Byco considers listing country’s largest refinery

Company wants to raise finance for its petro-chemical business.

Saad Hasan May 02, 2013
Capital Investment: $700m was invested by Byco to build the oil refinery and petrochemical units. PHOTO: BYCO.COM.PK

KARACHI: Byco is considering listing its new 120,000-barrels per day (bpd) refinery to raise additional funds to finance the extensive petro-chemical business, a top company official told The Express Tribune.

“The option to list the refinery at the stock exchange is on the cards,” said Asif Saeed Sindhu, group chief financial officer of Byco Industries Incorporated. “We will list the refinery after it has completed two quarters in operation.”

The group has invested over $700 million in the oil refinery and petrochemical units, which will produce paraxylene. Test-run for the refinery has already been completed and actual production is expected later this month.

Sindhu said the company is in talks with banks to finance purchase of crude oil for Pakistan’s largest oil refinery, which has capacity to produce six million tons of petroleum products.

Learning from the past

Byco already runs a smaller 35,000bpd refinery that has been in financial turmoil since 2008 when its entire equity was wiped off following fluctuations in crude oil prices and depreciation of the rupee.

“Byco was a relatively new entrant having started operations in 2004. The other refineries had built up reserves over the years to sail through the crisis. So we took the hit.”

For the new refinery, the company has decided to keep crude oil stock to meet the need for 20-21 days to avoid inventory losses, he said.

The State Bank of Pakistan (SBP) does not allow petroleum companies to hedge in oil trade. “In any case, there is always risk involved in hedging.”

Byco’s new and old refineries, petroleum marketing company, its terminals and oil trading business are all owned by a holding company Byco Industries Incorporated (BII), which has a 60% shareholding of Byco Busient Incorporated and remaining is held by Abraaj Mauritius Oil and Gas.

Every subsidiary has its own CEO and CFO. Byco Oil Pakistan, which handles the 120,000bpd refinery and the petrochemical business, is headed by Muhammad Qaiser Jamal.

Byco Petroleum Pakistan includes the old refinery and marketing company while Byco Terminals and Byco Middle East are the other businesses.

Money matters

Sindhu, who has also served as Oil and Gas Development Company’s CFO, said oil refining remains a profitable business despite volatility. “Since its inception, Pakistan Refinery (PRL) has given 100 times more return on equity to the sponsors. Over the last five years, all refineries have declared profits.”

Refining margin, which is the difference between the price of crude oil and petroleum products, depends on market conditions. But its size will clearly give Byco an edge over competitors, he said.

“Refining remains a low-margin and high-volume business. The more you produce, the more the profit.”

The government did not offer Byco any special incentive against its investment in the oil sector. Yet Sindhu said the company was comfortable with the existing pricing regime.

Pakistani refineries enjoy a protection known as 7.5% deemed duty, a tax they collect on sale of high speed diesel. It also serves as an incentive for refineries to invest in making environmental-friendly petroleum products.

Right now the sulphur content in petroleum products stands at 10,000 parts per million (ppm), which the industry has to bring down to Euro-II specification of 500ppm. Once the refineries do that, the deemed duty will increase to 9%.

Byco’s plant already comes with a hydro-desulphurisation unit, giving it an advantage over other refineries. “We will see the benefit of that in the second phase of production that starts in 2014,” Sindhu said.

The company has already signed off-take agreements with companies like Pakistan State Oil, Shell, Karachi Electric Supply Company and Nishat Power.

Published in The Express Tribune, May 3rd, 2013.

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Correction: In an earlier version of this story, hedging was explained incorrectly. Hedging deals with crude oil futures. It has nothing to do with inventory, which a company maintains. The error is regretted.


Saad Hasan | 8 years ago | Reply

@Rogoff: You have rightly pointed out the mistake. The blunder is on my part and not the person quoted.

Rogoff | 8 years ago | Reply

“In any case, there is always risk involved in hedging. When you have crude oil stocked up and price rises, you gain a lot but then you might also suffer losses if the price slides.”

Whoever came up with that statement is a financial genius - and a very ineffective "hedger".

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