Islamabad:
State oil marketing company Pakistan State Oil (PSO) has agreed to sell its more than 30% stake in Pakistan Refinery Limited (PRL) to a Chinese firm in a bid to attract $1.5 billion in investment to double refining capacity.
PRL, in which PSO is a major shareholder with a 63.6% stake, has signed an agreement with China’s United Energy Group (UEG) to embark on a transformational journey with plant expansion and upgrading.
The Chinese company will invest $1.5 billion to increase PRL’s production capacity by 100%. Against this capital injection, PSO is likely to offer a 30-35% stake in the Chinese company.
PRL currently has a refining capacity of 50,000 barrels per day (bpd), which will increase to 100,000 bpd after the Chinese investment.
Sources told The Express Tribune that the issue of offering the refinery stake was tabled before the PRL board. They said the board had given its nod to the sale of PRL’s stake to the Chinese firm.
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PSO is currently trapped in an endless debt cycle as its receivables have ballooned to over Rs 700 billion. It entered into a liquefied natural gas (LNG) procurement business in 2015 and also increased its stake in PRL.
In addition, it is part of a consortium of Pakistani companies to develop a refinery project in collaboration with Saudi Arabia.
Primary objectives of the refinery upgrade project are to meet domestic consumer demand, transition from basic hydroplaning to a deep conversion process, and produce environmentally friendly Euro 5 High Speed Diesel (HSD) and Engine (Gasoline). In the process, the refinery will phase out production of loss-making furnace oil.
This strategic shift is in line with PRL’s commitment to produce cleaner and environmentally friendly fuels to meet growing market demand.
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Currently, it produces 250,000 tons of motors per year. However, with the expansion, production is likely to increase to 1.5 million tonnes. Similarly, HSD production is expected to increase from around 600,000 tonnes per year to around 2 million tonnes.
PRL and UEG formalized their cooperation through a memorandum of understanding (MoU) signed on October 18, 2023 in China.
Under the MoU, they expressed their desire to establish a strategic cooperative relationship based on mutual interest in the energy industry in Pakistan. Good faith negotiations will be initiated to identify potential cooperation and collaboration opportunities, including an equity investment in PRL as a strategic investor (with adequate board representation) to upgrade and develop the refinery.
This collaboration between the two entities is expected to have a profoundly positive impact on the growth and development of the energy industry, 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 to produce Euro 5 petrol and diesel.
It came after an agreement was struck with the regulator, the Oil and Gas Regulatory Authority (Ogra), to take advantage of the incentives offered under the new refinery policy.
In a recent announcement issued to the Pakistan Stock Exchange, PRL said that for the plant upgrade project, it has selected advanced technologies from Honeywell UOP for bottom-of-the-barrel conversion and naphtha processing.
This includes the liquid residue catalytic cracking process, the Merox LPG process and a naphtha complex. In addition, Axens has been selected to provide technology for the production of Euro 5 petrol and diesel.
PRL has also entered into a crude purchase agreement with Russia on a commercial basis, with plans to bring in the first cargo this month.
PRL had been designated as the procuring entity as per the commitments made at the Pakistan-Russia Intergovernmental Committee meeting in January 2023.
It will purchase crude oil from Russia on commercial terms as agreed from time to time without prejudice to Pakistan’s international commitments and the international framework governing such transactions.
The refinery has already imported 100,000 tons of Russian Urals crude and processed it successfully. He also made a profit from this transaction.
Published in The Express Tribune, December 7u2023.
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