Pakistan Refinery Limited (PRL) increased the output of petrol and diesel to 60% in financial year 2021 by utilising light crude as a short-term solution to the long pending issue of upgrading its plants.
At the same time, it is considering acquiring either an already running advanced refinery in the international market or updated technology for installation at its production facility in Karachi in a bid to increase production to 100%.
It also aims to produce advanced Euro-5 and Euro-6 petrol and diesel by upgrading the refinery, revealed PRL’s Annual Report 2021 dispatched to the Pakistan Stock Exchange (PSX) on Thursday.
The use of light crude allows refineries to enhance production of premium products like petrol and diesel unlike heavy crude which produces a higher quantity (30-50%) of furnace oil. Of late, the demand for furnace oil has fallen significantly in Pakistan after the country shifted power production from oil to gas.
The refinery upgrade may take four to five years and require a hefty investment of around $1 billion.
PRL has the capacity to refine 47,000 barrels of crude oil into a range of products. Earlier, nearly all five refineries in Pakistan utilised 40-50% of their installed capacity due to excess production of furnace oil, revealed industry officials.
Refineries produce all petroleum products at the same time by processing crude oil. A massive drop in sales of furnace oil resulted in accumulation of its stock which consumed most of the storage capacity and hampered the production of other petroleum products.
The upgrading of refineries to deep-conversion facilities reduces the furnace oil output to manageable levels.
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“The company continued its altered operational philosophy by using higher amount of lighter crudes and operated at 60% capacity,” the annual report said. “This allowed the company to reduce the production of high sulphur furnace oil (HSFO) and increase the output of high-speed diesel (HSD) and motor spirit (MS).”
The company also made changes to its crude recipe during the year and introduced new crudes from the Middle East and other sources. Previously, it only utilised selected grades from the Middle East.
“Through this change, the company produces high-value marine residual fuel (MRF) and Euro-II compliant high-speed diesel without undertaking any upgrade project,” it said.
“However, sustained production of these products requires long-term agreements with relevant crude suppliers,” it said. “The company continues its discussions with various crude suppliers to secure arrangements, ensuring sustainable profitability by making the production mix favourable.”
The company also produced premium products MS 92/ 95 and 97 RON, “thus generating additional revenue during the year”.
The company returned to profit in FY21. It reported after-tax profit of Rs937.15 million for the year compared to a heavy loss of Rs7.59 billion in the prior year FY20.
To comply with the revised Euro-V product specifications of MS (petrol) and HSD (diesel), the company is exploring two options. It is considering “acquiring pre-owned refining units with deep conversion capability or mulling over the option of having technologies which give required upgrade capability with new units but with low capex (capital expenditure),” said the report.
The Finance Act 2021 provides various kinds of incentives to the refining sector. These include reduction in the rate of minimum tax on turnover from 0.75% to 0.5% and reduction in the rate of customs duty on crude oil from 5% to 2.5%.
On the other hand, the government has imposed 17% sales tax on crude oil effective July 1, 2021, which was previously zero-rated, thus putting pressure on liquidity (cash flow) of the company, it said.
Published in The Express Tribune, September 24th, 2021.
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