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Financial News

Dec 2014 Financial News

High labour cost push methanol-to-petrochemicals plant up by $640m

Dec 18, 2014

Higher-than-expected labour cost has pushed the cost of constructing the Mitsubishi Corporation/Massy Holdings/Integrated Chemical Company Ltd’s methanol-to-petrochemicals plant up by $640 million (US$100 million).

Sources at both Massy and Mitsubishi tell the Business Guardian that the company has had to take the hit in the higher wage bill and the project that was initially to cost US$850 million has now increased to $950 million. Further, it is expected that the main contractor will have to forego some of his profits in return for a stake in the project.

Sources told the BG: “We looked at all the possibilities and none of them quite worked out for us. We looked at bringing in Chinese labour but when we cost it and looked at the productivity, we felt it was not going to lead to a reduction in the construction cost. We also looked at areas like Pakistan and India but, again, it did not work out. We have decided to stay with the local labour which has the expertise of constructing these plants.

Interviewed recently at the opening of the Port of Galeota, Energy Minister Kevin Ramnarine confirmed that the project was US$100 million over budget but he did not feel that the increase jeopardised the economics of the project.

Mitsubishi Corporation leads a consortium that includes Mitsubishi Gas Chemicals, local partner Massy Holdings Ltd and Integrated Chemical Company Ltd (ICCL), a Texas, United States-based company.

Negotiations were led by Mitsubishi Corporation for the project, the first phase of which will involve a total investment of US$950 million and will be situated in the Union Estate Industrial Park near La Brea in south Trinidad.

The first stage of the Methanol to DME project will produce one million metric tonnes per year of DME.

During phase two the Mitsubishi consortium will consider the production of mono ethylene glycol, (MEG) from Syngas and or ethane extraction. MEG can be used to can be used to develop additional downstream products like automotive coolants, polyester fiber and PET resins.

In introducing the project to the Energy Chamber in 2013, Massy chief executive officer Gervais Warner had touted the construction of the plant as one that will be environmentally friendly.

“This is a methanol-to-DME plant. Methanol is produced in this country already. It is what we call a clean fuel. DME is another green fuel. I would expect the environmentalists will be really encouraging us to do this.”

Warner added: “One of the applications is that it is a substitute for diesel. I would expect that any environmentalist will want to see as much DME replace diesel in T&T because we do not have the cleanest burning diesel. We have that grey black smoke diesel that we see on our highways. Won’t it be fantastic to see less of that and more of clean fuel on our nation’s highway? I hope they can see this is a good.”

During the construction phase, the project is expected to create 3000 temporary jobs and when completed 180 permanent opportunities.

BG has also been told that the issue of the water supply to the plant has now been agreed to between the Water and Sewerage Authority and the consortium. Sources said that Mitsubishi wanted to have its own desalination plant to provide cooling water to the plant. They had argued that the project would ensure they did not take the precious commodity away from the residents while, at the same time, ensuring reliability of supply. This led to a virtual standoff between WASA and the consortium with the utility assuring that it could pump the water from the Beetham Waste Water Treatment plant to La Brea without hurting the supply to the residents.

Eventually Environment and Water Resources Minister Ganga Singh and the Energy Minister had to step in and the matter has been resolved.

A certification of environmental clearance is all that now stands in the way of the final investment decision being made. This is expected to be done by January 2015.

 

Source:
Trinidad Guardian, BG7
Thursday December 18, 2014