ISLAMABAD:
A Chinese investment firm has committed $1 billion to Pakistan Refinery Limited (PRL) for its upgrade project, aimed at significantly enhancing the refinery’s production capacity.
However, the Chinese company has stipulated that the deal must remain free of any government involvement, expecting PRL to repay the loan in dollars without interference.
Currently, the State Bank of Pakistan (SBP) allows the private sector, including refineries, to retain dollars for investments, but the Chinese company has requested that any restrictions be removed to ensure seamless loan repayment. The firm emphasized that there should be no barriers to remitting dollars back to China.
Sources from the Petroleum Division disclosed that PRL has assured the Chinese firm that it will secure the necessary dollars through petroleum exports, which will be used to pay back the loan. Additionally, China Export & Credit Insurance Corporation (SINOSURE), a state-owned entity promoting China’s foreign trade, also insisted on no government involvement in managing the dollar repayments.
PRL is currently working on an upgrade to double its production capacity from 50,000 to 100,000 barrels per day. The refinery has signed an agreement with China’s United Energy Group (UEG) to undertake this significant expansion.
The project aims to meet local demand, transition from basic hydro-skimming to deep conversion processes, and produce Euro 5-compliant high-speed diesel (HSD) and petrol, phasing out loss-incurring furnace oil production.
Following the expansion, PRL expects its motor spirit output to increase from 250,000 tonnes to 1.5 million tonnes annually, while HSD production is projected to rise from 600,000 to 2 million tonnes per year.
The collaboration between PRL and UEG was formalized through a memorandum of understanding (MoU) on October 18, 2023, in China, establishing a strategic partnership in Pakistan’s energy sector.
In another development, PRL has signed licensing agreements with industry leaders Honeywell UOP and Axens to produce Euro 5 standard fuels. PRL and other refineries are also set to sign a supplemental agreement with the Oil and Gas Regulatory Authority (Ogra) under the new refinery policy.
However, the Cabinet Committee on Energy (CCOE) extended the deadline for signing these agreements, initially set for April 22, 2024. PRL, Attock Refinery Limited (ARL), and National Refinery Limited (NRL) have agreed to the terms, while Pak Arab Refinery (Parco) and Cnergyico PK have requested more time.
Combined, ARL, NRL, and PRL plan to invest $3 billion in their upgrades, with the total investment reaching $6 billion once Parco and Cnergyico join. The recently amended “Pakistan Oil Refining Policy for Up-gradation of Existing/Brownfield Refineries 2023” has been implemented to support this effort, offering financial incentives to refineries upgrading to produce Euro-V fuels and reducing furnace oil output.
The policy provides a 2.5% incremental incentive on HSD and a 10% incentive on petrol for seven years, with funds managed by Ogra in an escrow account, covering up to 27.5% of the plant upgrade costs after achieving financial close and meeting milestones.
