Italy's Saipem Wins $345 Million Contract to Build Gasoline Desulfurization Units for Pemex's Tula and Salamanca Refineries

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Researched by Industrial Info Resources (Sugar Land, Texas)--Italian engineering, procurement and construction (EPC) services provider Saipem SpA (OTC:SAPMY) (Milan, Italy) has secured a contract worth $345 million from Mexican state oil company Petroleos Mexicanos (Pemex) (Mexico City) to construct clean-gasoline units at the latter's oil refineries at Salamanca in Guanajuato and Tula in Hidalgo.

Saipem will develop two gasoline desulfurization units, each with a capacity of 160 tons per day, for the Miguel Hidalgo refinery in Tula and the Antonio M. Amor refinery in Salamanca to reduce the sulfur content of gasoline in accordance with Mexican environmental regulations.

Saipem won the contract in an international competitive bidding process, outbidding Samsung Engineering Company Limited (SEO:028050) (Seoul, South Korea), which quoted a price of $357 million, and ICA Fluor (Mexico City), a joint venture between Empresas ICA SA de CV (NYSE:ICA) (Mexico City) and Fluor Corporation (NYSE:FLR) (Irving, Texas), which quoted a price of $369 million.

This was the second bidding round conducted by Pemex after rejecting bids received under an open public international tendering process held in May last year. Saipem, Samsung and ICA Fluor were asked to submit renewed bids without modifying the original technical documents submitted for the earlier tender.

According to Pemex, Saipem was selected for the project on the basis of various factors, including costs, construction time for the new units, quality, and the amount of domestically produced materials that the bidder was willing to employ. Compared to Saipem's originial proposal, the current tender reduces construction time by nearly seven months, reduces the overall cost of the project and calls for the use of at least 40% of materials that are produced in Mexico.

The project is part of a $3.1 billion modernization plan proposed by Pemex in April 2009. The overall cost of the refinery upgrade had earlier been estimated at $2.2 billion. Subsequently, in May 2009, Pemex announced plans to invest $4.6 billion over a period of three years to upgrade the boiler units and reduce the sulfur content of gasoline produced at each of the company's six refineries, which have a combined refining capacity of 1.54 million barrels per day (BBL/d).

The upgrade project at Salamanca is scheduled for completion in 2014 and will enable Pemex to reduce its output of fuel oil by converting it to high-value products such as ultra-low-sulfur gasoline. Demand for fuel oil has been declining in Mexico after the government's efforts to convert existing power plants to operate on natural gas.

At Tula, Pemex proposes to develop a new $9.1 billion refinery with a capacity of 300,000 BBL/d to produce gasoline, diesel and jet fuel, all with low sulfur contents. The new refinery is scheduled to come into operation in 2015.

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