https://www.reuters.com/article/us-mexico-pemex/pemex-to-build-refinery-after-outside-firms-balk-at-price-tag-lopez-obrador-idUSKCN1SF1UW
MEXICO CITY (Reuters) - Mexican President Andres Manuel Lopez Obrador said on Thursday Pemex will oversee construction of a new refinery, dismissing private sector suitors for the project and fueling fresh doubts about the financial health of the cash-strapped state oil firm.
A view of the headquarters of state owned oil company Pemex in Mexico City, Mexico March 5, 2019. REUTERS/Daniel Becerril
Lopez Obrador told his regular morning news conference that the firms invited to bid had balked at his $8 billion price tag for the facility and could not meet the government’s three-year construction deadline, while Pemex could.
The U-turn is a fresh setback for the president’s five-month-old administration, which had touted its decision to turn the refinery over to international firms with a proven track record of completing similar projects elsewhere.
“Today’s decision will worsen Pemex’s outlook because it commits resources to projects that are not the most profitable,” said Pablo Medina, a Houston-based oil analyst with Welligence, calling the three-year timeline “really, really optimistic.”
It also introduces “an immense execution risk for a company that doesn’t have an especially good record on big projects,” Medina said of Pemex, whose credit rating is dicing with a downgrade from rating agencies worried about its debt.
Pemex has financial debts of more than $106 billion, making it the world’s most indebted oil company. Rating agencies said earlier this year that the cost of the planned refinery had raised significant questions about the company’s health.
Lopez Obrador has pledged to lessen Mexico’s dependence on fuel imports by revamping Pemex’s six existing domestic refineries, as well as building the new facility.
But he has done little to assuage doubts about his ability to manage the economy. Investors and companies alike were shocked by his Oct. 29 cancellation of a $13 billion partly-built new Mexico City airport a few weeks before taking office.
Stung by U.S.-Chinese trade tensions, Mexico’s peso and its main stock index came under further pressure from the refinery move, market analysts said. Both stocks and the currency were at times down by more than 1 percent on Thursday.
The new refinery would be Pemex’s largest, with a planned capacity to process 340,000 barrels per day of heavy crude.
It will be built “with the coordination, administration and supervision” of Pemex and the energy ministry, Lopez Obrador told reporters. Construction will begin in early June and be finished by May 2022, he added.
Ixchel Castro, a Mexico City-based refining analyst with Wood Mackenzie, said many details remain unclear and that similar-sized facilities needed around six years to complete.
Lopez Obrador has already pledged nearly $2.5 billion in this year’s budget to the project as well as another $245 million to improve operations at Pemex’s existing refineries.
The firm’s refining division has been its biggest source of losses for years, due in large part to insufficient maintenance and chronic accidents at the aging facilities, which currently operate at less than 40 percent of capacity.
In March, the government invited a host of international firms to bid on the construction of the refinery in the Gulf Coast state of Tabasco at the port of Dos Bocas. On April 30, it said a winner would be announced this week.
The prospective bidders included two consortia: U.S.-based Bechtel with Italy’s Techint; and Australia’s WorleyParsons with U.S.-based Jacobs Engineering Group. Additionally, two sole bidders were also invited: U.S.-based KBR and France’s Technip.
The companies either did not respond to requests for comment or could not be immediately reached.
Lopez Obrador said none met the requirements for the tender, especially the $8 billion budget cap.
“It will cost us much less than the companies estimate,” he said.