China nears Syria refinery deal

The Syrian government is finalising talks with China National Petroleum Corporation on building a 70,000-barrel per day refinery to curb massive fuel imports, the official leading the negotiations said on Monday.

Deputy Prime Minister for Economic Affairs Abdallah al-Dardari told Reuters that construction of the $1 billion refinery in the oil centre of Deir al-Zor is expected to start in 2008 and take 24 months to complete.

"We expect to sign the deal this year. Our strategy is to stop exporting crude in three years and refine every drop of oil Syria produces," Dardari said by telephone from Beijing.

"The legal and financial studies on the refinery are completed. We have to decide whether the project will be on build-operate-and transfer basis or joint stock company with the Syrian government taking a minority stake," Dardari said.

With two ageing refineries, Syria imports billions of dollars worth of fuel a year, especially gas oil, and spends more on the imports than revenue from its 200,000 bpd of crude oil exports.

The gap is contributing to a budget deficit rising by around one % of gross domestic product a year.

Dardari acknowledged the delay in building much needed refineries but said the government realised it could no longer afford to wait.

The new refinery, which will be designed to process Syrian heavy crude, could eventually take in oil from neighbouring Iraq if sabotage attacks on pipelines there were contained, he said.

Although Western oil companies such as Total and Shell operate in Syria, the government has been reinforcing links with Chinese, Russian and Indian companies since coming under U.S. sanctions in 2004, mainly for its support for the Palestinian group Hamas and the Lebanese movement Hezbollah.

China and India jointly acquired oil sector properties in Syria last year. The oil ministry signed an agreement recently with Noor Financial Investment, a Kuwaiti group, to conduct a study on building another 140,000 bpd refinery in Deir al-Zor.

"Syria has had strong and historic political ties with china and it is natural for the economic relationship to strengthen. We have to keep our options open. If some countries do not want to share technology with us, others will," Dardari said.

China is now a main exporter to Syria and the $1.4 billion trade volume between the two countries heavily favours China.

Ties between Damascus and Being were stronger before China's economic opening to the West, but Syria still banks on Beijing, which has veto power in the United Nations Security Council to help counter isolation by the West.

The Syrian delegation visiting China includes Oil Minister Sufian Alao. It met China National Petroleum Corporation executives on Monday and is due to meet senior cabinet members on Tuesday.