Friday May 17, 2024

Pakistani firms sign MoU to collaborate on $10bn refinery project

300,000bpd refinery to be set up in Gwadar; PSO has 30pc shareholding while PPL, OGDC and GHPL have 5pc each

By Israr Khan & Khalid Mustafa & Saif Ur Rehman
July 28, 2023
This handout photo released by the Iraqi prime minister´s office on April 1, 2023, shows a view of installations at the Karbala oil refinery in the eponymous governorate, on the date it launched operations.—AFP
This handout photo released by the Iraqi prime minister´s office on April 1, 2023, shows a view of installations at the Karbala oil refinery in the eponymous governorate, on the date it launched operations.—AFP

ISLAMABAD: Pakistan is currently in an advanced stage of negotiations with Saudi Arabia to establish a refinery in Balochistan, capable of processing 0.3 million barrels per day, according to State Minister for Petroleum, Musadiq Malik. The minister stated on Thursday that the negotiations are nearing final stages.

After the signing of a Memorandum of Understanding (MoU) for the Greenfield Refinery Project on Thursday, Pakistan’s State Minister for Petroleum, Musadiq Malik, confirmed the development on Thursday.

The MoU was inked by four state-run Pakistani companies, Pakistan State Oil (PSO), Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), and Government Holdings Private Limited (GHPL).

Under the agreement, the four entities will be contributing equity shares towards the construction of a cutting-edge deep conversion refinery at the strategic Gwadar Port in Balochistan. The ambitious project is estimated to cost between $10 to 12 billion and aims to establish a state-of-the-art facility with advanced refining capabilities.

The Greenfield Refinery Project in Balochistan is set to be a joint effort between Pakistan and Saudi Arabia, according to recent statements. Additionally, discussions are underway to include China and Azerbaijan in the project, making it a potential multinational collaboration, the minister said.

Moreover, with the anticipated participation of China and Azerbaijan, the venture is poised to become a significant initiative with contributions from multiple nations. Further details regarding the extent of China’s and Azerbaijan’s involvement are yet to be disclosed.

The minister revealed that the Greenfield Refinery Project at the strategic Gwadar Port in Pakistan has a net present value (NPV) exceeding $16 billion. The project boasts an Internal Rate of Return (IRR) above 15 percent, and it is anticipated to achieve a payback period of five years.

This marks a historic collaboration among these four leading Pakistani state-owned companies for the Greenfield Refinery Project. They will join forces through a joint investment strategy. The project is set to attract significant foreign investment from world-class oil and gas giants through equity participation.

The vision for the project involves establishing an integrated refinery petrochemical complex in Pakistan with a minimum crude oil processing capacity of 300,000 barrels per day (BPD). The complex will encompass various components, including marine infrastructure, a petrochemical complex, crude oil and refined product storage facilities, pipeline connectivity, and other essential utilities.

During his opening remarks, Secretary Petroleum Captain (R) Muhammad Mahmood highlighted the salient aspects of the Greenfield Refinery Policy and emphasised the Petroleum Division’s unwavering commitment to the development and growth of the petroleum sector.

Meanwhile, Pakistan has received positive indications from China, Azerbaijan, and the UAE for becoming part of the $10-11 billion Saudi-backed state-of-the-art deep conversion refinery. Once the mega refinery is established in Balochistan, it will produce 8 million tons of diesel and 6 million tons of gasoline with 5-Euro specifications per year.

“The China Road and Bridge Corporation (CRBC) has emerged as a potential contractor for the refinery along with funding from China. On Thursday, it signed MoU with the government to construct the mega Saudi-backed refinery of $10-11 billion in Pakistan based on the CPC-F model,” a senior official of the Ministry of Energy told The News. “Pakistan’s government is also in extensive talks with Saudi Aramco for the petrochemical complex.”

“More importantly, CRBC has also shown interest to get a share in equity for the project. Azerbaijan also indicated to attain a share in the equity. Pakistan’s government has made up its mind to have a 50-70 percent share in the 30 percent ($3 billion) equity in the project as the refinery is to be constructed based on a 30:70 equity-loan ratio.”

The remaining amount of $7 billion loans, the official said, will be arranged by Saudi Aramco through international financial institutions (IFIs). Besides, the CRBC as a contractor of the project would also arrange loans from Chinese banks under the Engineering, Procurement, and Construction (EPC-F) model.

“Out of 30 percent ($3 billion) equity, Saudi Aramco is reported to have shown a willingness to share 50 percent equity ($1.5 billion) and the remaining 50 will be from Pakistan. Out of the remaining 50pc, PSO will be having a share of 25-30 percent and OGDCL, PPL, and GHPL will have a 5 percent share each. However, Pak Arab Refinery Company (Parco) which is a joint venture with the UAE didn’t sign MoU as it will sign it with PSO later on after approval by its forging stakeholders. ADNOC — Abu Dhabi National Oil Company of UAE is also said to have shown its mind to get a big share in equity. It is yet to be seen if ADNOC gets its share in equity on its own or through Parco.”

Keeping in view Azerbaijan and ADNOC’s increasing interests in equity, Pakistan’s local state-owned enterprises may squeeze their shares in equity. However, keeping in view the profit in dollars terms, PSO is inclined to increase its equity in the project by more than 30pc, which may go up to $1.2 billion. OGDCL, which has signed for 5 percent shares in the country’s equity, is also inclined to increase its investment for returns in dollars.

Thursday’s signing of the MoU between four state-owned enterprises and an MoU with CRBC has paved the way for the formal signing of the MoU with Saudi Aramco for its investment of $1.5 billion as equity.

The positive response from CRBC, Azerbaijan, and UAE’s ADNOC has increased the viability of the project mainly for Saudi Aramco which is the biggest player in the Middle East in the refining sector and will lead the project in terms of arranging 70 percent loans.

Saudi ARAMCO has already conducted the pre-feasibility study and marketing assessment and now it will conduct detailed feasibility of the project prior to launching the mega project. The Front End Engineering Design (FEED) will also be completed.

The new green refinery will be allowed to sell their products, as per minimum Euro 5 specification notified by the Petroleum Division from time to time, to any marketing company including their own affiliates in the marketing and distribution sector in the country. The refinery will be allowed to export surplus (with respect to domestic demand) petroleum products, subject to approval from Ogra. However, refineries can export the products with specifications that do not have domestic demand under intimation to OGRA and MEPD.

PSO has 30 per cent shareholding while PPL, OGDC and GHPL have five per cent each shareholding.