Russia unhappy with Pakistan’s slow progress on SPV

ISLAMABAD: Pakistan's plan to import Russian crude oil under a government-to-government (G2G) mechanism has hit a snag as Moscow is unhappy with the delay in setting up a Special Purpose Vehicle (SPV) to handle the payments and shipments, sources said on Monday.

A Russian delegation visited Karachi last week to discuss the quality and pricing of its Ural grade crude oil, but was not satisfied with the progress made by Islamabad in creating the SPV, which is essential for bypassing U.S. sanctions on Russia.

An official privy to the development told The News that the Russians also did not offer any special discount to Pakistan, which had hoped to get a lower price than the prevailing market rates for Ural crude.

"The government wants the supply of crude oil of 100,000 tons a month, knowing the fact that the evaluation report about its yields and commercial analysis is not up to the mark," one official said.

The government earlier managed a pilot cargo containing Russian crude of 100,000 tons, but the Pakistan Refinery Limited (PRL) will have to export 60,000 tons in the form of furnace oil at 75 percent of the crude, with a 25 percent loss.

More importantly, the PRL could only make 10 percent petrol and 15 percent diesel out of Russian crude.

The impact in the form of relief is only Rs0.25 per liter on petrol price, and if it is not extended to consumers, then per cargo the country's economy can have the benefit of $5-6 million.

However, the National Refinery Limited (NRL) has refused to be part of refining the Russian crude, and Pak-Arab Refinery (PARCO) has also communicated to the government that unless its board gives a nod, it cannot give any commitment to process some of the Russian crude volume.

Russian officials told Pakistani authorities that Ural is available in the international market and many countries are using it. Right now, Ural's price stands at $62 per barrel, which is over $60 per barrel—the price capped by G7 countries against Russia for its invasion of Ukraine.

And the Platts discount has decreased to just $8 per barrel. If the government continues to get the Platts price, then the relief end consumers in Pakistan can have at a maximum of Re0.25 per liter in price of petrol and diesel.

PRL in its preliminary report had communicated to the government that Pakistan's economy can have the benefit of $7.3-8 million, including its 20 percent refining cost and margin, and if it is totally passed on to the consumers, then they will have the relief of Rs1.30 per liter petrol price.

In the said report, it was mentioned that if NRL and PARCO are included for refining Russian crude, then relief to consumers will increase to Rs1.60 per liter.

In the report, it was also mentioned that 50 percent of France Oil produced out of Ural has a comparatively high viscosity at 700cSt, and PRL has to mix 10 percent diesel in it to decrease its viscosity to 180cSt so that it can flow. This is how furnace oil production escalates to 60 percent, and diesel production is slashed by 10 percent. Thus, net diesel production will stand at 10-15 percent out of Ural. PRL has too old technology and it cannot produce better results.

"The order was placed in April and the PRL is still in the process to refine the Russian Ural. During the 3-4 months, if the crude prices fluctuate, then nominal benefit can turn into a loss also."

PRL is blending 45 percent Ural, 45 percent crude from the Middle East, and 10 percent local crude. From Ural, PRL has produced 10 percent petrol, 60 percent furnace oil, 10-15 percent high-speed diesel, and 15 percent other items.