Published July 16, 2009

Merapoh to go ahead with refinery project

It secures private equity financing and pledge by CNPC to take up products

By PAULINE NG
IN KUALA LUMPUR

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A MALAYSIAN-LED consortium yesterday said it is ready to proceed with a planned US$10 billion two-train oil refinery in Kedah, having secured private equity financing and a 20-year commitment by China National Petroleum Company (CNPC) to take up more than half of the refined products.

When completed in 2013-2014, the refinery in the district of Yan would be Malaysia's largest given its total capacity of 350,000 barrels per day (bpd), said Nazri Ramli, chairman of Merapoh Resources Corporation, at the signing of a memorandum of agreement between the company and the Kedah state government yesterday.

Mr Nazri announced the private equity investors, Hong Kong Beijing Star Ltd and Winson Investment Ltd, would invest US$5 billion each in privately held Merapoh - the licensee for the multi-crude refinery project - in return for a 40 per cent stake, with the balance 20 per cent to be held by Merapoh's current shareholders.

Little is known of the firms, but Mr Nazri stressed the Chinese national oil company had committed to taking 200,000 bpd while Winson had agreed to market the balance 150,000 barrels.

Merapoh is in talks with Saudi Arabia's Aramco and it is likely be the main feedstock supplier, he revealed, with Iran likely to be a secondary supplier. Supply agreements are expected to be inked in a month.

Given their role in the project, CNPC and the crude supplier would subsequently be offered equity in Merapoh, Mr Nazri said. CNPC officials were not present at the ceremony.

Subsidiaries of South Korea's SK Group have been appointed to construct and commission the project, and to operate and maintain the refinery which would be built on 263ha of land - 344ha reclaimed - stretching along 4km of the Kedah coastline at the Sungai Limau Hydrocarbon Hub. Thirty per cent of the works would be awarded to local contractors.

Under the plan, the crude oil would be received offshore at Yan, and transferred along a 20km pipeline, refined and then piped back to vessels offshore to be uploaded.

Of late, Malaysia has seen an explosion of interest in setting up oil & gas terminals in the country, those in the pipeline including one in Tanjung Agas in Pahang, another by a Qatari group in Manjung, Perak and one or two bunkering projects in Johor.

Previously, there had also been reports that a unit of tycoon Syed Mokhtar Al-Bukhary was interested in setting up a 200,000-bpd refinery in Kedah to process oil from Iran. Little has been heard since then.

Asked if the market could support so many projects, Mr Nazri replied: 'The most important thing is the off-take and feed stock.'

Merapoh has received the licences and permits for the project and Kedah Chief Minister Azizan Abdul Razak yesterday assured the state government would support it. Merapoh's corporate website states under incentives and allowances received, all capital expenses in the first five years are allowed tax relief.

Mr Azizan said the northern state, which is positioning itself as a hydrocarbon hub, aimed to attract US$80 billion in investments, and that when completed, the Merapoh refinery was expected to net the state over RM200 million (S$81.4 million) in revenue.