Iran’s planned $3bn phase two upgrade project for the Abadan refinery has been placed on hold due to problems with financing.

A key shareholder, National Iranian Oil Engineering & Construction Company (NIOEC) is now negotiating with a number of local banks over financing, a source close to the project tells MEED.

The talks are likely to be concluded in two to three months, says the source. The refinery now looks unlikely to meet its planned completion date at the end of 2012.

Designed to handle some 628,000 barrels a day (b/d), the refinery is currently only able to treat 360,000 b/d of crude oil. Tehran plans to stabilise production at this level by building a new 210,000 b/d refinery on the site adjacent to the existing plant, which will be gradually replaced.

Tenders for new storage tanks, crude distillation units among others were issued in early 2008, but the two tenders were put on hold in July 2009.

The front-end engineering and design (Feed) contract was awarded to Iran’s Namvaran and has now been completed.

Opened in 1912 Abadan is Iran’s oldest refinery. Located in the Khuzestan province on Iran’s Gulf coast, the refinery has seen several phases of rehabilitation following significant damage in the decade long war with Iraq from 1980.

The Abadan Oil Refining Company was among a raft of state-owned companies Tehran announced it would privatise in April. Five other refineries have been included in the plans. Iran’s Privatisation Organisation estimates it can raise more than $12bn through the privatisation of companies (MEED 13:4:10).

State-run National Iranian Oil Refining & Distribution Company (NIORDC) signed a memorandum of understanding with China Petroleum & Chemical Corporation (Sinopec) for the new refinery in August last year. Sinopec will take a 35 per cent stake in the refinery with an investment of $2-3bn in Abadan and a second refinery, Persian Gulf Star.