Oil refinery to be built

Monday, 05 December 2011
May Kunmakara
The Phnom Penh Post

Construction on a US$2 billion oil refining plant, the Kingdom’s first, will start in April, according to officials close to the project.

The plant, which will be built on 365 hectares across Kampot and Sihanoukville provinces and is expected to be completed in 2014, is a joint venture among domestically owned Cambodian Petrochemical Company (CPC), China National Automation Control System Corporation and Sino March Company of China.

The refinery is expected to reduce the Kingdom’s growing dependence on petroleum imports.

“I believe after we can produce and refine by ourselves our price for oil will be comparable to neighbouring countries,” Hann Khieng, a CPC representative, said on Friday, “because we won’t be paying to import oil from abroad.” Those imports reached 1.2 million tonnes, or $1.14 billion, through October – a jump of 67 per cent year-on-year – according to the Ministry of Commerce.

Deputy Prime Minister Sok An had said previously that Cambodia’s current petroleum demand is more than 1 million tonnes a year, largely met with imports from Vietnam, Singapore and Thailand.

Construction will start on April 1 on 80 of the total 365 hectares, according to CPC’s Hann Khieng.

Total production capacity will reach 5 million tonnes of refined oil a year, with nearly 85 per cent of that finished product sold in country for the first two years, he said.

Prime Minister Hun Sen said last year that Cambodia would produce its first drop of oil by noon on December 12, 2012 – a statement he has reiterated several times. The premier has also warned Chevron Overseas Petroleum – which is exploring the Kingdom’s offshore Block A – that failure to meet the date would result in a termination of their contract.

On a technical level, Chevron is ready to extract oil, Chevron Overseas Petroleum (Cambodia) president Steve Glick told the Post in August. The company was still working out remaining issues with the Cambodia National Petroleum Authority but hoped to make a final investment decision this year, he said.

Chevron had invested $160 million in 18 exploratory wells in Cambodia since 2002, Glick said in August.

In May, CPC had signed a feasibility study agreement with China National Automation, with the option of investing as much as $600 million in the building of the refinery following the study’s completion, Hann Khieng said.

A contract between CPC and Sino March to provide additional financing for the project had also been signed, as well as newer refining technologies that would boost the plant’s output capacity, he said.

CPC held 49 per cent of the venture, with the remaining two companies controlling the difference.

Part of CPC’s agreement with CNACSC had been to grant control of the plant to the Chinese company for 10 years, before having control returned to CPC, Hann Khieng said.

But the newer contract with Sino March allowed CPC control from the launch of the plant, provided the company shared revenues with China National Automation and Sino March for 10 years, he said.

Hann Khieng declined to disclose the amount of the fee.

He emphasised that funding for the project was not a problem, as 85 per cent would be handled by the foreign partners and the remaining 15 per cent by CPC.

An initial cost of $600 million was estimated for the refining of domestically produced oil only, but Hann Khieng said the feasibility study showed the plant should also be used to refine imported crude from European countries.

He said the plant would be capable of refining both so-called sweet and sour crude – oil with low or high levels of sulphur, respectively – and that added capacity was the reason the potential investment might reach $2 billion.

Sino March Company representative Xu Jian met Prime Minister Hun Sen in Phnom Penh on December 1 to discuss the firm’s work with CPC, and the premier reportedly expressed his support for the project.

CPC planned to send 300 students to China for schooling in engineering and the extractive industry once construction began, Hann Khieng said.

Another 300 would be educated in Cambodia by domestic and Chinese experts, he said.

Officials at the China National Automation Control System Corporation and Sino March Company could not be reached for comment. Officials of the Cambodian National Petroleum Authority declined to comment yesterday.