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Argentina's Chaco province and Empresa Nacional de Petróleo S.A. (Napesa) have signed a letter of intent for the construction of a refinery in Presidencia Roque Sáenz Peña, which is expected to begin producing fuel oil from 2009.

The refinery, which is expected to have a processing capacity of 30,000 cubic metres of crude oil per month, will produce a range of products including fuel oil, gasoil and asphalt.

Jorge Milton Capitanich, Governor of the Province of Chaco, said construction work on the facility is set to commence in September with production scheduled to start in March or April 2009.

In the letter of intent, the Province of Chaco confirms that it will create a fund to guarantee the provision of materials and services to construct and start up the refinery. The document also says that both parties agree to do everything possible to ensure that there is no interruption to the supply of crude oil for production.

Capitanovich added that the project was of "great strategic importance" as it would enable the province to have its own fuel supply and allow it to secure more competitive prices.

According to estimates, the refinery's 30,000 cubic metre processing capacity will enable it to produce approximately 14 million litres of gasoil, fuel oil and asphalt.

Fuel oil from the refinery is expected to be used primarily for power generation. Due to its location near the Paraná river, product could also theoretically be diverted for use in the marine fuels market. However, it is reportedly difficult for ships to navigate in the Chaco region compared, for example, to the Paraná route between Zarate and San Lorenzo.

With approximately 80 percent of the country's bunker deliveries being carried out between Buenos Aires and San Lorenzo, it would be logisticaly complex and expensive to divert fuel oil from the Sáenz Peña refinery in the north for use in the bunker market.