Refinery to break even in 8 years: Merapoh

By Kamarul Yunus, BT
Published: 2009/07/28

Merapoh Resources Corp Sdn Bhd, which will develop a US$10 billion (RM35 billion) refinery in Kedah, expects to break even in as early as eight years after production starts, helped by demand and a 10-year tax holiday.

To be located in Sungai Limau, Yan, the 350,000 barrels a day refinery is due to start production by 2013 or early 2014.Merapoh founder and executive chairman Md Nazri Ramli said the company will make money from fees for processing the crude oil."Clients will pay a fee that is controlled per barrel to make sure there is enough money to pay to the bank or the investment, and enough to pay to operators and profit margin or dividends to the shareholders."We are also blessed with tax relief for 10 years by the federal government whereby the profit that we make will not be taxed until we recover our cost. This will enable us to pay dividends. It is a good incentive," he told Business Times in an interview in Kuala Lumpur last week.

Md Nazri explained that the gross profit margin for a refinery is normally about 20 per cent of the current price of crude oil."Anything below US$25 (RM88) per barrel of crude oil, then we will not make money. But our consultants have made a forecast that the price of crude oil will be in a stable range between US$75 and US$100 per barrel (RM265 and RM353)," he said.

On July 15, Merapoh signed a memorandum of agreement with the Kedah state government for the site, including an area to be reclaimed, and with South Korea's SK Group of Companies to build the plant.It has lined up China National Petroleum Co (CNPC) to buy the refined crude, while Saudi Aramco will be the crude supplier.Two other Chinese companies, the Hong Kong-listed Hong Kong Beijing Star Ltd and Winson Investment Ltd, will put up US$5 billion (RM18 billion) each to help fund the project.Beijing Star and Winson will hold 40 per cent each of the project, while Merapoh will have 20 per cent.

However, Md Nazri stressed that Merapoh will not be exposed to the swings in crude oil price as CNPC will buy the crude oil from Saudi Aramco. It will also ferry the oil to Kedah and ship the refined oil back to China.Md Nazri also did not rule out the possibility of floating the company, either on Bursa Malaysia or other exchanges in the region, but said it would only do so when the refinery was fully operational."But we cannot rule out if our financiers and partners want to do the IPO (initial public offering) early. We never know. But at this point in time, they said not yet."Merapoh, formed on September 9 2005, was set up as a special purpose vehicle for the refinery. Md Nazri owns 84.2 per cent of the company, while executive director Mohd Hassan Mansor holds 5 per cent. The remaining 10.8 per cent is held by Saiful Aswad Abu Bakar.