PANAMA'S THREE WAY RACE FOR A CENTRAL AMERICAN

C O N F I D E N T I A L SECTION 01 OF 02 PANAMA 002005 SIPDIS SIPDIS E.O. 12958: DECL: 10/10/2016 TAGS: ENRG ETRD PREL PGOV PM SUBJECT: PANAMA'S THREE WAY RACE FOR A CENTRAL AMERICAN REFINERY REF: A. PANAMA 1251 ¶B. PANAMA 1518 ¶C. PANANA 651 ¶D. PANAMA 219 Classified By: Deputy Chief of Mission L. Arreaga for reasons 1.4 (b) a nd (d) ¶1. (C) SUMMARY. Panama appears to be the site for up to three proposals for the construction of a regional petroleum refinery. During his June 2006 visit, Venezuelan President Hugo Chavez offered to build a 130,000 barrels per day refinery in Panama (Refs A & B). The MesoAmerican Energy Initiative is also proposing to build a refinery, identifying Panama and Guatemala the two possible sites. To date, however, the Occidental Petroleum (Oxy) refinery project (Ref C) has made the most progress in identifying the site, production output levels and detailed costs. END SUMMARY. -------------- GOV BUILT REFINERY -------------- ¶2. (C) During his June 2006 visit to Panama, Venezuelan President Hugo Chavez reportedly offered to build a $400 million/130,000 barrels per day refinery in Panama (Refs A & B). According to Oxy's unofficial count, Venezuelan president Hugo Chavez has offered to build a refinery to fourteen foreign countries. Minister of Trade and Finance Alejandro Ferrer has consistently been skeptical that the GOV would build a refinery in Panama (Ref B). -------------- MESOAMERICAN REGIONAL REFINERY -------------- ¶3. (U) The regional refinery proposed by the MesoAmerica Energy Initiative (MEI) is actively soliciting bidders (see www.pmi.com.mx). PMI Comercio Internacional. S.A. de C.V. is committing to supply and the (proposed) refinery is committing to buy 230,000 barrels a day for 20 years "subject to the construction of high conversion refinery in Central America." MEI's deadline for bid submission is November 13, with notification of results by November 21. The document states that Belize, Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua and Panama requested that PMI act on their behalf. The refinery initiative is supported by the Inter-American Development Bank (IDB),the Central American Bank for Economic Integration (CABEI)and the UN Economic commission for Latin American and the Caribbean (ECLAC). ¶4. (U) The bid document requests the refinery output be approximately 360,000 barrels a day and mandates that this output cannot be sold on the world market. The output is committed to the MEI countries at country specific volumes determined in the bidding process and re-established annually. The sale price of the output is determined by the buying country, based on one of two formulas defined in the bid document. The site is at the discretion of the refiner. The cost of the refinery and any financing are the sole responsibility of the refiner (but MEI countries will make reasonable efforts to assist in obtaining partial financing from international development institutions.) Substantial additional documentation, including the results of the KBC Advanced Technologies study on the MEI Hydrocarbon market, suggested sites for the refinery, and preliminary cost estimates are also available. A Chevron-Texaco executive told Econoff that he was unaware of any major international company that intends to bid on the initiative. -------------- OXY'S PROPOSED PUERTO ARMUELLES REFINERY -------------- ¶5. (C) In December 2005, Oxy signed an MOU with the GOP for an 18 month/$2 million feasibility study to build a refinery at the Pacific port of Puerto Armuelles (Ref D). According to Oxy's project manager, the majority of the detailed studies with their international consultant subcontractors are complete. Oxy is currently identifying partners for the project. Oxy's project manager told Econoff that Oxy anticipated partnering with two to three national and/or independent oil companies, a business model they had used in the past in the Middle East (Dolphin Project). He said the leading contender is Qatar's state run company and a potential South American company whom he declined to identify. He told Econoff, however, that Venezuela's PDVSA was NOT an option for them. Oxy's project manager said the identification of interested partners and the funding they brought to the deal would determine if additional funding would be need from such sources as the ExIm Bank. ¶6. (C) He also updated Econoff on the latest business model for the proposed 350,000 barrels per day refinery. The approximate distribution is 50,000 barrels to Mexico, 81,000 to Central America, 40,000 to South America (Ecuador, Peru, and/or Chile),90,000 to the West Coast of the U.S. and 70,000 to the East Coast of the U.S. He further stated that while they were happy to receive Mexico's Mayan crude as input to the refinery, Oxy did not find the GOM statements of an available supply of 230,000 barrels a day credible. Their discussions with Pemex executives indicate that Pemex's decline rate is currently 10% a year. Oxy believes Pemex will struggle to supply crude to its existing commitments by the time the refinery is built. -------------- COMMENT -------------- ¶7. (SBU) The Oxy refinery project appears to be the leading contender of the three proposals and the most viable business model. However, the consortium of partners, available funding and the terms and conditions of the concession agreement with the GOP will need to come together between now and the end of the year for Oxy to break ground in 2007. EATON