy minister Anuruddha Ratwatte had held talks with Chinese authorities to secure financing which would see the projects get off the ground within the next 18 months, officials said.

The CPC hoped to finalise financial commitments by the middle of next month for an oil storage depot and a single point buoy mooring [spbm] to unload crude oil from tankers without entering the port.

The work is to be done by China’s Huanqui Chemical Engineering Corporation which built six storage tanks, each with a storage capacity of 5,000 tonnes, at Sapugaskande, near here in February.

The Chinese company also carried out the restoration of six more tanks at the Kolonnawa main storage depot which was set ablaze by Tamil rebels in October 1995.

The Chinese had refurbished three bigger tanks used for crude oil storage at another depot at Orugodawatte, which was also hit by the separatist Liberation Tigers of Tamil Eelam [LTTE] rebels.