The Sudanese government and Malaysian oil giant Petronas announced on Monday a one-billion-dollar deal to build an oil refinery in the northern Port Sudan on the Red Sea, officials said.

The refinery will be owned jointly by Petronas and the Sudanese government when it becomes operational in 2007.

Sudanese Energy and Mining Minister Awad Ahmed al-Jaz, who signed for the government, commended Malaysia for contributing to the exploration of oil in the Sudan.

"They are friends of yesterday, today and tomorrow who came to Sudan during difficult circumstances," he said.

Jaz said the new refinery's capacity would be 100,000 barrels per day (bpd) but added that Khartoum had an agreement with Petronas for the output to be later raised to 150,000 bpd.

Raising crude production

Petronas chief executive Mohammed Hassan Marican said the partnership was "strengthening the ties of cooperation between Malaysia and Sudan for developing oil installations."

"Refined petroleum products will be exported to the world from this refinery," he said during the signing ceremony.

Sudan produces about 300,000 bpd and hopes to raise its crude production to half a million by the end of he year. The sprawling country has proven reserves of around 560 million barrels.

In a statement today, Petronas said its unit Petronas International Corp Ltd had agreed to take the stake in the new Port Sudan Refinery Project, after entering the downstream business there by acquiring the retail assets of Mobil Oil Sudan Ltd in 2003.

The remaining 50 percent holding in the port refinery would be held by Sudan's Ministry of Energy and Mining, it said in a statement. It did not indicate the value of the investment.

"It is an export refinery designed to process high acid crude that will add value to the Dar Blend from Sudan Melut Basin Blocks 3 and 7 where Petronas has a 40 percent equity interest," it said.

Petronas said the production would meet the growing demand of petroleum products in Sudan and neighbouring countries under the Common Market of East and South Africa once it is fully operational by early 2009.