Pakistan Refinery Ltd plans upgradation, management vows

The management of Pakistan Refinery held a Corporate Briefing session today (8th Jul’21) to discuss the financial results of and future outlook of the company.

Key Takeaways

· To recall the company posted a Profit after Tax of PKR 536mn (EPS: PKR 0.85) in 9MFY21 against a Loss of PKR 5,087mn (LPS: PKR 8.08). Earnings primarily improved due to better product mix, incorporation of exchange gain by the new pricing mechanism and change in pricing policy to fortnightly from monthly.

· As per crude mix shared by the company for the period of 9MFY21, 30% of the crude was procured from KPC, 26% from ARAMCO, 21% from ADNOC and 13% from local. In terms of product mix, in 9MFY21 the company produced 49%, 21%, 19%, 6% and 4% of HSD, MS, HSFO, Naphtha and Jet Fuel/Kerosene, respectively.

· The company informed that 50% of petroleum products are produced locally, while rest of the 50% is imported. Amongst the local producers the company has a market share of 6%, while PARCO leads with 15% market share.

· During 3QFY21 the refining margins remained under pressure owing to 3rd wave of COVID-19.

· The management informed that intercity pipelines in Karachi connecting Refinery at Korangi Creek to Keamari terminal was disrupted by unusual rain in Aug’20. As a result the refinery remained closed for 12 days and resumed production from 9th Sep’20. After laying of pipelines below the river bed, the lines were fully restored in Jan’21.

· The company said that it had been in talks with the government with regards to upcoming refinery policy, which according to the company, will support refinery companies’ upgradation projects. The company believes that the new refinery policy will make the sector financially sustainable and upgradation of new projects more economical. The new refinery policy is expected to be announced soon.

· In the Budget 2022, the government announced imposition of duty on MS and HSD of 10%, while reducing crude duty to 2.5%. As per the company this decision is expected to be implemented by ECC from Jan’22 and company seeks to take advantage of incentives offered for upgradation projects.

· The company has to commit to the government by Dec’21 for upgradation. In this regard, the company is considering two options; i) acquire pre-owned refinery or ii) setting up of new refinery. According to the company both the projects are possible, however acquiring pre-owned refinery will be a cheaper option as it will cost 50% less than the cost of new refinery. If the company chooses to upgrade the current capacity of 50k bopd then the cost will be USD 0.8bn- USD 1.0bn. Meanwhile, if the company increases the capacity to 100k bopd then CAPEX will be USD 1.3bn-USD 1.4bn.

· Developing pre-owned refinery will take 3-4 years. Whereas, setting up a new refinery or upgradation can take 5 years.

Reported prepared by AHL Research

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