EPC selection delays Merak jv

31 March 1997 00:00  [Source: ACN]

THE joint-venture agreement for the Merak cracker project in Indonesia has been held up by discussions over the method of selection of the engineering, procurement and construction contractor, a potential investor told ACN. However, this is not expected to delay the project.

'The common goal for both parties is to reach an agreement as soon as possible,' the source said. The 700 000 tonne/year cracker is expected to start operations in early 2001, he reconfirmed.

BP Chemicals has been pushing for an 'alliance concept' which it believes will have great potential to reduce costs, the source said. But the Japanese partners are uneasy about the new method of selection as the final project cost is not fixed. They would prefer to keep to the conventional method of awarding a fixed-cost turnkey contract.

Moreover, the financial advisors jointly appointed by all the potential partners are unlikely to accept the method. It will be very difficult to get loans from the major financial sponsors, said the source. 'The alliance concept involves selection of the contractor based on a target-cost estimate. However, the final project cost is not fixed. It may reduce but may also increase the final project cost,' he said. BP was unavailable for comment.

Finalisation of the joint venture was expected before the end of this financial year. A much clearer view will emerge at end-April, the source said. He expects BP to compromise in view of possible opposition from the financial side.

BP, Salim Chemicals, Sumitomo Corp, Tomen Corp, Nichimen Corp and Mitsui & Co signed an MoU for the cracker joint venture in January (ACN 20 Jan, p29). BP is leading the feasibility study and will operate the complex if the project goes ahead. It is expected to offtake 300-350 000 tonne/year of ethylene from the cracker.

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