- The Edge reported today that Petroliam Nasional (Petronas) may not be able to reach its final investment decision (FID) for the proposed RM60bil Refinery and Petrochemicals Integrated Development (RAPID) by 31 March this year due to the unresolved relocation issues of the fishing community and burial sites in Pengerang, Johor.

- The financial magazine indicated that most of the villagers in the area are reluctant to relocate but quoted another source which insisted that the project is still going ahead as scheduled.

- Recall that RAPID involves a crude oil refinery with a refining capacity of 300,000 barrels-per-day, a naphtha cracker with a combined annual production capacity of 3 million tonnes of ethylene, propylene, olefins and a further development of 22 mini petrochemical complexes.

- The earlier FID deadline for RAPID was mid-2013 but it was postponed to 1Q2014, with project completion delayed from late 2016 to late 2017-2018. The project has been complicated by a need to secure water supplies as well as to cater for proposed international partners.

- Petronas has yet to award the engineering, procurement and construction jobs, although preparation work for the site started on 18 October 2012 with earth clearing works awarded to Gadang Holdings. It is expected to award 20 construction job packages valued at RM2bil-3bil each.

- In our view, delays for such a massive project would not be surprising given that upstream project rollouts undertaken by Petronas and other international oil companies have experienced deferrals given the engineering complexities and cost escalations.

- But given that this massive project is a cornerstone of the Prime Minister’s Economic Transformation Programme for Southern Johor while Petronas has already started clearing part of the 2,000 ha site, we remain confident that RAPID will eventually be given the go-ahead even though postponements will occur.

- When the FID is finally reached, we expect a rapid rollout of multiple awards as Petronas has already sought price quotations for equipment, components and civil packages from multiple contractors and suppliers.

- The possible prime beneficiaries for these awards are fabricators such as Malaysia Marine & Heavy Engineering Holdings (MMHE), and SapuraKencana Petroleum. Other beneficiaries will be Dialog Group, which would then be able to kick off the second phase of its Pengerang tank terminal project. To a lesser extent, equipment suppliers such as KNM Group could also secure smaller packages.

- This development does not change our view of the sector. As mentioned in our earlier reports, even though 1Q2014 new orders are likely to temporarily slow down QoQ due to the complexities and implementation timelines of field developments, fresh roll-outs of Malaysia’s multiple enhanced oil recovery projects will continue to underpin the overall upward momentum trend. We maintain our OVERWEIGHT call on the sector with our BUY calls for SapuraKencana Petroleum, Alam Maritim, and Bumi Armada. Our HOLD recommendations are Petronas Gas and Dialog Group.

Source: AmeSecurities