Olmeca Refinery will not be listed in July and the overhead is already 100%

The path of the flagship energy work of the 4T is cloudy. Delays and errors in the execution of works make it impossible for the Olmeca refinery to start operations in July of this year —as President Andrés Manuel López Obrador has promised—, at the same time that its cost is already around 17,000 million dollars, more than double what was originally planned, according to the report for the first quarter of 2023 of the internal audit that Petróleos Mexicanos (Pemex) performs on the project.

The construction of the Cogeneration plant has not been completed, nor has the Combined and Coking plants been completed. “The trend of the works executed for an early start-up was verified, determining that the start-up proposed for July 2023 in the Business Case is not feasible”, refers to the Quarterly Report of the Pemex Internal Audit on the follow-up to the Project of the Olmeca Refinery in Dos Bocas, Paraíso, Tabasco, corresponding to the period January-March 2023, a document to which El Economista had access.

The delays in time and the increases in costs make it clear that some of the risks warned by Pemex’s Internal Audit, which is in charge of monitoring the project, have materialized. In particular, the fifth of a list of risks stated in the report came true: “that the viability of the business, the level of technical definition required and the planned profitability values ​​are not guaranteed”.

updated cost

The audit document also reports the latest investment amount updated for the work by the Pemex Board of Directors (CAPEMEX) on August 10, 2022 (one month after the inauguration of its first construction phase), which amounts to 15,963 million dollars (VAT included), equivalent at that time to 323,712 million pesos.

However, later in the same document it is indicated that as of March 31, 2023, goods and services have been contracted for the work for a total of 16,890 million dollars, that is, 927 million dollars additional to the amount of investment authorized by the CAPEMEX.

As of March 31, 2023, it refers, the federal government “has pending to contribute 13.93% of the 15,963 million dollars authorized by CAPEMEX as an investment in the Olmeca Refinery Project.” For that same date, 216 contracts were determined, 162 service orders and 36 assignments of purchase orders for the amount of 305,795.2 million pesos (which is equivalent to 16,890 million dollars that corresponds to the amount contracted, which include contracts, amending agreements , service, work or supply orders)”, it is reported.

Promises fade away

The amounts consigned by the audit significantly exceed the amount originally foreseen for the project and its subsequent upward corrections. In 2019, the Mexican government valued the work at 8,000 million dollars (an amount that was the campaign promise of President López Obrador). Later, in October 2020, during an appearance in the Chamber of Deputies, Octavio Romero, director of Pemex, stated that the cost would be around 8.9 billion dollars.

In April 2022, Rocío Nahle, head of the Ministry of Energy —a unit that took over the management of the work after no private company accepted the work after arguing that it was not feasible to conclude it within the period set by the López Obrador government— , said that the cost had risen to 9,800 million dollars, due to “expansion in the project”.

Just two months later, at the end of June 2022 (a few days before the inauguration ceremony of the work), and in the midst of leaks to the press that the cost had skyrocketed to 16,000-18,000 million dollars, President López Obrador admitted that there would be an increase, but not of that magnitude.

“Yes there was an increase, but it will not (cost) 18,000 million (…) (the increase is) like 20, 30%, that is, it will come out as 11 or 12,000 million including VAT, that is, it adjusts to what was authorized the Pemex Board, and this is reviewed by the Treasury and also reviewed by the Public Function, and it is in the range, ”he said in his morning conference on June 24, 2022.

Regarding the financial management of the project, the Pemex audit report indicates that “timely follow-up is being given to the materialization of possible risks” and specifies, precisely, that the risks in case of exceeding the authorized amount of investment (referring to the amount authorized in August 2022) are the “increase in the cost of the project” and the “affectation of the NPV and the IRR”.

It should be remembered that the NPV (acronym for the term Net Present Value) and the IRR (acronym for the term Internal Rate of Return), allow us to know the profitability of a project that generates financial flows over time. A positive NPV reflects that the sum of the value of the future financial flows of the project, discounted with the interest rate, is greater than the investment that will be made, which indicates that the project is profitable.

That is, the increase in the initial investment cost without increasing the present value of future flows deteriorates the profitability of the project.

Work is complicated, has deficiencies

The document, presented to the Pemex Board of Directors this May, refers to deficiencies in the execution of the works and even damage to furniture during its commissioning.

“From the Risk Matrix updated to the fourth quarter of 2022, two risks related to errors during the execution of work or inconsistencies between basic and detailed engineering were identified; and equipment damage during start-up; with mitigation actions passed, therefore, it is suggested to update the measures that guarantee full coverage of risk management, and have evidence that demonstrates the effectiveness of the mitigation actions”, it is pointed out.

The Pemex audit identifies problems in essential plants of the refining complex that is being built in Dos Bocas, Tabasco. “There are no advances in the activities of the critical routes of the Combined, Delayed Coking, Catalytic, Cogeneration and Integration plants,” the document states, signed by Alejandro Javier Archard Carretero, head of the Pemex Evaluation and Reports Unit ( in his capacity as integrator) and by Juan Torres Gurrola, head of the Internal Audit of Petróleos Mexicanos (who authorized).

In addition, it is specified that “instrumentation and control activities were identified in the Combined and Delayed Coking Plants that are becoming critical: calibration, assembly and connection of safety valves, transmissions, pressure and temperature elements”. And it was recalled that “according to the Comprehensive Project Program, the construction stage of the Combined Critical and Delayed Coking plants should have ended in December 2022, but this stage has not yet concluded.”

In addition, he said that “the start of the supply of electricity and steam from the Casa de Fuerza in March 2022 (however), the Cogeneration Plant has not yet been completed.”

It should be remembered that in the Combined Plant the first step of crude oil refining is carried out, which is atmospheric distillation, from which the first fuels naturally present in the crude oil and hydrocarbon cuts are obtained that will later be processed in other units.

The next step is carried out at the Delayed Coking Plant, thermal cracking, in which the molecular structure of the hydrocarbon cuts from atmospheric distillation is broken and modified to transform them into light products of greater commercial value and into coke, a material solid carbonaceous

On July 1, 2022, President Andrés Manuel López Obrador inaugurated the first phase of the Olmeca Refinery. Days later, the Secretary of Energy, Rocío Nahle, stated that in December 2022 the plant tests would begin, which did not happen.

Subsequently, on December 23, 2022, when supervising the progress of the work, López Obrador affirmed that the refinery would begin the testing stage on July 1, 2023, with the production of 170,000 barrels of fuel per day, an amount that would double to as of September 15 of this year.

empresas@eleconomista.mx