China-funded Costa Rica Refinery Still Being Negotiated

Negotiations over a long-awaited Costa Rican refinery upgrade, partially funded by China, are hung up over investment terms, Costa Rica's president said on Wednesday, and the project will be a major topic of talks during her visit to Beijing this week.

The expansion of Costa Rica's sole refinery to 65,000 barrels per day from 25,000 bpd is a priority for the Central American nation, which five years ago was the first in the region to switch recognition to China from diplomatic rival Taiwan.

Costa Rica hopes the project will allow it to cut its fuel import bill by importing and refining crude oil rather than buying more expensive refined products. The planned expansion would allow it to meet most domestic demand.

The expansion was originally due to be completed by the end of 2013, but the two state oil companies are still discussing their respective investments and returns.

"Unlike in other countries where such big projects can progress somewhat more quickly, in Costa Rica we've been trying above all to pin down the best possible financing plan, and also the environmental review is of great importance, so sometimes that takes time," President Laura Chinchilla said.

"But given the importance of the project, I am confident we can conclude these processes by the end of the year and begin construction," she told reporters.

The project would be expensive, with one previous estimate at $1.24 billion, because the refinery would be configured to produce almost entirely light products such as diesel and gasoline.

"This is a very important project for the Costa Rican government, and the Chinese authorities have reiterated their desire to go forward with it," Chinchilla added.

Costa Rican state-owned oil company Recope and China National Petroleum Corp. have formed a joint venture to own the expanded refinery, which will be leased back to Recope to operate.

Last year, China's planning agency, the National Reform and Development Commission, approved CNPC's investment in the project.

Once the lease agreement is concluded, CNPC would still have to submit a final cost estimate for the refinery, which would then need to be reviewed by the Costa Rican side, Recope's president, Jorge Villalobos Clare, said.

Chinchilla will discuss the project further in meetings this week with the China Development Bank, which last year committed to funding $900 million of the expansion.

The remainder would be financed by Costa Rican banks and with some direct investment from the partners.

Chinchilla's week-long visit, a year after the two countries signed a free trade agreement, also includes negotiations to allow Costa Rica to export agricultural products to China and a visit to the Suzhou Industrial Park, invested in by the Singapore government, to garner ideas for planned industrial parks in Costa Rica.

China is slowly building trade and investment ties with Latin America, a region traditionally in the political and economic shadow of the United States.

CNPC is also considering investment in a shuttered Valero refinery in Aruba, and in a refinery planned for Ecuador by the state-owned oil companies of Ecuador and Venezuela, as part of its move into oil products markets in the Americas.