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Thursday March 28, 2024

Mega refinery to be set up by KSA PM seeks update on refining poliy

By Khalid Mustafa
December 12, 2022

ISLAMABAD: Prime Minister Mian Mohammad Shehbaz Sharif, while showing concern about the inordinate delay in updating the refining policy draft required to allure investment from the Kingdom of Saudi Arabia in the much-touted $10.5 deep conversion refinery, has directed the top mandarins of the Energy Ministry to update him on the refining policy.

According to official documents, the PM has also summoned meetings on a strategy to deal with gas shortage and gas procurement options and mechanism on how to replace expensive imported fuel with local fuel in power plants. “The crucial meetings on the above-mentioned subjects are to be held tentatively in the current week with the prime minister in the chair,” a senior official of the Energy Ministry told The News.

“The dates of meetings are still open-ended but these may be held in the current week depending upon the official engagements of the prime minister.”

The experts, the official said, from both the countries have been engaged in talks over the structure of the refinery, including issues like deemed duty and tax holidays. Mohammad Bin Salman, the Saudi Crown Prince, was earlier scheduled to visit Islamabad on November 21, 2022, but postponed his trip. During the visit, apart from investment in the deep conversion refinery, MBS was to announce a bailout package of $4.2 billion for Pakistan.

The $10.5 billion state-of-the-art deep conversion refinery would be built under 70:30 loan equity ratio and Saudi Aramco would share 30 percent equity with Pakistan State Oil (PSO) on a 50 percent basis. The EPC mode would be adopted to complete the project, and a Chinese company will also be a part of the refinery project.

Saudi Arabia has communicated that until and unless Pakistan extends the 7.5 percent deemed duty on gasoline and diesel for 25 years, along with a 20-year tax holiday, it will not invest in the refinery.

Pakistan is left with no option but to agree to the demand of Saudi Aramco. And the incentives sought by Saudi Aramco are needed to make part of the refining policy draft, which would be later on approved by the cabinet committee on energy (CCoE) and then the federal cabinet to ensure investment from Saudi Aramco. The prime minister wants an update in the refining policy as per the incentives asked by Saudi Aramco, so that both the countries could advance on the mega project.

However, the authorities said that if the Saudi conditions were accommodated, then there will be a serious impact on the country’s revenue on finished POL and crude oil. Saudi Arabia has also asked for waiver of the customs duty already imposed at 5 percent on the import of crude oil for the refinery.

Earlier, Pakistan offered 10 percent deemed duty for the first 10 years of the operational project and 10 years of tax holiday, but the Kingdom refused to budge from its conditions.

“We are still working on different scenarios to be offered to KSA,” said one of the top officials who remained part of the talks with Saudi Aramco.

“The mega project of 350,000-400,000 barrels per day capacity would be built on EPC (engineering, procurement, construction) mode. And 70 percent of the cost of the project is to be arranged through loans.

“Saudi Aramco would provide $1.5 billion as equity and the same amount would be arranged by Pakistan State Oil.”

“Saudi Aramco and PSO would finance $3 billion equity ($1.5 billion each) and the rest of the amount would be arranged through loans under EPC mode,” the official added. “Once Saudi Aramco becomes part of the project, then many international players would easily join the project and IFIs and banks of Saudi Arabia and China would be ready to provide loans.” The official also revealed that the government has decided to ban new power plants on imported fuel and will add new capacity in electricity generation based on local fuel, such as Thar coal, wind, solar, and hydel. However, the government will continue the policy to install more nuclear power plants. The prime minister will also be briefed on the action plan of converting the power plants based on imported coal onto Thar Coal. The government has also decided to convert the existing imported coal-based power plants of 3,960 MWs, including the Port Qasim Coal Power plant, Sahiwal Coal Power Plant and China Hub Coal Power Plant, each having capacity to generate 1,320 MW of electricity.

This initiative is being taken to scale down the fuel import bill and reduce the reliance on imported fuel for power generation. The minister said the process to convert the said three projects to local coal will take investment and time as the boilers of the said plants will need some specific changes for calibration with Thar coal.

The prime minister has also asked for a strategy to be adopted on gas procurement options and to cope with the gas shortage. The LNG producing countries have already communicated to Pakistan that they will be able to provide gas on a long-term basis after 2025-26 as the LNG is over-committed with the EU countries.

The government is left with no option but to implement the third-party access rules and allow the private sector to import LNG by utilising the excess capacity of both LNG terminals.

Moreover, with 600mmcfd capacity, the PGPCL LNG terminal has been bought by Pakistan LNG Limited which remains underutilised by 300-400 mmcfd most of the time. The PLL needs to hand over its under-utilised capacity to the private sector, so that it could import LNG and share the capacity payment burden of PLL. However, the PTI government and coalition government have so far failed to utilize the access capacity of both LNG terminals and underutilized capacity rests with one terminal. “Red-tapism is the hurdle in the way of plucking low hanging fruits.”