Revised: Cost of NRL projects hits $349 million

Board of directors approves signing of supply and construction contracts .

KARACHI:

The cost of National Refinery Limited’s (NRL) projects to improve quality of diesel and increase petrol output has increased to $349 million, up 44.2% from the previous estimate of $242 million.

NRL’s board of directors approved signing of supply and construction contracts for the two projects with China’s Hualu Engineering and Technology and National Chemical Engineering Construction, the company said in a notice to Karachi Stock Exchange on Friday.

These Diesel Hydro Desulphurisation (DHDS) and Isomerisation (ISOM) projects were already awarded to the Chinese firms by the board on August 14, 2014.



But at the time the estimated cost was said to be $242 million. The DHDS project will help NRL produce Euro-II specification diesel, which has sulphur content far less than the 0.5% in the diesel that is currently sold in Pakistan.

This is also part of government’s condition that has linked continuation of a subsidised pricing formula with improvement in the quality of diesel. The isomerisation project helps convert Naptha into higher margin petrol.

All refineries have been asked to undertake improvement but it is unlikely that they will be able to meet the December 2015 deadline.

The recent crash in crude oil prices, which has taken the petroleum product prices down as well, has put a strain of finances of the refineries in Pakistan.

But, unlike other oil refineries, NRL, which is part of the cash-rich Attock Group, has a lube business to fall back on during bad times.

NRL says that it has already “obtained the approval for the funding facility” of Rs24.2 billion from a consortium of local banks. Agreements for the funding are to be concluded soon, he said.

In the July to September 2014 quarter, NRL posted a loss of Rs836 million. This loss could have been much higher if not for income from the lube segment.

Meanwhile, Attock Petroleum has also announced that it has signed an agreement with Japan’s Nippon Oil and Energy Corporation for collaboration in marketing and blending of international lubricant brands in Pakistan.

Nippon has a broad range of lubricants and greases for automobiles and industrial machinery. Industry people say the lubricant market in Pakistan remains up for grabs.

It is dominated by imported products marketed by multinational companies.

Published in The Express Tribune, November 29^th, 2014.

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