AMLO says Pemex will build Las Bocas refinery

Bnamericas Published: Thursday, May 09, 2019
AMLO says Pemex will build Las Bocas refinery

Mexico’s state oil company Pemex will build a new refinery at Dos Bocas port after officials rejected bids from private companies, according to the president.

President Andrés Manuel López Obrador (AMLO) said the three bids came in above a US$8bn budget and the proposals outlined timelines longer than the three years he has demanded to finish the refinery.

AMLO’s insistence on constructing the refinery in his home state of Tabasco had already helped spark a downgrade of Pemex’s credit rating, and the government’s decision to use the heavily indebted NOC to build the plant is likely to deepen concerns among investors.

Energy minister Rocío Nahle was appointed to lead the 340,000b/d project, which will have the assistance of the government's Mexican Petroleum Institute.

Two consortiums, US-Argentine group Bechtel-Techint and Australian-US group WorleyParsons, along with French engineering company Technip and US engineering company KBR, had been invited to submit bids. Nahle said Technip did not put in an offer.

AMLO has insisted on pursuing the Dos Bocas refinery in order to make Mexico self-sufficient in fuel after a decline in crude processing capacity. Pemex chief Octavio Romero said Mexico’s demand for gasoline, diesel and jet fuel in 2018 was 1.2Mb/d compared to production of 360,000b/d, with the rest made up by imports.

“We're going to produce in Mexico what we consume,” AMLO said in his daily press conference on Thursday. “We need this refinery.”

Pemex analyst at Moody’s, Peter Speer, said the Dos Bocas refinery will further saddle the oil company’s management team with another major project while they are already "struggling to stop the fall in crude production and improve existing refineries."

The decision "also raises the risk of delays and cost overruns that could add more pressure to Pemex or government finances," Speer said.

The president said the project would prioritize Mexican labor and engineering, with construction beginning on June 2 and finishing by May 2022. He said 50bn pesos (US$2.6bn) had already been set aside for works in 2019. Mexico has not built a refinery in 40 years, he added.

Analyst Miriam Grunstein of Brilliant Energy Consulting told BNamericas there was “no logic at all” to the plan. “Pemex is not a construction company,” she said, adding that the government's budget and timeframe were "not possible."

AMLO said bids from the companies were between US$10bn and US$12bn, with one offer putting the date to finish construction at 2023 and another at 2025, but he did not provide further details. He suggested that prices had been inflated and that the government could finish the project more quickly. “We have priorities and we're going to work harder,” AMLO said.

He said there would be tenders launched for private sector companies to build some parts of the project, but warned firms would need to respect price limits.

Pictured: President López Obrador speaking at his morning press conference where he announced plans for the Dos Bocas refinery. (CREDIT: The president's office)

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