KUALA LUMPUR (Reuters) - State oil firm Petronas PETR.UL will start up its $19 billion petrochemicals complex in Malaysia in 2018, the company told Reuters on Tuesday, signaling a further delay in the country’s largest-ever infrastructure project.
A delay to the project in southern Johor state could deal a potential blow to the economy of the Southeast Asian nation as well as local oil and gas services firms hoping for work on the massive complex.
A source familiar with Petronas’ business strategy told Reuters the project had been complicated by a need to secure water supplies as well as cater for proposed international partners.
Petronas had already put back the project from late 2016 to early 2017 in June and revised the final investment decision (FID) to the first quarter next year, citing state government problems in relocating villages and graves from the 2,000 hectare-site, five times the size of New York’s Central Park.
“As a result of the revised FID date, the RAPID refinery is scheduled to be ready for start-up in Q4 2017 and the remaining plants within the complex is scheduled to be commissioned in 2018,” Petronas said in a statement to Reuters on Tuesday.
This is at least six months later than market expectations after local media had cited Petronas CEO Shamsul Azhar Abbas in June as saying the start date for phase one of the RAPID project had been pushed back to early 2017.
Delays in the project - a cornerstone of Prime Minister Najib Razak’s Economic Transformation Programme aimed at doubling Malaysians’ incomes by 2020 - could slow an economy whose oil and gas sector makes up a fifth of GDP.
The complex is the largest single investment in Malaysia, and aims to grab a chunk of the $400 billion global market for specialty chemicals used in products from LCD televisions to diapers.
Its location at the southernmost tip of the peninsula, just 10 km (6 miles) from Singapore’s east coast, is part of a vision for a “Greater Singapore” energy trading hub that would rival competitors such as China.
“This massive project is getting more complicated as we move forward,” said the source, who declined to be named as he was not authorized to speak to the media.
“We will need to spend to secure the water supply and now parts of the project may need to be redesigned to cater for incoming project partners,” he added.
Petronas, Malaysia’s only Fortune 500 company, has signed heads of agreements with Italy’s Versalis SpA, Japan’s Itochu (8001.T) and Bangkok-listed PTT Global Chemical (PTTGC.BK) to build speciality chemical plants.
Petronas unveiled the Refinery and Petrochemicals Integrated Development (RAPID) project in May last year. The plan was to construct a 300,000 barrel per day refinery, which would supply naptha and liquid petroleum gas to the chemical plants and produce gasoline and diesel for European markets.
France’s Technip TECF.PA was awarded the front end engineering and design (FEED) contract, which was slated for completion in the second quarter of 2013. The financial value of the job was never disclosed.
Petronas will use the design specifications to reach a final investment decision, after which the major construction works usually begin. BNP Paribas (BNPP.PA) is the financial advisor for project financing.
The June decision to postpone a final investment decision to Q1 2014 knocked the shares of local mid-sized oil and gas services companies, and analysts said the latest delay could weigh on firms like SapuraKencana SKPE.KL and Wah Seong (WAHE.KL).
Petronas has yet to award the engineering, procurement and construction jobs, although preparation work for the site started on October 18.
It is expected to award about 20 construction job packages valued at about 2-3 billion ringgit ($620 million-$930 million) each, two other sources familiar with the company’s plans said.
The contracts for the refinery are expected to be awarded in November or December this year.
“Anyone with a license from Petronas will benefit, if they can meet the specifications,” said one of the sources.
“Delays just means the party starts a little late for some of these companies. These projects are generally complicated and can have a longer gestation period.” ($1 = 3.2260 Malaysian ringgit)
Reporting by Niluksi Koswanage and Yantoultra Ngui; Editing by Stuart Grudgings and Richard Pullin