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    NewsLatin AmericaThe Mexican Government recognizes a multimillion-dollar cost overrun at the Dos Bocas refinery

    The Mexican Government recognizes a multimillion-dollar cost overrun at the Dos Bocas refinery

    Panoramic view of the Dos Bocas refinery during its construction, on June 30, 2022, in the State of Tabasco.Presidency (Dark Room)

    The Dos Bocas refinery is a bottomless pit of public resources. In the middle of this month, the state oil company Pemex requested an additional 6,470 million dollars for the construction of one of the emblematic works of the Mexican president, Andres Manuel Lopez Obrador. It is an increase of 72% with respect to the budget originally considered by the Government. Specialized companies and experts already warned at the time that the Executive’s plans were not realistic. The president, a fierce critic of the cost overruns in works of past six-year terms, has recognized the increase in the case of Dos Bocas, but has minimized it and has assured that “there is no corruption.”

    The Pemex Board of Directors requested the budget increase to “give continuity” to the project during 2022 and ensure its “start-up”, according to the minutes of the meeting held on August 10. The reasons for this expansion, Lopez Obrador said on Tuesday, are the inclusion of works that had not been contemplated at first, such as a gas pipeline to feed the refinery’s power plant, and the cost involved in integrating the different plants. petrochemical

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    In May 2019, Lopez Obrador assured that the refinery was going to cost 8,000 million dollars and stuck out his chest against previous governments. “It will cost 8,000 million and we can even save you. Let’s see who is right and it matters to me to take these challenges because they allow us to demonstrate with facts how inefficient, as well as corrupt, were the technocrats who badly governed Mexico for 36 years, ”he declared. A year later, the director of Pemex, Octavio Romero Oropeza, raised the cost to 8,900 million. In June, before the oil company’s Board of Directors authorized the latest expansion, the president offered another figure: 11,000 or 12,000 million dollars.

    The request for a budget increase in August agrees with the companies in the sector and the consultants who had dismissed the Government’s claims as unrealistic. The tender launched by the authorities in 2019 was deserted after the companies invited to participate in the process due to their experience presented a higher budget than the one sought by the Government. After the tender was declared void, Lopez Obrador commissioned the work to the Secretary of Energy, Rocio Nahle, an official he trusted. In the end, this strategy has not prevented costs from skyrocketing above projections.

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    In addition to the infeasibility of the Executive’s original budget, analyst and expert Gonzalo Monroy attributes cost overruns to poor planning. “Due to the rush to build and achieve results quickly, important site, market, and cost-benefit analysis processes were skipped, which have never been presented,” he points out. “They started building as they went. They realized that they did not have enough space for the refinery. They had to fill in the land where the storage tanks are now. That delayed the work in more than 1 year”.

    The final cost of the refinery is surrounded by unknowns. “There are still too many things in the air,” says Monroy. “The cost overrun is so great that it is not explained by a gas pipeline alone. It has not been part of the oil pipelines, nor the sulfur and hydrogen plants”. Sources familiar with the work, cited by Bloomberg, expect the cost to rise to 18,000 million, more than double the original budget. The rating agency Moody’s already assured in a 2019 report that the cost would exceed official projections due to the “lack of experience of the Government in the construction of refineries.” Dos Bocas is the first facility of this type to be built in the country in 40 years.

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    Despite the skyrocketing costs, the president has come out this Tuesday in defense of Nahle. “She is a woman of integrity, honest”, he has assured. “No one did business for personal gain in the construction of the refinery, that there is no corruption, that it is no longer the time of before.”

    The refinery was inaugurated on July 1 by the president and the executive staff without being finished. It is still necessary to integrate the plants that make it up and start tests that can last between six and nine months, according to experts. Once completed, Dos Bocas will have the capacity to refine 340,000 barrels of oil per day, about a fifth of what Pemex extracts. The government has stated that this will be enough to stop importing gasoline from abroad.

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