Govt. seeks $2 bln refinery expansion investment

• Sri Lanka fails to find funding; project cost now at $2 bln
• Talks with Russia, S.Korea to double refinery capacity

COLOMBO  (Reuters): Sri Lanka is eyeing at least $2 billion in foreign investment to double the capacity of its sole decades-old oil refinery, after the island nation was unable to find a local partner to fund its share of an earlier Iranian proposal.

Sandya Wijebandara, the top civil servant at the Ministry of Petroleum Industries, said Iran had agreed to lend 70 percent of the total $1.7 billion to expand the Sapugaskanda refinery to a capacity of 100,000 barrels per day.

The rest of the cost was to be borne by Sri Lanka's government, according to the deal with Iran's state-run Oil Design and Construction Company.

But now the cost has risen to $2 billion due to price escalations globally.

"It is difficult for us to fund the remaining 30 percent. So most likely the deal with Iran will not work out and now we are looking for possible other investors for $2 billion," Wijebandara told Reuters.

The government has talked with a Russian delegation, and expects to talk with a South Korean delegation, he said.

Russia is becoming one of Sri Lanka's strong trading partners, along with China and India, and the island nation has already discussed oil exploration with its gas export monopoly Gazprom .

The Indian Ocean nation has been borrowing heavily to revitalise long-neglected infrastructure projects to attract foreign investments since the end of a 25-year war in May 2009.

South Korea's Hyundai Engineering and Construction Co is already in Sri Lanka, involved in a $300 million port expansion, while South Korea's Garam Space Limited is in discussions to invest $500 million to develop a monorail in the commercial capital, Colombo.