6 months delay in Samur project

KUALA LUMPUR: Petronas Chemicals Group Bhd, a chemical unit of Petroliam Nasional Bhd (Petronas), expects a six-month delay and an increase in costs for the construction of its Sabah Ammonia and Urea (Samur) project due to a fire on board one of the vessels carrying critical equipment.
The US$1.5 billion (RM4.9 billion) Samur project, wholly-owned by Petronas Chemicals via Petronas Chemicals Fertiliser Sabah Sdn Bhd, is now 60% complete and was initially to be completed by Aug 31, 2015.
"Based on preliminary assessment, it is likely that the completion date of this project will be delayed by at least six months (to end-February 2016)," Petronas Chemicals chairman Datuk Wan Zulkiflee Wan Ariffin told the press conference after the group's AGM here yesterday.
"There are a lot of installation works in progress but unfortunately, one of our contractors' vessel which was coming out from a port in Korea had a fire incident. It has affected the delivery of these critical equipment," he said, explaining that the equipment would need to be replaced or repaired.
The cost of replacement and repair are still under discussion with the main contractor based on the terms of contract, said Wan Zulkiflee, adding that it is the contractor's obligation to deliver the plant to Petronas Chemicals.
"This is an alliance contract, so the contractors and Petronas Chemicals will share the risk," he said.
The total cost of Samur project may increase from its initial estimation of US$1.5 billion, said Wan Zulkiflee. However, the group has yet to figure out the total losses due to the fire incident. He also refused to comment on which party will bear the losses or any extra costs to be incurred.
Petronas Chemicals has allocated a capital expenditure (capex) of RM2.3 billion in 2014, RM1.2 billion of which will be for the Samur project, while the balance will be channelled into other smaller projects, and turnaround activities including plant shutdown for inspection.
"The maintenance exercise is part of the statutory requirements. This will be the major activities for us but we expect our plant utilisation rate to reach a level of mid-80% this year," said Wan Zulkiflee.
High level of maintenance activities resulted in lower plant utilisation rate of 77.9% in 2013, compared with 82.5% in 2012.
The expected improvement in 2014 is based on the improved operational efficiency, as well as the fact that the major statutory turnarounds have been carried out last year.
Petronas Chemicals, the largest integrated petrochemicals producer in Southeast Asia, intends to reserve its RM10.2 billion net cash position to participate in the Refinery and Petrochemicals Integrated Development (Rapid) in Johor.
The group may take a stake in the Rapid project, Wan Zulkiflee said, provided that it matches the group's financial capability and core competencies.
"I don't discount the possibility of us taking some form of the equity part of the projects, there is always a possibility, but it has to be a strategic fit," he explained.
"Being a petrochemicals arm of Petronas, we are confident that we will be involved in the Rapid project. But this is still subject to our discussion and negotiation with Petronas," he continued.
Meanwhile, Wan Zulkiflee said the recent hike in natural gas tariff to the non-power sector will not impact Petronas Chemicals, as the group is on a long-term contract with Petronas for the latter to supply feedstock at a fixed price.
"We also used natural gas as the feedstock, but this recent hike (in tariff) will not affect us," he said. Feedstock cost accounts for 60% of Petronas Chemicals' cost of revenue.