Pakistan's Refinery Expansions in Financial Quagmire

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Researched by Industrial Info Resources India (Delhi, India)--Pakistan's refining sector is struggling to stay afloat amidst dwindling profit margins and decreased capacity utilization. The refineries are operating at less than nameplate capacity, as refiners have been unable to import the required amount of crude oil due to a lack of funds. The small amount of refined products means less revenues to purchase crude, resulting in a vicious cycle. A direct result of this is that Pakistan is heavily dependent on imported refined petroleum products.

Most refineries in Pakistan have hydroskimming facilities, which allow conversion to intermediate products, and are looking to upgrade them to hydrocrackers, enabling them to produce higher-value products. There have been several discussions between the government and refiners to incentivize these projects, but there has been no progress to date.

Several new greenfield and brownfield capacity expansion projects have been put on hold, due to financing problems triggered by the global recession. Two of the four upcoming refineries are facing severe cash crunches, and have put all development on hold.

The planned refineries are the 250,000-barrel-per-day (BBL/d) Khalifa coastal refinery; Byco Petroleum's (KAR:BOSI) (Karachi, Pakistan) 120,000-BBL/d refinery; Indus Refinery Limited's (Karachi) 173,000-BBL/d; and Transasia's (Dubai, United Arab Emirates)100,000-BBL/d refinery.

Despite the problems, Byco has continued with construction and is nearing mechanical completion. Byco expects to complete the project by early next year. The 120,000-BBL/d refinery was dismantled and shipped from the United Kingdom. It is being set up next to the existing refinery in Mouza Kund, Balochistan. The project has a total investment value of $400 million. International Petroleum Investment Company (IPIC) (Abu Dabhi, United Arab Emirates) is implementing a project to construct a 250,000-BBL/d refinery at Khalifa Point in Balochistan. The project, deemed to be the biggest refinery in Pakistan, was put on hold in January 2009, due to the global recession and inability to garner funds for the project. Now talks are once again under way to form a joint venture between Pak Arab Refinery Company (PARCO) (Karachi) and IPIC. IPIC is expected to hold 74%, and the remaining 26% will go to PARCO. The project has already been allotted 1,000 acres of land by the government.

The 93,000 BBL/d refinery being constructed by Indus Refinery Limited is in serious jeopardy due to the inability of the company to find investors for the project. Recent talks to woo the Chinese to fund the project have also failed. Presently, about 60% of the equipment has already been relocated from Canada, where the refinery was originally. The company needs another $400 million to $425 million to complete the project.

In 2008, TransAsia Refinery Limited, a subsidiary of Al Ghurair Group (Dubai), announced a plan to relocate a 100,000-BBL/d refinery from Naples, Italy, to Port Qasim in Pakistan. Since then the project has been put on hold due to funding issues.

The cash crunch has been attributed to the loss of confidence regarding investments in Pakistan. With the slowing economy and frequent terrorist attacks, investors are shying from Pakistan.

If the refinery projects are completed, Pakistan's refining capacity would more than double, enabling the country to reduce dependence on imported petroleum products and perhaps allowing the country to export refined products.

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