Investor will inject $1.5b into refinery to double its production capacity

ISLAMABAD:

State-run oil marketing company Pakistan State Oil (PSO) has agreed to sell its over 30% shareholding in Pakistan Refinery Limited (PRL) to a Chinese firm in a bid to attract an investment of $1.5 billion to double the refining capacity.

PRL, in which PSO is a major shareholder with a 63.6% stake, has inked an agreement with the United Energy Group (UEG) of China to embark on a transformative journey with plant expansion and upgrade.

The Chinese firm will invest $1.5 billion in increasing PRL’s production capacity by 100%. Against this capital injection, PSO is likely to offer a 30-35% shareholding to the Chinese company.

At present, PRL has a refining capacity of 50,000 barrels per day (bpd), which will be enhanced to 100,000 bpd following the Chinese investment.

Sources told The Express Tribune that the matter of offering the refinery’s stake was tabled before the PRL board of directors. They said that the board gave its nod to the sale of PRL stake to the Chinese firm.

design: mohsin alam

 

PSO is currently trapped in an unending circular debt as its receivables have swelled to over Rs700 billion. It entered into liquefied natural gas (LNG) purchase business in 2015 and also increased its shareholding in PRL.

In addition, it is part of a joint venture of Pakistani companies for developing a refinery project in partnership with Saudi Arabia.

Primary objectives of the refinery upgrade project are to meet domestic consumer demand, switch from basic hydro-skimming to a deep-conversion process and produce environmentally compliant Euro 5 high-speed diesel (HSD) and motor sprit (petrol). In the process, the refinery will do away with the production of loss-incurring furnace oil.

This strategic shift aligns with PRL’s commitment to producing cleaner and environmentally friendly fuels to cater for the growing market demand.

 

 

Currently, it produces 250,000 tons of motor spirit per year. However, with the expansion, the output is likely to increase to 1.5 million tons. Likewise, the production of HSD is expected to rise from around 600,000 tons per year to approximately 2 million tons.

PRL and UEG have formalised their collaboration through a memorandum of understanding (MoU) signed on October 18, 2023 in China.

Under the MoU, they have expressed the desire to establish a strategic cooperation relationship on the basis of mutual interest in the energy industry in Pakistan. They will enter into good faith negotiations to identify potential cooperation and collaboration opportunities including equity investment in PRL as a strategic investor (with adequate board representation) for the upgrade and growth of the refinery.

This collaboration between the two entities is anticipated to have a profoundly positive impact on the energy industry’s growth and development, ultimately contributing to a sustainable and environmentally responsible energy landscape in Pakistan.

In a recent development, PRL has signed licensing agreements with industry leaders Honeywell UOP and Axens for producing gasoline and diesel of Euro 5 specifications.

It came following the inking of an agreement with the regulator, the Oil and Gas Regulatory Authority (Ogra), to avail itself of incentives being offered in the new refinery policy.

In a recent notice issued to the Pakistan Stock Exchange, PRL said that for the plant upgrade project, it had chosen advanced technologies from Honeywell UOP for bottom-of-the-barrel conversion and naphtha processing.

This includes the Residue Fluidised Catalytic Cracking Process, LPG Merox process and a naphtha complex. Additionally, Axens has been selected to provide technology for producing gasoline and diesel of Euro 5 specifications.

PRL has also clinched a crude purchase agreement with Russia on a commercial basis with plans to bring first cargo this month.

PRL had been nominated as a procuring entity as per commitments made in the Pakistan-Russia Inter-governmental Commission meeting in January 2023.

It will purchase crude oil from Russia according to commercial terms, as agreed from time to time, without violating the international commitments of Pakistan and the international framework governing such transactions.

The refinery has already imported 100,000 tons of Russian Urals crude and processed it successfully. It also made a profit on that transaction.

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