Pakistan Revives 250,000-Barrel-Per-Day Khalifa Refinery

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Researched by Industrial Info Resources (Sugar Land, Texas)--Pakistan's beleaguered 250,000-barrel-per-day (BBL/d) Khalifa coastal refinery is finally expected to see the light of day with the project's main promoter, International Petroleum Investment Company (IPIC) (Abu Dhabi, United Arab Emirates), the UAE's state-controlled investment vehicle, announcing that it will begin construction activities shortly. IPIC indicated that the revival of the stalled refinery project will also include a petrochemicals plant. The revised cost of the proposed refinery and petrochemicals complex will be about $12 billion.

In November 2007, the government of Pakistan signed an agreement with IPIC and Pak Arab Refinery Limited (PARCO) (Karachi, Pakistan) to construct the Khalifa coastal refinery project. PARCO is a partnership between the government of Pakistan, IPIC and OMV AG (WBAG:OMV) (Vienna, Austria) with the partners holding stakes of 60%, 30% and 10%, respectively.

The Khalifa refinery project, which will be located at Hub in Baluchistan, has faced several challenges and hurdles. There were delays caused by differences between the UAE and Pakistani governments over the former's demand to acquire an additional ownership stake in PARCO. Pakistan refused to comply with this demand and also did not support the UAE government's attempts to extend the services of the managing director of PARCO, who had already been given two extensions of three years each. The UAE retaliated by announcing that it was withdrawing from the project and focusing on reviving the Fujairah refinery project. However, the government of Pakistan immediately sent a high level delegation to Abu Dhabi to bring the critical project back on track.

The proposed project will now be built in two phases, with the first phase consisting of a $5 billion refinery. The petrochemicals plant, estimated to cost between $6 billion and $7 billion, will be built in the second phase. IPIC has also received permission to build, operate and own the proposed petrochemicals complex. The plant is expected to help Pakistan reduce petrochemicals imports. The final decision on the petrochemical project is expected to be taken only after the refinery is developed and begins operations.

Work on the refinery is likely to begin after IPIC and PARCO sign the participation agreement. Following the signing of the agreement, which is expected to take place in the next eight weeks, the partners will invite bids for the main refinery construction contracts. This is expected to be completed within 18 months after the joint venture agreement is signed. Construction will take 36 months, and the refinery is likely to be ready for commercial operations by the second half of 2014. PARCO has also initiated discussions with financial institutions in Japan and China to secure its share of 26% funding for the project. The government of Pakistan has also granted 405 hectares of land and a 20-year tax-free status to the project.

The Khalifa refinery project is one of three proposed refineries in Pakistan. The project is expected to double the country's refining output. The other planned refineries are the 100,000-BBL/d Trans-Asia refinery at Port Qasim near Karachi, and the 115,000-BBL/d refinery at Hub being developed by Bosicor Oil Pakistan (Karachi). As of November 2009, Pakistan had five operating refineries with a total refining capacity of 276,050 BBL/d. The three new refineries are expected to add 465,000 BBL/d of refining capacity.

In a related development, the government of Pakistan announced that six new oil and gas deposits were discovered in the country in the last six months with aggregate production amounting to 31 million cubic feet per day of gas and a marginal 4,176 barrels per day of oil. The deposits are located in the districts of Gotki, Sanghar, Dera Ghazi Khan, Karak and Kohat.

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