The majority shareholder in Indus Refinery Limited (IRL) is once again in talks with potential investors to revive the long-running project, which was one of Pakistan’s biggest casualties of 2008 global financial meltdown.
The deep-conversion oil refinery, which has capacity to process 93,000 barrels per day, has been dormant for the past five years as the main sponsor has struggled to woo suitable partners in the face of tough economic conditions, law suits and deteriorating security situation.
“I am now engaged with Germans who want to use IRL’s land and permits while financing a complete new refinery. We are looking at capacity of between 100,000bpd to 150,000bpd,” said Sohail Shamsi, the Chairman and CEO who holds 87% stake in IRL.
IRL was registered in 2004 after Shamsi and two of his foreign partners bought Oakville Refinery from Petro-Canada, which was gearing to meet more stringent sulphur content regulations.
What followed was a massive operation as the refinery was dismantled pipe-by-pipe. Around 100,000 cubic metres of components were tagged and numbered to be shipped to Karachi.
It was to be reinstalled along National Highway, 21 kilometres (km) away from FOTCO Oil Terminal and close to the White Oil Pipeline, which is used to pump petroleum products upcountry. IRL has 316 acres of land in the area.
By June 2007, when three shipments had already arrived with 65% of the plant and equipment, the project went into limbo.
“We have invested $185 million in the project up till now. Basically all my money has gone in this,” Shamsi said in an interview to The Express Tribune.
The rest of the equipment is stuck in Canada and some of it has been auctioned to settle dues owed by IRL to transporters and other service providers. Shamsi insists all of those auctioned parts can easily be replaced.
Pakistan spends billions of dollars every year to import petroleum products, including diesel and furnace oil, because it lacks refining capacity. Consumption of oil is only going to increase with country’ gas reserves depleting fast, industry people say.
“Ten years back if you had vision, you could see that this country needed petroleum products. So it was a good business opportunity,” said Shamsi, who started off with trading in products that ranged from automobile parts, pulses to oil.
His foreign partners had made money in the property boom of Middle East after the first Gulf War. “But one of these partners was badly stretched as he had investments everywhere from hotels to drilling in different countries. So impact of financial meltdown was particularly disastrous.”
Issues with the project surfaced even before crash of world stock markets in 2008 as IRL’s investors were reluctant to commit more money following assassination of former prime minister Benazir Bhutto in December 2007.
Since then Shamsi has tried luck with Chinese, Arab and Pakistani investors but in vain. “Once we were so close bringing the Chinese but bombs started to go off at home and they pulled out at the last minute.”
At a time, Pakistan State Oil (PSO) stood ready to buy a 10% stake and some time after International Finance Corporation (IFC) was willing to finance the project. “We needed someone with deep pockets as a sponsor but no one was there for us.”
Interestingly, work on the IRL started around the same time when Amir Abbassciy of Byco was striving to establish country’s largest petroleum complex. He was able to bring in private equity investor Abraaj Capital to support his venture – something that Shamsi desperately needed.
Now, he needs just $50 million to pay various contractors and consultants who were involved in the dismantling process to bring back whatever equipment is stranded in Canada.
“I am ready to sell my stake, but I don’t want to be stabbed in the back,” he said. “My dream is to see this project go through.”
Published in The Express Tribune, July 28th, 2013.
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