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C O N F I D E N T I A L PANAMA 000122 
 
SIPDIS 
 
EEB/ESC/IEC/EPC MCMANUS 
 
E.O. 12958: DECL: 02/05/2019 
TAGS: ENRG EINV ECON EIND EPET PM
SUBJECT: PANAMA: REFINERY ON HOLD DUE TO WORLD ECONOMIC 
CONDITIONS 
 
REF: 2008 PANAMA 000790 
 
Classified By: Ambassador Barbara J. Stephenson for reasons 1.4 (b) and 
 (d). 
 
 ¶1. (U) This cable contains sensitive proprietary business 
information concerning on-going negotiations.  Please handle 
accordingly. 
 
SUMMARY 
 
¶2. (C) Occidental Petroleum (OXY) and Qatar Petroleum (QP) 
representatives privately informed the Ambassador their firms 
are putting on hold (not canceling) the $15 billion proposed 
Puerto Armuelles Refinery due to the lack of "viability" 
stemming from global economic conditions.  The reps stressed 
that freezing the status of the refinery was not specific to 
Panama or the Government of Panama (GOP), but motivated by 
global economic conditions.  The GOP was praised for its 
receptiveness to the project. 
 
NOT VIABLE DUE TO GLOBAL ECONOMIC CONDITIONS 
 
¶3. (C) OXY executives Antonio D'Amico, Assistant General 
Counsel, and Hasham Mukadam, Corporate Director of Midstream 
Projects and President of OXY, along with Ali Al-Sidiky, 
Director of Downstream Ventures of QP informed Ambassador 
Stephenson on February 6 that OXY and QP just informed GOP 
Minister of Commerce and Industry Gisela Porras that the 
proposed $15 billion Puerto Armuelles Refinery is "not 
viable" at this time due to global economic conditions.  As a 
result, OXY and QP will not proceed to the $100 million Front 
End Engineering and Design (FEED) phase of the project. In 
Summer 2009, OXY and QP made the identical decision not to 
proceed from the pre-FEED to FEED phase.  (See REFTEL for a 
full description of the project and its relationship to the 
PTP pipeline which will be in full reverse flow operation in 
August 2009, according to a recent conversation with the 
General Manager of PTP.) 
 
¶4. (C) The OXY and QP reps explained the project could not 
move forward due to the erosion of the profit margin caused 
by the following factors: 
 
A) The price of petroleum has fallen by over 60% since July 
2008 highs. 
B) The projected price to build the refinery escalated too 
much during the recent commodity boom and construction prices 
have not fallen in proportion to the fall in commodity 
prices.  In addition, the refinery construction also relies 
on specialized materials which have not fallen in price. 
C)  Financing is either unavailable or prohibitively 
expensive. 
D)  Demand for refined petroleum products has fallen in the 
United States market (which is the primary market for the 
products of the refinery).  Additionally, Europe may be 
selling excess gasoline to the United States market in the 
future, because even more European gasoline powered vehicles 
are switching to diesel. 
 
¶5. (C) OXY and QP reps reaffirmed that the actions by the 
Government of Panama (GOP) did not affect the project's 
viability.  The GOP was described as "eager" and relations 
remain "friendly."  The hold on the refinery is not public 
while OXY and QP wait for the GOP to develop talking points 
on the status of the project.  Al-Sidiky also mentioned that 
Qatar and Panama are in discussions to open Embassies in 
their respective countries.  Al-Sidiky is a member of the 
government and reports directly to the Minister of Energy. 
 
STATE OF QP PROJECTS 
 
¶6. (C) According to Al-Sidiky, QP's economists are not able 
to predict future economic conditions with certainty due to 
the confluence of unprecedented bad economic events in every 
region of the world.  As a result, QP is re-evaluating 
strategic priorities.  Four to five major QP projects have 
been canceled outright - some already had $200 million in 
sunk costs.  Additionally, other projects are being slowed 
down and some, like the Puerto Armuelles Refinery, are on 
hold. 
 
FUTURE OF PUERTO ARMUELLES REFINERY 
 
¶7. (C) On December 31, 2008, the Memorandum of Understanding 
(MOU) between the GOP, OXY, and QP expired.  The GOP must now 
decide if they want to extend the agreement.  OXY and QP 
asserted the GOP wishes to extend it due to the benefits of 
the refinery for Panama.  During a brief conversation, 
Minister Porras informed the ECON Counselor that the OXY/QP 
decision was not unexpected and that the GOP has not yet 
decided on whether to extend the MOU due the exclusivity 
granted to OXY/QP.  She mentioned other interested parties, 
but did not specify further.  OXY and QP plan to re-assess 
the project next year.  The re-assessment was characterized 
as a normal procedure for all QP projects regardless of the 
phase of negotiation or completion. 
STEPHENSON