On the backburner: Khalifa Refinery delayed because of circular debt

Pakistan to lobby Abu Dhabi government which wants PARCO’s dues cleared.

ISLAMABAD:

As the work on multibillion dollars Khalifa Coastal Oil Refinery (KCR) project slows down due to circular debt, Prime Minister Yousaf Raza Gilani will take up matter of delay before Abu Dhabi government, a move to expedite work on proposed refinery located in Baluchistan province.

Sources told The Express Tribune that the Khalifa Refinery was to undergo testing by end December 2012 but now it didn’t seem likely due to delay in initiating work on it apparently due to circular debt. The Abu Dhabi government had put work on the refinery project on hold in January 2009 due to global recession but now circular debt had become major reason for another delay.

Khalifa Refinery, located in Balochistan will be the largest oil refinery of the country with 250,000 barrels per day oil refining capacity  and will cost $6 billion. The project is a joint venture between Pak Arab Refinery Limited (Parco) and International Petroleum Investment Company (IPIC).

Parco is also a Joint venture between the government of Pakistan and the Emirate of Abu Dhabi with a 60 and 40% shareholding.

In KCR, IPIC will have the majority shareholding at74 per cent whereas Parco will have 26 per cent. A joint company will be formed to implement Khalifa Coastal Oil Refinery (KCR) project.

As on November 22, PSO was to pay Rs156.2 billion to local as well as international fuel suppliers against receivables of Rs178.36 billion from the power sector and some other clients. Out of this PSO has to pay Rs35.82 billion dues to Parco on account of fuel supply.

“The management of IPIC has reservations over receivables stuck in state run oil marketing company Pakistan State Oil (PSO) under circular debt,” sources said adding that the Abu Dhabi government wants to first resolve the issue of clearing these PSO dues before moving ahead on Khalifa Refinery project. When contacted Petroleum secretary Ijaz Chaudhry said that circular debt was creating problems in launching work on refinery project and Abu Dhabi government wanted these dues cleared. He said also said, “The prime minister has been requested to take up this issue with the Abu Dhabi government,” he added.

The proposed refinery will have a capacity to refine 13 million tons of petroleum products per annum and the government of Pakistan has allotted 1000 acres of land for the project in Baluchistan province.

Published in The Express Tribune, November 23^rd, 2011.