3 Companies to Expand Mexican Oil Refinery

A unit of the SK Group, one of South Korea’s biggest conglomerates, won a $1.2-billion contract with Siemens of Germany and Mexico’s Grupo Tribasa to expand a Mexican oil refinery to meet rising demand.

The three companies will build 10 plants and improve another five that will enable the state-owned Madero refinery to process an extra 112,000 barrels a day of Mexico’s heavy Maya crude, a sulfur-laden oil that’s hard to sell on international markets.

The contract is part of an estimated $5.5-billion plan to improve the aging refineries owned by state oil company Petroleos Mexicanos. The plan will allow Pemex to meet rising gasoline demand and higher production of Maya crude, which many refineries around the world can’t process.

The improved Madero refinery will help Pemex “fulfill its commitment to supply in a timely and efficient fashion the future demand of petroleum products,” said Dr. Jaime Mario Willars, the head of Pemex-Refinacion, the company’s refining subsidiary.

The contract adds to a $1.4-billion contract SK and its two partners won in 1997 to expand the Cadereyta refinery, which also is owned by Pemex.

Pemex plans to upgrade four other refineries and will accept bids on the Tula and Salamanca plants this week. Last year, Mexico imported 258,000 barrels of fuel, an increase of 14.2% from 1997 as Pemex was unable to meet demand.

Pemex sold 513,000 barrels of gasoline per day last year, an increase of 2.8% from 1997, and estimates demand will grow 3% to 5% a year for the next three years.

“Gasoline imports will continue at current levels this year and we have to complete all six expansions and upgrades to reach equilibrium levels,” Willars said.

SK Engineering & Construction, a unit of Sunkyong Ltd., will be in charge of the Madero project. Sunkyong is controlled by the SK Group, South Korea’s fifth-largest conglomerate.

The SK-led group must find financing for the project by the end of May. Upon the project’s completion, Pemex will take out long-term debt and pay off the contractors. Such an arrangement is expected to reduce costs for Pemex.

The rate of return on the project for Pemex is 16.3%, given the estimated income flow from the finished refinery and assuming a financing cost of 8.5% a year.

The Minatitlan and Salina Cruz projects have been postponed until financing is in place for Madero and the other two projects to avoid straining the availability of credit, Willars said.