Kuwait National Petroleum Company (KNPC), a state run refiner, is in talks with banks to raise a loan worth around $10 billion to expand and refurbish the Gulf state's main refineries, according to five sources aware of the matter.

Part of Kuwait's KD30 billion ($99.6 billion) economic development plan, the Clean Fuels Project will upgrade and expand two of its largest existing refineries to focus on producing higher-value products such as diesel and kerosene for export.

Local and international banks are talking with the company, which is responsible for the oil refining and gas liquefaction industry in addition to the marketing of petroleum products in Kuwait, said the sources who spoke on condition of anonymity as the information is not public.

A company source, declining to be named, confirmed the talks were talking place to fund around 70 per cent of the total project cost without elaborating.

While discussions are at an early stage, KNPC is said to be seeking funds which will last between seven and 10 years, according to four sources.

One of the sources, at an international bank, added that a grace period to allow for construction to take place would mean repayments begin after four years.

The Clean Fuels Project is expected to be completed by May 2018 and to be fully operational by the end of 2018, Mohammed Ghazi Al Mutairi, chief executive of KNPC, told Reuters in September.

Banks who have been contacted by KNPC about participating in the project have been asked to revert by May 10, the sources at the international bank said.

NBK Capital, the investment banking arm of the National Bank of Kuwait, is advising KNPC.

Under the project, the capacity of the Mina al-Ahmadi refinery will drop to 347,000 barrels per day (bpd) from 466,000, while Mina Abdulla refinery's capacity will rise to 454,000 bpd from 270,000.

The reduction in the capacity of the Ahmadi refinery after shutting one of its crude distillation units will be compensated for by adding new units to produce higher-value products.

Contracts worth around $12 billion were awarded in February 2014 to international companies including Japan's JGC Corp , Britain's Petrofac and US-based Fluor Corp for construction work on the project.

In November, KNPC said it would spend $40 billion in the period to 2022 on projects including a new refinery and a clean fuels project.-Reuters