Cambodia: Ground broken for oil refinery

Cambodia: Ground broken for oil refinery

After years of delays and setbacks, the Cambodian firm set to operate the
Kingdom's landmark oil refinery finally broke ground yesterday on a $1.62
billion project with an updated completion date set for the middle of 2019.

The oil refinery, which will be built on 365 hectares across Kampot and
Sihanoukville provinces, was first expected to be completed in 2014 after
receiving full financial funding from the Export-Import Bank of China in
December 2013.

Developed by private firm Cambodia Petrochemical Company (CPC), the refinery
plans did not move forward until May of last year when the company granted a
$620 million first phase construction contract to the state-owned Chinese
National Petroleum Company. Construction was then outsourced to China's Sino
Great Wall International Engineering Group.

When all phases of the project are finally completed, the facility is
expected to have an annual refining capacity of 5 million tonnes of crude
oil, according to Vinh Hour, chairman of CPC. He added that the refinery
would reduce the need for imports and improve national security by creating
domestic reserves.

"Any country that does not have a stockpile of petroleum can be in a
dangerous situation because if there is uncertainty in the international
market and supply stops, the economy will grind to a halt," he said.

Hour said that the refinery project was delayed for numerous years because
of a prolonged environmental impact assessment process and a long wait for
Chinese financial backers to give the go ahead for construction.

The refinery would be dependent on crude imports from the Middle East in the
near term and would initially be used for domestic distribution, though Hour
claimed that once Cambodia produces its own oil, the facility would help the
country become a net exporter.

KrisEnergy, the Singaporean firm with full rights to Cambodia's Block A oil
field in the Gulf of Thailand, is close to finalising a revenue sharing
agreement with the Cambodian government to begin the first domestic crude
oil production. Extraction could begin within 24 to 26 months of the
agreement.

Cheap Sour, director general of the general department of petroleum at the
Ministry of Mines and Energy, said the refinery would fulfill domestic
demand while lowering prices at the pump.

"We hope that the oil refinery project will lower the price of petroleum in
the market and benefit consumers," he said, adding that the waste from the
factory can be used to produce plastic and fertilizer.

"This refinery will help us to gain energy independence," he said.Danish
petroleum expert Tommy Christensen said that while the refinery could add
"national value" to Cambodia's energy supply chain, it would be difficult
for the company to be profitable as long it relied on large amounts of crude
imports.

"Cambodia's national interest is to have their own crude production and
possible refining capacity, but as long as they have to import crude oil in
competition with neighbouring countries, in particular Thailand, then the
economics might not work for Cambodia," he said.

He added that once Block A finally begins production, having domestic
capabilities could place Cambodia on the global energy trade map.

However, he said the refinery was built with a fundamentally flawed business
model as it was not a Cambodian state-run initiative, which would have
created more value for the economy.

"This is not a Cambodia initiative, but a private sector and Chinese
strategic interest initiative," he said. "And due to [strict] regulations in
[China], Cambodia is the nearest country they can invest in."

"If Cambodia was really the owner of the refinery, with its own crude oil
production in years to come, then taxation and revenue from this refinery
would benefit the economy on a larger scale."

Han Phoumin, an energy economist for the Economic Research Institute for
Asean and East Asia, said the venture could occupy a unique and lucrative
place in the domestic market due to the fact that oil imports to Cambodia
are heavily monopolised.

However, he noted that if the refinery was primarily built to feed China's
energy appetite, it could struggle with established competition.

"Of course, any refinery in Southeast Asia will find it difficult to compete
with Singapore's refineries which can produce efficiently with the best
quality products at a fair price," he said. "It should be cautioned that
many refineries in Asia cannot make profit."

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com