INDIAN REFINER ONLY BIDDER FOR MESOAMERICAN

UNCLAS MEXICO 006461 SIPDIS SENSITIVE SIPDIS STATE FOR WHA/MEX, WHA/EPSC, EB/ESC DOE FOR INTERNATIONAL AFFAIRS K DEUTSCH, M PRINIOTAKIS AND S LADISLAW DOC FOR ITA/TD/ENERGY DIVISION E.O. 12958: N/A TAGS: ENRG EPET ECON MX SUBJECT: INDIAN REFINER ONLY BIDDER FOR MESOAMERICAN REFINERY REF: MEXICO 4494 AND PREVIOUS Sensitive but Unclassified, entire text. ¶1. (SBU) Summary. GOM officials responsible for the Mesoamerican Energy Integration Project (PIEM) have selected only Reliance Refining in the first phase of bidding for construction and operation of a Central American refinery. The Indian firm will now have until July 2007 to prepare a proposal for the project. Meanwhile GOM sources continue to dismiss concerns about the commitment of the Calderon administration as well as Mexico's ability to follow through on its commitment to supply the facility with heavy crude. End Summary. ¶2. (SBU) India's Reliance Refining was the only qualified company that expressed interest in operating the proposed Central American refinery that is the centerpiece of the PIEM, according to Pemex Marketing (PMI) Commercial Director Bernardo de la Garza. November 12 was the deadline for international firms to express interest in construction an operation of a refinery in Central America (reftels). As the only bidder to pass through the approval phase, Reliance will now be able to purchase all of the relevant information on the project developed by consultants for the Interamerican Development Bank (IDB). The company will also be given "full access" to negotiate with PIEM member governments -- including the governments with preferred sites, Panama and Guatemala -- for the most favorable terms for locating the refinery. The company will have until July 2007 to present all PIEM member governments with a successful proposal for building and operating the refinery. ¶3. (SBU) De la Garza said the GOM was disappointed, but not surprised that the U.S. majors they had sought to build and operate the facility opted not to go any further in the process. ExxonMobil and Chevron told the GOM the refinery project did not meet their return threshold. PMI, acting on behalf of the GOM and the PIEM participants, also disqualified a number of construction, oilfield service and project management firms from the bidding process -- including Mexican Billionaire Carlos Slim's Ideal -- because they did not meet the minimum standards for bidders. De la Garza explained that in order to move on to the second bidding phase the firm had to: (1) have refining experience, (2) have experience processing heavy crude, (3) show they have the "economic capacity to build a refinery," (4) have demonstrated significant project management experience, and (5) have previously commercialized petroleum products. ¶4. (SBU) Reliance was the only firm that met the five criteria. De La Garza added that PMI had sold crude to Reliance and found them to be a capable operator. Now, with only one bidder, the process would become more of a negotiation than a traditional bid. PMI, as manager of the selection, would develop what they believe to be a "fair offer" on the part of the refiner, and seal it awaiting the Reliance proposal. The GOM would brief PIEM member states at a meeting November 15-16 on how the process would unfold from here. ¶5. (SBU) While disappointed that no U.S. major bid on the refinery, the GOM is prepared to move forward with the proposal. Reliance's experience refining heavy crude at their Jamnagar refinery could be applied to the region, and de la Garza believed that the investment, if successful, would give the company an opportunity to expand marketing into North America. Meanwhile, the GOM continues to watch Oxy's plans to build a topping unit in Panama, as well as the PDVSA Memorandum of Understanding with Panama on construction of a refinery. ¶6. (SBU) Comment: Despite the upcoming change of government as well as continued questions about Mexico's ability to provide the heavy crude feedstock given recent double digit annual production declines from Mexico's largest heavy oil field, de la Garza at Pemex and his counterparts in the SRE and in the Energy Secretariat responsible for the PIEM continue to vigorously support the Mesoamerican Refinery. End comment. Visit Mexico City's Classified Web Site at http://www.state.sgov.gov/p/wha/mexicocity GARZA