July 1 (Bloomberg) -- Iran, OPEC's second-largest oil producer, will increase investment in modernizing and upgrading refineries as costs rise and the dollar declines.

The country plans to spend as much as 20 billion euros ($32 billion) on the refining industry in the seven years through 2012, Deputy Oil Minister Mohammad Nematzadeh said in an interview with Bloomberg Television. In April, he estimated expenditure of 18 billion euros.

Projected investment ``was actually between $18 and $20 billion two years ago,'' Nematzadeh said today in Madrid, where he's attending the World Petroleum Congress. ``But now we have dollar depreciation and the increase of equipment prices.''

Iran plans to upgrade refineries so that fuel quality meets European standards. The country also intends to boost processing capacity to 3.3 million barrels a day from 1.6 million barrels a day, enabling an end to gasoline rationing.

The government aims to stop fuel subsidies in 2011, allowing gasoline prices to rise to international levels. Gasoline currently costs 2 U.S. cents a liter, Nematzadeh said.

The largest oil producer in the Organization of Petroleum Exporting Countries is Saudi Arabia.

To contact the reporters on this story: Eduard Gismatullin in Madrid at egismatullin@bloomberg.net; Francine Lacqua in Madrid at flacqua@bloomberg.net

Last Updated: July 1, 2008 10:22 EDT