Just a month after announcing plans to build a refinery in Khyber-Pakhtunkhwa, the country’s largest oil marketing company Pakistan State Oil (PSO) has planned to acquire a stake in UAE-based Fujairah Refinery.
“The joint venture acquisition of the Middle East refinery project is in its initial stages,” PSO Managing Director Naeem Yahya Mir told the Senate Standing Committee on Petroleum and Natural Resources on Tuesday.
PSO’s two-year old plan to enter the refining business has finally made some headway. The company’s first attempt was to enter the refining business by increasing its share in Pakistan Refinery, however, after analysing the deal for a year the management decided not to go forward with it.
In June, Khyber-Pakhtunkhwa (K-P) allotted 400 acres to PSO for establishing a refinery. The proposed refinery will produce 40,000 barrels per day, only 7,000 barrels less than one of the largest local players, Pakistan Refinery Limited.
Oil marketing companies across the globe have entered the refining business to increase profits, a model PSO wants to emulate, said Mir.
The refining sector is relatively more profitable than the selling part in the energy chain, according to experts. The energy sector includes four main units; exploration, production, refining and selling.
Senate Standing Committee on Petroleum and Natural Resources was briefed by PSO management on its future plan at the Parliament House on Tuesday.
PSO also plans to establish a regional joint venture aviation company in the Middle East with Pakistan National Shipping Corporation.
“PSO will procure two large ships to import crude oil,” he said adding that Pakistan is currently facing huge cost on account of import of crude oil through small ships. He said that Port Qasim was congested and blockage of only one ship at the port can freeze the entire supply to Pakistan.
“We will have an alternate route of oil supply other than the port in Karachi,” he said. “With the inception of K-P refinery, PSO will also have the option to export oil to Afghanistan,” he said.
In addition to this, PSO also plans to build a storage unit and lay an oil pipeline for $350 million in a joint venture with Kuwait Petroleum Corporation at Hub, Balochistan. The move will enhance the country’s oil storage by 12 to 14 days.
He said that Pakistan and Kuwait had entered into initial agreement and formal agreement would be inked soon to establish the project in Balochistan.
The two refineries will help cut back costly oil imports, according to an expert.
Costly imports and the circular debt has resulted in the oil marketing company reach its credit limit with banks who are not willing to extend any extra credit.
“We don’t have any capacity to arrange fuel due to circular debt issue,” he said adding that PSO receivables had reached Rs243 billion.
Power generation companies have to pay Rs228.7 billion while PSO has to pay refineries Rs93.3 billion.
Adviser to Prime Minister on Petroleum and Natural Resources Dr Asim Hussain said that the power sector was producing thermal power and oil prices had gone up.
“PSO and OGDCL are facing the most burden of the circular debt,” said Petroleum Secretary Dr Waqar Masood. PSO’s profits dropped net dropped 36% to Rs4.58 billion in the first half of 2012.
Published in The Express Tribune, August 1st, 2012.
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