New refinery to spark competition among Mexican states

Mexican President Felipe Calderon's (PAN party) plan to build a new refinery will spark intense competition among states hoping to house the infrastructure, energy expert David Shields told.
"You get all this competition from all the different states of the republic saying it should be theirs," he said about the refinery plan. "You end up with a political problem that becomes quite serious."

The government will earmark 12 bn pesos ($ 888 mm) from the stabilization fund to finance the refinery, Calderon said, without specifying where the remainder of funds would come from. Nor did Calderon mention where the refinery might be built or the capacity it would have.
A study published by state oil company Pemex in August determined that building a 300,000 bpd-capacity refinery in Tula, Hidalgo state, would cost $ 8.17 bn and provide the highest net present value (NPV). The refinery would have an internal rate of return (IRR) of 15.6 % and NPV of $ 1.97 bn assuming a discount rate of 12 % and a 20-year investment recovery time.

A 300,000 bpd refinery in Tuxpan, Veracruz state, would also generate IRR of 15.6 %. However, the NPV of a Tuxpan refinery would be lower at $ 1.90 bn. Veracruz has been calling for a new refinery for some time, Shields said, questioning whether a refinery in Tula would be an entirely new project or an expansion of existing infrastructure.
PAN and opposition PRI senators in the energy and legislative studies committees have failed to reach middle ground regarding refining plans in the energy reform debate. PAN proposed allowing private sector investment, while PRI would have strategic Pemex subsidiaries make the investments.

The senators thus decided to put both proposals up to a vote. The PAN proposal, given leftist opposition party PRD's opposition, is certain to be rejected.
"It's almost as if he [Calderon] is replying to what is almost inevitably going to be passed in congress. He's looking at the reality of the economy on one hand, looking at what's likely to be passed on the other hand and making new proposals," Shields said.

Mexican political expert Pamela Starr views the announcement as "typical Calderon: making lemonade out of lemons," she said.
"If this had been the culmination of a very structured decision making process toward investing in a new refinery, they would already have known where that refinery would be located," she said. Lawmakers also would know how to fund the remaining 80-90 % cost of the refinery.

Unlike Mexico's former President Vicente Fox, Calderon will do anything to get results rather than nothing, she said.
"When he sees defeat on the horizon, he will often change gear and embrace something he had previously not fully opposed but not favoured to create the impression of a victory even when he's taking a step backward," Starr said.