Fitch: Talara refinery would solve Petroperú’s cash flow problem

Fitch Ratings projected that Petroperú could overcome its cash flow problems with the operation of the New Talara Refinery (NRT). In this way, the agency noted, the state company could avoid the need for a second year of government support if its New Talara Refinery significantly increases the company’s cash flows. The NRT would be fully operational in 2023.

In the last days, Petroperu reported that as part of the last stage of the gradual, progressive and safe start-up process of the NRT, the commissioning of the fluidized catalytic cracking unit will begin in the coming days, to finally do the same with the Flexicoking unit, which is expected for June.

It is important to note that, as of early May, construction of the NRT was more than 98% complete and initial production of low sulfur distillates was underway. On April 14, the same risk rating agency assured that the completion of the Talara refinery “will drastically reduce the company’s capital investment after 2023; it will also increase operating efficiency. For its part, the predictable increases in margins refinery profit margins should translate into stronger ebitda revenue margins over the horizon of our rating on the company,” Fitch said.

One with a refined margin, and one without the margin

In December 2019, the Talara refinery suspended its operations in preparation for the NRT going live. In March 2020, COVID-19 arrived in Peru, which generated a negative impact, both in the period of time that the refinery had to come into operation and in the operating and financial costs due to the delay.

Added to this, in February 2022, Russia invaded Ukraine, which triggered refining margins (to which Petroperú had not accessed since 2019). In this sense, Humberto Campodónico, former president of Petroperú, specified that these refining margins in the world quadrupled and reached records, going from US$8 to US$9 per barrel, up to US$40 and US$50. To date, this margin is above US$28 per barrel.

“This exceptional margin was taken advantage of by all the refineries and importers in the world as Repsol, Valero or ExxonMobil; Instead, Petroperú imported fuel to sell fuel, without obtaining a refining margin. That is one of the main issues in the lack of liquidity in the year 2022,” he said.

For this reason, he asserted that this situation will end once the refinery enters in full, since the refining margin would be accessed and it will be possible to compete better. “In truth, Petroperú depends on the entry of the Talara refinery and the current situation must change. That is why those who criticize want to take advantage of the moment that the refinery is not at full value to discredit it and then privatize it,” Campodónico stressed.

Projected Ebitda for NRT

Although Fitch assumes that Petroperú will have ebitda of US$300 million in 2023, it also anticipates that the company will have the ability to refinance currently outstanding working capital bank lines. Instead, Arthur D. Little projects that NRT’s average ebitda will be $471 million.