Ground broken for oil refinery
Acleda profiting in foreign markets
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 fertiliser.
“This refinery will help us to gain energy independence,” he said.
Danish petroleum expert Tommy Christensen said that while the re- finery 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.” Acleda Bank’s foreign operations in Laos and Myanmar performed well during the first quarter of 2017 while recording strong net profits last year, leading the bank to seek further regional expansion, according to a senior executive.
Acleda has 41 commercial branches in Laos and six MFI locations in Myanmar. The bank expanded to Laos in 2008 followed by Myanmar in 2013.
So Phonnary, vice president of Acleda Bank, said that outstanding loan amounts in Laos increased by 17 percent by the end of the first quarter, growing from $104 million to $123 million. The MFI loan portfolio in Myanmar nearly doubled from $8.5 million to $15.7 million during the same period.
“Acleda’s operations in Laos and Myanmar remained positive last year and in 2017 we will continue to expand,” she said. “Net profits in 2016 for Laos reached $4.11 million while in Myanmar they were $1.1 million.”
According to Phonnar y, Laos’ financial sector is highly competitive and Acleda is pitted against more than 42 private and state-owned commercial banks as well as 142 MFIs. However, she said that the operations have primarily been driven by commercial lending across all 18 Lao provinces.
Meanwhile, the bank’s MFI operations in Myanmar have placed Acleda as market leader among the competition of 169 total licensed providers as of the end of March.