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A Sri Lankan government minister has confirmed that the country will receive a $US65 million loan from China's Exim Bank to build a bulk storage tank farm that will also be used to store marine fuel.

The new facility is due to be built in the strategically-located town of Hambantota, south of the country, where a bunkering terminal is also currently being developed.

"The objective of this project is to supply and store marine fuel, aviation fuel and LP gas and provide bunkering services for vessels passing by Sri Lanka," information minister Anura Yapa said.

The tank farm is expected to have a total storage capacity of 82,000 cubic metres and connecting pipelines would also be built, Yapa said.

The existing Hambantota Port Development Project commenced on January 15th 2008 and is scheduled to be completed on April 15th 2011.

The new bunkering terminal at Hambantota is expected to provide a major boost to the Sri Lankan bunker market. The terminal will be designed to handle up to 500,000 metric tonnes of oil products a year. Depending on the requirement the terminal can be further expanded up to one million metric tonnes.

The entire port development project is expected to be completed in 15 years in four phases with the first phase alone costing close to US$450 million.

Last year the Sri Lanka Ports Development Authority refuted media reports claiming the project was facing suspension due to a cash flow crisis.

The claims followed a letter written by Q. L. Tang, Project Director of the China Harbour-Sinohydro Consortium to the Ports and Aviation Minister, Chamal Rajapaksa, where he stated: "We will be compelled to suspend work if the outstanding amount due to China Harbour is not made available to us by 30th September 2008."

Project Director Tang is later understood to have written back to Rajapaksa stating that the Consortium's intention was only to draw his attention to the difficulties they were having in proceeding with the port development project.