Islamabad, October 17, 2024: Pakistan Refinery Limited (PRL) has secured a $1 billion investment from a Chinese investment organization for its upgrade project, doubling the refinery’s production capacity.
The Chinese company has stated clearly, however, that it does not want the government involved in the transaction and that it expects PRL to pay back the money in dollars free from regulation or interference.
The State Bank of Pakistan (SBP) currently allows refineries and other private companies to hold onto dollars for investment purposes.
The Chinese company has asserted that these restrictions should be removed to guarantee a seamless loan repayment process. The company emphasized that sending money back to China should be free of any barriers.
Sources in the Petroleum Division disclosed that PRL promised the Chinese Investment Corporation that it would produce the necessary dollars by exporting petroleum products, which would be utilized to reimburse the Chinese company.
Furthermore, the state-funded China Export & Credit Insurance Corporation (SINOSURE), an insurance provider founded to support China’s international commerce and economic collaboration, has also demanded that the government refrain from interfering with the supply of dollars.
PRL is working on an upgrade project that will double its production capacity, reaching 100,000 barrels per day from the existing 50,000 barrels per day.
An agreement between refineries and China’s United Energy Group (UEG) has already been signed to start this major expansion and modernization project.
This project’s important goals are to meet domestic consumer demand, generate motor spirit (petrol) and high-speed diesel (HSD) that comply with Euro 5 regulations, and switch from a basic hydro-skimming method to a deep-conversion process. By doing this, the refinery will gradually stop producing furnace oil, which has been losing money.
PRL’s dedication to creating cleaner, greener fuels to meet the expanding market demand is align with this calculated strategy.
PRL currently produces 250,000 metric tons of motor spirit each year. This output is expected to reach 1.5 million metric tons after the expansion.
The output of HSD is also expected to increase from 600,000 tons annually to almost 2 million tons.
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On October 18, 2023, PRL and UEG signed a memorandum of understanding (MoU) in China, formally establishing their partnership.
According to this Memorandum of Understanding, both companies stated their intent to form a strategic partnership based on shared interests in Pakistan’s energy industry.
This partnership is expected to significantly improve Pakistan’s energy sector’s expansion and development, fostering a sustainable and ecologically conscious energy environment.
In a recent move, PRL has signed licenses with Honeywell UOP and Axens, to manufacture Euro 5-compliant gasoline and diesel.
The new refinery strategy also called for PRL and other refineries to sign a supplemental agreement with the Oil and Gas Regulatory Authority (Ogra).
However, the Cabinet Committee on Energy (CCOE) granted an extension for refineries to sign the implementation agreements required for their upgrades.
Previously, the deadline for signing these agreements was scheduled for April 22, 2024. Attock Refinery Limited (ARL), National Refinery Limited (NRL), and PRL were the three refineries that had committed to signing the agreements by the deadline; however, Cnergyico PK and Pak Arab Refinery (Parco) asked for more time.
When Parco and Cnergyico join the project, the combined investment of ARL, NRL, and PRL’s $3 billion in plant upgrades will reach $6 billion.
Notification of the revised “Pakistan Oil Refining Policy for Upgrade of Existing/Brownfield Refineries 2023” has already been sent out ahead of its implementation. This policy attempts to reduce the output of furnace oil while upgrading existing refineries to generate Euro-V fuels.
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The policy provides a 10% reward on gasoline in the form of deemed duty for seven years and a 2.5% incremental incentive on HSD on top of the current 7.5% incentive.
Once financial closing and spending milestones are achieved, refineries can withdraw the considered duty from an escrow account that Ogra maintains to cover up to 27.5% of the cost of plant renovations.