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.

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GOV BUILT REFINERY
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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).

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MESOAMERICAN REGIONAL REFINERY
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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.

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OXY'S PROPOSED PUERTO ARMUELLES REFINERY
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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.

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COMMENT
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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