An $8 Billion Refinery? Mexican President Says, Yes We Can

An $8 Billion Refinery? Mexican President Says, Yes We Can

When global engineering firms told the Mexican government that building a new refinery according to the country’s budget and timeline would be impossible, President Andrés Manuel López Obrador refused to accept their verdict.

Instead, the president said Thursday that the state-owned oil company, Pemex, and the Energy Ministry, would take charge of the project. He promised that the new refinery, which represents his bid to achieve energy self-sufficiency in Mexico, would cost no more than $8 billion and be ready by 2022.

The decision to reject the engineering firms and press on with a grand infrastructure project reflects a pattern in Mr. López Obrador’s governance, less than six months into his presidency. Told that a plan he envisions can’t be done, he sticks fast and orders officials to turn his ideas into reality.

One of his first actions as president was to cancel the construction of a new airport for Mexico City. Instead, he proposed to build a second airport to complement the capital’s existing one, although studies on the viability of increasing flights through the shared airspace have not been completed.

Mr. López Obrador handed responsibility for the new airport to Mexico’s military, one of the country’s most opaque institutions.

Another major project is a train that will circle the Yucatán Peninsula, a project he argues will bring development to one of Mexico’s poorest regions. Indigenous and environmental groups have opposed the plan, but construction has already begun.

The refinery is the most expensive and complex of the projects.

But Mr. López Obrador has embraced his resolve. “We aren’t worried,” he told reporters at his daily news conference. “It will happen and it is a challenge, but we have to do this refinery and that is why this decision was taken.”

Critics warn that Mr. López Obrador — who has made austerity the emblem of his presidency — is wasting scarce public money on projects that could become white elephants.

“The government is throwing money it does not have at a refinery that won’t help,” wrote Esteban Illades, a columnist, on Twitter.

The government had announced with some fanfare in March that it would call on the best international talent to manage the refinery project. Four international firms were invited to tender bids.

But one, Technip, based in Britain and France, decided not to take part. The other three — a consortium of Bechtel and the Italian company Techint; the Australian company WorleyParsons; and KBR, based in Houston — offered bids that estimated costs at $10 to $12 billion.

The earliest any of the bidders promised to complete the refinery was 2023, the president said, and others said they would finish in 2025, after his presidency ends.

Mr. López Obrador said he would instead hand management of the project to Pemex and the Energy Ministry.

“I think that when the best engineering companies in the world tell you that building the refinery on that budget and on that timeline is not feasible — it’s mission impossible,” said Pablo Medina, a vice president at Welligence Energy Analytics in Houston.

“I think that ideology is playing a big part here,” he said.

Mr. Medina said that the refinery project could distract Pemex, whose full name is Petróleos Mexicanos, from its most profitable business — producing oil and gas. The company is struggling to reverse declining output and is weighed down by more than $100 billion in debt.

Nor, said Mr. Medina, can Pemex offer any guarantee that it can meet the president’s deadline.

“You might end up subcontracting a lot of people that won’t commit to timelines,” he said.

Ixchel Castro, a Mexico City-based manager for Wood Mackenzie, an energy consulting firm, said that by moving forward quickly, Mr. López Obrador was “trying to reflect a more agile decision-making process.”

Ms. Castro said that a new refinery could advance Mr. López Obrador’s effort to reduce dependence on imports and lower gasoline prices.

But rushed planning to meet the president’s targets raises safety risks, as well as questions about how efficient the refinery will eventually be, she said.

“We are not talking about building a house,” she said. “We are talking about a refinery that will be operating for decades.”

Source link