Libyan-owned Tamoil's Swiss branch said it will spend "tens of millions" of Swiss francs on its Collombey refinery after cantonal authorities issued an ultimatum on a clean-up of the plant and threatened to force it to suspend operations.
The Swiss canton of Valais, best known for the "Toblerone mountain" and world-class ski resorts, in March published a list of 15 steps it said Tamoil should implement to clean up the 50-year old plant.
If the measures are not completed during the next planned maintenance outages in September and in May-June next year, Tamoil's refinery will face an operational ban, it said.
"Investments adding up to tens of millions of francs are planned for the next few years," Tamoil Swiss said in a statement on its website.
Refinery experts told Reuters that the canton's list of demands would likely cost between $5-10 million.
Tamoil, which bought the plant in 1990 and is now one of the country's largest fuel retailers, blames delays in its investments to the Libyan revolution last year.
"We regret the decision of Valais authorities which envisages forcing a halt of refining in the case of a delay in implementing our plans and the lack of consideration for the difficulties we faced in 2011," it said.
"...this decision is disproportionate and misses the point."
Tamoil said it has already spent nearly 40 million Swiss Francs ($42 million) in the last five years on the plant.
New investments include a 20 million Swiss Franc ($20.95 million) watertight basin beneath the refinery which Tamoil said will be completed by 2018.
It confirmed plans to shut the 78,000 barrel per day unit in September and May-June 2013.
Tamoil's Swiss unit did not respond to requests for further comment.
Industry sources told Reuters that the refinery, one of just two in the landlocked country, was put up for sale last year during the uprising in Libya.
Oil majors like BP and Shell stopped business with the firm last year because of international sanctions.
Even before the revolution, Tamoil faced operating challenges in Switzerland due to a forced switch in its crude slate after 2008, industry sources said.
OPEC member Libya imposed an oil embargo on Switzerland after Swiss authorities arrested the son of leader Muammar Gaddafi in Geneva after servants claimed he had abused them.
New environmental rules, including the extension of the EU Emissions Trading Scheme to refining, and falling demand for oil products are making it tough for refiners to stay competitive.
Tamoil's Italian refinery, the 90,000 bpd Cremona unit, was shut in 2011 and converted into a depot.
The head of Switzerland's oil association Niklaus Boss said that Switzerland could meet its supply needs without the Collombey refinery through imports, although fuel costs could increase.
"It would not be an impact on security of supply as we would import from Rotterdam and Marseilles via the pipeline. Maybe some transport costs would be higher for some retailers," he said.
Vitol, the world's largest oil trader, agreed to buy Switzerland's Cressier refinery earlier this month via a joint venture with the co-founder of Petroplus.