![exploration and production companies are hesitant to commit further investment citing the uncertainty surrounding the recent petroleum policy changes photo file exploration and production companies are hesitant to commit further investment citing the uncertainty surrounding the recent petroleum policy changes photo file](https://i.tribune.com.pk/media/images/Energy-policy1725482000-0/Energy-policy1725482000-0.jpeg)
A Chinese investment corporation has agreed to provide $1 billion to Pakistan Refinery Limited (PRL) for its upgradation project, a move aimed at transforming the refinery's production capacity. However, the Chinese firm has made it clear that it does not want any government role involved in the deal and expects PRL to repay the amount in dollars without any government control or intervention.
At present, the State Bank of Pakistan (SBP) permits the private sector, including refineries, to retain dollars for investment purposes. However, the Chinese company has stated that such controls should be eliminated to ensure smooth repayment of the loan. The firm stressed that there should be no obstacles in remitting dollars back to China.
Sources within the Petroleum Division revealed that PRL has assured the Chinese Investment Corporation that it will generate the required dollars through the export of petroleum products, which will then be used to repay the Chinese firm. Additionally, China Export & Credit Insurance Corporation (SINOSURE), which is a state-funded insurance company established to promote China's foreign trade and economic cooperation, has also insisted on no government interference regarding the provision of dollars.
PRL is currently engaged in an upgradation project aimed at doubling its production capacity from the current 50,000 barrels per day to 100,000 barrels per day. The refinery has already signed an agreement with China's United Energy Group (UEG) to embark on this significant expansion and modernisation endeavour. The primary objectives of this project are to meet domestic consumer demand, transition from a basic hydro-skimming process to a deep-conversion process, and produce Euro 5 compliant high-speed diesel (HSD) and motor spirit (petrol). In doing so, the refinery will phase out the production of furnace oil, which has been incurring losses.
This strategic move aligns with PRL's commitment to producing cleaner, environmentally friendly fuels that cater to the growing market demand. Currently, PRL produces 250,000 tonnes of motor spirit annually. Following the expansion, this output is expected to increase to 1.5 million tonnes. Similarly, HSD production is projected to rise from 600,000 tonnes per year to around 2 million tonnes.
PRL and UEG formalised their collaboration by signing a memorandum of understanding (MoU) on October 18, 2023, in China. Under this MoU, both companies expressed their intent to establish a strategic cooperation relationship based on mutual interests in Pakistan's energy sector. This collaboration is expected to have a profound positive impact on the growth and development of the energy industry in Pakistan, contributing to a sustainable and environmentally responsible energy landscape.
In a recent development, PRL has signed licensing agreements with global industry leaders Honeywell UOP and Axens to produce gasoline and diesel that meet Euro 5 specifications. Additionally, PRL, along with other refineries, was set to sign a supplemental agreement with the Oil and Gas Regulatory Authority (Ogra) under the new refinery policy. However, the Cabinet Committee on Energy (CCOE) granted an extension for refineries to sign the implementation agreements required for their upgrades.
Previously, the deadline for signing these agreements was set for April 22, 2024. Three refineriesAttock Refinery Limited (ARL), National Refinery Limited (NRL), and PRLhad agreed to sign the agreements by the deadline, while two other refineries, Pak Arab Refinery (Parco) and Cnergyico PK, requested additional time.
ARL, NRL, and PRL plan to invest a total of $3 billion in upgrading their plants, with the combined investment reaching $6 billion once Parco and Cnergyico join the project. The amended "Pakistan Oil Refining Policy for Up-gradation of Existing/Brownfield Refineries 2023" has already been notified for implementation. This policy aims to upgrade existing refineries to produce Euro-V fuels while reducing furnace oil output.
To achieve these goals, the policy offers a 2.5% incremental incentive on HSD in addition to the current 7.5% and a 10% incentive on petrol in the form of deemed duty for a period of seven years. The deemed duty will be deposited in an escrow account maintained by Ogra, from which refineries can withdraw funds to cover up to 27.5% of the cost of plant upgrades after achieving financial close and meeting expenditure milestones.
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