- Cost overruns risk sustainability of several projects
- USD650mn will be invested to improve operations
- Ecuadorean bonds are on a roll
Audits to oil and gas projects undertaken throughout Rafael Correa’s administration was one of current President Lenin Moreno’s foundations on its plan to fight corruption. Today, we get to see a more complete picture of the magnitude and damage caused by official wrongdoing.
Oil Minister Carlos Perez and Petroecuador CEO Pablo Flores presented this week evidence from audits, including the unveiling of USD2.5bn in cost overruns as well as poor construction and quality controls on some of Rafael Correa’s flagship works in O&G industry. After this, President Lenin Moreno called to denounce and prosecute those involved; nonetheless, the damage is done and it remains to be seen how much of this is reversible.
Cost overruns risk sustainability of several projects and Pacific Refinery is one of the best examples.
Viability of the project developed alongside PDVSA is in serious doubts. Leaving aside the dispute PDVSA and Ecuador have regarding liquidation of the JV, assessment to costs found overruns for 23% – total investment was USD1.52bn when less than USD1.24bn was budgeted. One of several doubts presented by possible investors, besides PDVSA’s involvement, relates to how much is really needed to continue with the refinery construction, and past investment may be useless.
Furthermore, audits found it was unwise to start work without securing financing for the entire project. Nonetheless, worst findings were those related to maximum capacity being much less than advertised (barely above 100kbpd and not the announced 300kbpd) and lack of proper economic and operability studies. Convincing new investors in the short term may prove difficult if viability conditions are not clear.
Findings on Pacific Refinery have Ecuadorean officials on a crossroad, asking themselves what to do with the project. There is a possibility of continuing the project as it is; another, moving the refinery to a location closer to sea; but, the most concerning one, there’s an option to transform the project into one of solar power generation or even agriculture.