Construction of Cambodia’s First Oil Refinery to Start Next Year

Cambodia’s first oil refinery will break ground early next year and, once completed, will refine an estimated 5 million tons of oil per year, officials said at a signing ceremony Friday.

An agreement on the $2.3-billion refinery in Kampot province was signed by two state-enterprises: Sinomach China Perfect Machinery Industry Corp. and the Cambodian Petrochemical Company, at the Council of Ministers in Phnom Penh.

“The plant will cost $2.3 billion and it will take a total of 36 months to construct,” Zhang Sugang, general manager of Sinomach, said at the ceremony, which was attended by Deputy Prime Minister Sok An, who is also chairman of the Cambodian National Petroleum Authority.

The Cambodian and Chinese state companies have been granted an 8-hectare plot of land in Kampot province, close to the border with Preah Sihanouk province, where the refinery will be built. An exact location for the plant was not revealed at the ceremony.

Mr. An said after the ceremony that Cambodia’s oil demand at present is more than 1 million tons a year, and that it would soon reach up to 4 million tons a year due to the country’s growing economy.

“I strongly believe that this project signed today will help boost the development of the oil sector in Cambodia and it will help contribute to ensure security of energy supply locally,” Mr. An said.

Asked what oil the $2.3-billion plant will refine—as Cambodia does not yet have any commercial exploitation of its offshore reserves—Council of Ministers spokesman Phay Siphan said the refinery was being built in anticipation of future extractions.

“It will take four years to finish the factory, so by then, we expect to have the oil for extraction,” Mr. Siphan said.

“It will happen, and it will come from Cambodian territory. We are sure that we will have oil from Block A,” he said, referring to the offshore area most advanced in terms of exploration, which is held by a consortium led by U.S. oil giant Chevron Corp. Chevron has drilled at least 18 test wells and spent more than $160 million on its search for exploitable reserves.

“Chevron as well as others will take their oil” to the new refinery, Mr. Siphan said.

According to China’s state news agency Xinhua, Mr. An said at the ceremony that Chevron needs to invest an estimated $600 million more to successfully exploit oil from Block A.

Mr. An, who said the government expects to one day earn about $200 million annually in oil and gas revenues, said that an agreement with Chevron on tax payments had not been settled, according to Xinhua.

Chevron’s talks with the government on extraction have been stalled since last year over the level of taxation payments to the government. Mr. Siphan confirmed on Friday that an agreement had not yet been reached.

Experts also say that although Block A contains oil, only a small proportion is actually recoverable and the cost to do so would be high.

Earlier this year, China National Offshore Oil Cooperation, which holds the license to the 7,000-square-meter Block F, began drilling its first test well off the coast of Preah Sihanouk and Koh Kong provinces.

The Thai company PTT has also started drilling in Block B, but has not announced any results, and Hong-Kong-based Mirach Energy is waiting for an environmental impact assessment before exploring in Block D.

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