Mexican government to handle construction of oil refinery

MEXICO CITY (AP) — The Mexican government and state-owned oil company Pemex will oversee construction of a new $8 billion refinery after international companies bidding for the project could not meet the government's time or budget requirements, President Andrés Manuel López Obrador said Thursday.

Even before the announcement, the project had been criticized as not making financial sense for deeply indebted Pemex and concerns were voiced about the budget and timeframe being unrealistic.

Energy Secretary Rocío Nahle will run the project along with Pemex, López Obrador said. Construction of the refinery in the port of Dos Bocas, Tabasco will begin June 2 and be completed in three years, he added.

Mexico had invited four companies to bid on the project. One decided not to make a bid and the other three said they could do it for $10-$12 billion in four to six years, the president said.

"We are not going to do any project that we can't finish during this six-year term," López Obrador said, a refrain he has used for the administration's other fast-tracked major projects, including the Mayan Train and a new airport for the capital.

Those projects too have been criticized as hastily planned and overly optimistic in terms of their cost, but López Obrador has brushed aside those concerns in each case saying his government can make sure they are done on time and on budget without corruption. He does not want to leave them unfinished, because Mexican presidents are limited to one term and his successor could cancel them as he did with a partially built $13 billion Mexico City airport.

Mexico's state oil company Petroleos Mexicanos, once a symbol of national pride, is a favorite subject for the nationalist López Obrador. In his mind, the country's future success depends greatly on resurrecting Pemex, which has suffered years of insufficient investment and corruption.

Octavio Romero Oropeza, Pemex's chief, said that last year Mexico consumed 1.2 million barrels of fuel per day, while its production was only 360,000 barrels, leaving imports to make up the difference.

"We are going to produce in Mexico what we consume and we are to be self-sufficient in gasoline production," López Obrador said.

The president said a new refinery is critical to Mexico regaining its energy independence.

Mexico has not built a new refinery in 40 years, but the president said that certain parts of the project will still be put up for bidding by Mexican and foreign companies.

Asked why he thought the government could build the refinery faster and at a lower cost than international companies specialized in refinery construction, López Obrador said companies always pad their costs.

The refinery's construction will produce 100,000 jobs, he said.

Critics say the refinery does not make financial sense and will only increase the financial instability of Pemex.

The Mexican Institute for Competitiveness, a public policy think tank, published a report last month recommending the government cancel the project.

"Construction of the Dos Bocas refinery is a project that almost certainly will destroy value for Pemex and Mexico," the report said. It noted that Mexico's oil production has been on a downward slide during the past 18 years and if it continues the government would have to import oil to keep the new refinery running. It also said refining is the least lucrative piece of the value chain and the money would be better invested in exploration and production.

"No one has ever built a refinery of that size in three years," said the institute's project coordinator, Jorge Andrés Castañeda. He noted one project in India where construction took three years, but only after five years of planning. There hasn't been a major refinery built in North America since 1979, he said.

Peter Speer, senior vice president with Moody's Investors Service who follows Pemex, said in a statement the fact that international construction firms said they couldn't build the refinery in the time and for the money the government required showed that the government's estimates were overly optimistic.

Giving the responsibility to the energy secretary and Pemex "adds work for the Pemex management team that is already fighting to stop the decline in crude production and improve the existing refineries," he said.

López Obrador said that Pemex possesses the necessary expertise.

"We're going to move Pemex forward and we're already achieving it," he said.