(Updates with statement from Sonatrach, adds background)
By Julia Payne and Lamine Chikhi
LONDON, May 9 (Reuters) - Algeria's state energy firm Sonatrach plans to buy ExxonMobil's 175,000 barrel-per-day Augusta refinery in Sicily, Italy, the companies said on Wednesday, as the North African oil producer seeks to cut its hefty fuel bills.
Algeria, which needs to meet surging domestic fuel demand, paid $800 million for fuel imports in 2016 but that more than tripled in 2017 to a record $2.5 billion, because of refining problems.
Exxon's Italian subsidiary said the deal included three fuel storage terminals and related pipelines in Augusta, Palermo and Naples, and the transaction was expected to close at the end of 2018. Financial terms were not disclosed.
The deal would be Sonatrach's first overseas acquisition, reflecting a more flexible and open approach under CEO Abdelmoumen Ould Kaddour.
The Augusta refinery is able to process Sahara blend and residual fuel from Algeria's Skikda plant, "and will be directly integrated into Sonatrach's refinery system", the Algerian company said in a statement.
"It will also be able to process directly products that are surplus in Algeria in order to re-import products that are in deficit like diesel and petrol," Sonatrach said.
Ould Kaddour said Sicily made sense geographically and because of "possible synergies with Skikda refinery".
"We are extremely proud to make our first investment in international refining in Italy," Ould Kaddour said.
Ould Kaddour also told French news outlet Les Echos that Sonatrach was about to sign a deal with French oil company Total to build a petrochemical plant in Algeria.
"It will be the first unit to produce propylene and polypropylene in Algeria ... most of it will be exported to Europe," Ould Kaddour told Les Echos.
A spokesman for Total declined to comment.
Algeria has struggled to attract foreign investment in recent years and has seen its oil and gas production stagnate.
Since Ould Kaddour took the helm of Sonatrach in March last year, he has been trying to make Sonatrach's culture more business-friendly and resolve long-standing legal disputes with foreign companies.
Sonatrach said in January it had signed a crude for refined products deal with the world's largest oil trader Vitol to cut its fuel bills, the first deal of its kind in decades. It also said it was looking to invest in a foreign refinery. (Additional reporting by Bate Felix in Paris and Ahmad Ghaddar in London; Writing by Aidan Lewis; Editing by Jane Merriman and Mark Potter)