Five state-owned firms to sign MoU for equity financing of Saudi-backed refinery

ISLAMABAD: Five state-owned enterprises (SOEs) will sign a memorandum of understanding (MoU) on Thursday (today) to finance their equity share in a $10-11 billion greenfield refinery project that will be jointly developed with Saudi Aramco, a senior energy ministry official said.

The MoU will show Pakistan's commitment to the project, which aims to set up a state-of-the-art deep conversion refinery with a capacity of at least 300,000 barrels per day (bpd) at Hub in Balochistan province.

The MoU will be signed by Pakistan's Oil and Gas Development Company Limited (OGDCL), Pakistan State Oil (PSO), Pak-Arab Refinery Limited (PARCO), Pakistan Petroleum Limited (PPL), and Government Holdings Private Limited (GHPL).

The MoU will be valid for three years and will entail regular meetings and a steering committee to monitor progress. The project-related costs will be proportionately divided among the parties as equity partners, the official said.

All SOEs will be responsible for project approvals, due diligence, and maintaining confidentiality, and the potential third-party negotiations for project sponsorship will be done during the MoU's validity.

The refinery, which will produce 8 million tonnes of diesel and 6 million tonnes of gasoline with Euro 5 specifications per year, will be established under the newly approved green refinery policy that offers incentives such as a 7.5 percent deemed duty for 25 years and a tax holiday of 20 years.

The project will be financed on a 30:70 equity-loan ratio, with Pakistan and Saudi Aramco each contributing 15 percent of the equity. Saudi Aramco, one of the world's biggest oil companies, will lead the project in arranging the loans. Saudi Aramco would provide $1.5 billion as equity and the same amount would be arranged from Pakistan.

The official said the outgoing coalition government had increased the pace of talks with Saudi Arabia for an umbrella agreement to materialize the project, which is expected to boost Pakistan's energy security and reduce its import bill.

Saudi Arabia wants China to be part of the project and build it, and that Chinese banks would also be ready to provide loans for the project the official added. "Saudi Aramco is a serious player in the world, so various financial institutions would easily come up with offers for loans."

"Saudi Aramco has already conducted the pre-feasibility study and marketing assessment, and now it will conduct the feasibility study of the project prior to launching it. China will also be on board for the mega project, which would help de-risk the investment of the Kingdom of Saudi Arabia," the official said.

The planned green refinery will be allowed to sell its products to any marketing company in the country or export surplus products subject to approval from the Oil and Gas Regulatory Authority (OGRA).

The refinery can also export products with specifications that do not have domestic demand under intimation to OGRA and the Ministry of Energy and Petroleum Division (MEPD).

Pakistan's oil refining capacity is about 450,000 bpd, equivalent to 20 million tonnes per annum. However, the actual capacity utilization is at around 11 million tonnes due to the decreasing demand for furnace oil in the country as a result of a change in the energy mix in the power sector.

Pakistan's demand for motor gasoline and high speed diesel is expected to reach 33 million tonnes per annum by 2035, according to an international consultant. The country has been importing significant volumes of petrochemicals, worth more than $2 billion annually, as there is no primary petrochemical production facility in Pakistan.