KUALA LUMPUR - MALAYSIA is building the country's largest oil refinery in northern Kedah, giving a boost to the state's economy that currently relies heavily on agriculture.

The US$10 billion (S$14.5 billion) Merapoh refinery project in the Yan district will be able to produce 350,000 barrels a day, nearly twice the capacity of the second-largest refinery in Malacca.

The project will be developed by Merapoh Resources and should be completed by 2013 or 2014. It is expected to contribute RM200 million (S$81.6 million) to the state's annual income.

Much of the output is destined for China, as China National Petroleum Corp has agreed to take up 200,000 barrels per day for 20 years.

'We have appointed South Korea's SK Group, which owns one of the world's largest oil refineries and is the third-largest industrial group in South Korea, to do the engineering and construction of the project and the maintenance of the refinery,' said Merapoh executive chairman Nazri Ramli.

'Under the project, Merapoh will import crude oil from the Middle East, most probably from Saudi Arabia, process the crude into refined products and export them to China and other Asian nations.'

The signing of agreements between the Kedah state government, Merapoh and the investors was held here on Wednesday.

Hong Kong Beijing Star and Winston Investment will each invest US$5 billion, and together will hold an 80 per cent stake in the project. Merapoh will own the remaining 20 per cent as the licence holder for the project.

The two investors will find buyers for the remaining 150,000 barrels a day. Crude oil imported from the Middle East will be refined into liquefied petroleum gas, naptha, petrol, kerosene, jet fuel and diesel.

Mr Nazri explained that the refined oil would be transported to China and other countries via vessels, as there are no pipeline projects coming up soon. The Merapoh refinery project is set to employ 500 engineers and professionals as well as 1,000 other workers.