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UPDATE 2-Pemex to build refinery after outside firms balk at price tag - Lopez Obrador

Diego Oré

Lopez Obrador@ (Adds details on project, background)

MEXICO CITY, May 9 (Reuters) - Mexican state oil company Pemex will oversee construction of a new refinery, President Andres Manuel Lopez Obrador said on Thursday, after a host of private firms invited to bid on the project balked at the government-set $8 billion price tag.

Lopez Obrador told reporters at his regular morning news conference that the firms also could not meet the government's three-year construction time frame, but Pemex could.

The decision is a notable setback for the president's five-month-old administration, which had touted its decision to turn the refinery over to international firms with a proven track record of completing similar projects elsewhere.

En route to his landslide election victory last year, Lopez Obrador pledged to lessen Mexico's dependence on fuel imports by revamping Pemex's six existing domestic refineries as well as building the new facility.

The new refinery would be Pemex's largest, with a planned capacity to process 340,000 barrels per day of heavy crude.

Lopez Obrador told reporters the refinery will be built "with the coordination, administration and supervision" of Pemex and the energy ministry. He said construction will begin in early June and be finished by May 2022.

Lopez Obrador's six-year term ends in late 2024.

His government has already dedicated nearly $2.5 billion in this year's budget to the project as well as another $245 million to improve operations at Pemex's existing refineries.

The firm's refining division has been its biggest source of losses for years, due in large part to insufficient maintenance and chronic accidents at the aging facilities, which currently operate at less than 40 percent of capacity.

In March, the government invited a host of international firms to bid on the construction of the refinery in the Gulf Coast state of Tabasco at the port of Dos Bocas.

Lopez Obrador said none of the bidders met the requirements for the tender, especially the $8 billion budget cap. Many energy analysts have criticized the budget as too low.

"It will cost us much less than the companies estimate," said Lopez Obrador.

Pemex is the world's most indebted oil company and credit rating agencies have recently warned that the refinery's cost raises significant financial concerns for the company. (Reporting by Diego Ore; Writing by Julia Love; Editing by Jeffrey Benkoe)