New Malaysia refinery courts Iran amid U.S. concern

By Jalil Hamid

KUALA LUMPUR (Reuters) - Iran's state oil company as been invited to take a stake in a Malaysian refinery, officials said on Friday, amid increasing U.S. scrutiny of energy deals between the two Muslim nations.

Small Malaysian firm SKS Development, whose parent company recently won a $16 billion gas-development deal with Tehran, has offered National Iranian Oil Company (NIOC) a minority stake in the $2.2 billion project, a government source and an official said.

"The Malaysian firm will still own the majority stake," the government source told Reuters, adding that the 200,000 barrels per day (bpd) refinery would process Iranian crude.

The project got government clearance last year but only came to light this week.

SKS Development, linked to Malaysian tycoon Syed Mokhtar Al-Bukhary, plans to start building the refinery in July in northern Kedah state, an aide to Kedah's chief minister said. He said SKS Development wanted NIOC as a partner.

The northwestern region is also host to a second refinery project of the same size, the aide said, plants that add to the wave of global downstream investment that some analysts say threatens to send the cyclical industry into another profit slump by 2010.

Malaysia's growing commercial ties with Iran have become a concern among lawmakers in Washington, which bans U.S. firms from doing business with Tehran and is currently negotiating a free-trade deal with the Southeast Asian nation.

In January, the head of a key committee in Congress called for a halt to trade talks with Malaysia after SKS Development's parent, SKS Ventures, signed the deal to develop Iran's southern Golshan and Ferdos gas fields and produce liquefied natural gas.

The gas deal potentially allows Washington to penalize SKS under the recently expanded Iran Sanctions Act, which calls for steps against companies involved in Iranian energy development, although the United States has not taken measures against the big European and Chinese firms doing business there.

An equity stake would help Iran lock in guaranteed long-term demand for its crude at a time when some of its customers in Japan are anxious about depending too heavily on its exports, and as Middle East competitors invest more in the downstream.

In 2005 Iran agreed to build a 300,000-bpd plant in Indonesia, but it has no other major overseas holdings.

MINNOWS TAKE ON GIANT PROJECTS

SKS Ventures has not returned phone calls and emails seeking to discuss the Iranian gas deal and how it might be financed.

SKS Ventures had paid-up share capital of 60 million ringgit ($17.32 million) and made net profit of 23.65 million ringgit in its 2005 accounts, the latest available at the Companies Commission of Malaysia. SKS Development showed nil turnover and a loss of 15,427 ringgit ($4,450) for 2005.

State news agency Bernama indicated this week that Chinese, Iranian and Saudi investors might help finance the refinery.