Oct. 29 (Bloomberg) -- British, Spanish, Brazilian and Persian Gulf investors plan to build a $3 billion refinery in Brazil, the first in the country by a company other than state-controlled Petroleo Brasileiro SA in five decades.

U.K.-based South Atlantic Refining Co. has approval from Brazil's petroleum regulator to build a plant near Aracaju, Brazil, on the country's northeast coast to process 200,000 barrels a day of light or heavy crude into low-sulfur diesel, lubricants and naphtha, David Wood, the company's operations director, said in a phone interview.

The proposed plant, which is scheduled to begin output in 2013, would help meet U.S. and European demand for diesel with less than 10 parts per million of sulfur, a corrosive pollutant, he said. It also may help Brazil cut its dependence on imports of naphtha, used to make plastic.

``To build a new refinery in the U.S. or Europe would cost about 50 percent more than in Brazil, assuming you could get environmental approval to build it,'' Wood said from London. ``Financing has gotten harder because of the credit crunch, but we are also seeing the potential costs of raw materials like steel and engineering fall.''

Oil companies haven't built a new refinery in the U.S. since 1976 because of environmental regulations, local opposition and low profit margins. The global credit crunch brought down banks, made borrowing more expensive and has tightened lending.

Financing Options

Three Persian Gulf states are ready to provide most of the 600 million euros ($776 million) of equity capital to build the refinery, Wood said, declining to name the countries. He also expects to get loans from Brazil's state-development bank BNDES, to purchase local equipment such as pipes and tanks.

The Persian Gulf countries' sovereign wealth funds may also provide financing, he said.

No non-Petrobras refineries have been built since Brazil ended the Rio de Janeiro-based oil company's refining monopoly in 1997. In 2007, Petrobras bought one of the two Brazilian refineries it didn't own.

Wood expects to process crude from Brazil, Africa or the Middle East, though proximity to Brazilian offshore oil makes local oil the most likely raw material. The fuel- pricing policies of Petrobras make selling diesel in Brazil unlikely as the company's prices are kept below those of the world market, he said.

Shell Technology

Technology from Royal Dutch Shell Plc will allow the refinery, which will meet European and World Bank environmental standards, to process any type of light or heavy crude, Wood said.

``Lots of companies want to sell their crude to the U.S. or Europe but can't find the refining capacity for their heavy oils,'' he said. ``If they have their own capacity, they often don't produce fuels that meet the environmental standards of Europe or the U.S.''

He said that South Atlantic Refining is in talks with Petrobras and other Brazilian oil companies as well as with African oil companies about buying crude for the refinery. The Shell trading system would be used to buy the crude and sell the product, he said.

The government of Sergipe, the Brazilian state where the planned refinery would be built, has offered to reduce sales taxes and will provide a location for the plant, said Jorge Santana, Sergipe's industry and technology secretary in an e-mail.

Tax Exemptions

Because 80 percent of the refinery's output will be exported, the company will also be exempt from some federal taxes, including taxes paid before the plant begins operations, Santana said.

The other principal investors in the project are Ignacio Silva, a Spanish real-estate developer, Wood and Santana said. Brazilian investors include Sao Paulo lawyer and former Greenpeace Brasil board member Fernando Furriela, Wood and Santana said.

Ignacio Silva could not be reached for comment. Fernando Furriela declined to respond to inquiries by telephone and e-mail.

To contact the reporter on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net

Last Updated: October 29, 2008 12:27 EDT