November 20, 2002	Wednesday	Ramazan 14, 1423

KARACHI, Nov 19: A delegation of National Iranian Oil Company (NIOC) will arrive in the last week of this month to review the current status of the Iran-Pak Refinery Project particularly with reference to review/familiarize with oil sector deregulation in general and tariff protection in particular.

This was agreed between the members of NIOC and the delegation of the Government of Pakistan, led by Director General Oil, Petroleum Ministry, Sabir Hussain, in a meeting held in Tehran last month to discuss the refinery project and its economic evaluation. NIOC side included S.M. Murtaza, general manager oil and gas industries, Dr Mehrdad Naraghi, engineer management consultant, J. Sohrabian, Head of Technical Affairs and N. Ahmadi, senior expert engineer.

Sources in oil industry told Dawn that the upcoming Iranian delegation would focus on the government’s step of rationalizing refinery prices, besides seeking a firm commitment from the Government of Pakistan that policies and decisions would be long lasting in future.

“Actually Iran needs assurance on continuation of petroleum policies for the refineries,” they said adding the delegation had also shown its interest to attend a meeting of the Oil Companies Advisory Committee (OCAC) during the visit and to see how prices are determined on the fortnightly basis.

The Iranian side, after completion of its visit, would prepare a detailed report in order to submit it to the board of governors of NIOC so that the project could be activated.

It may be mentioned here that there has been an status quo on the Iran-Pak Refinery Project since the last two and a half years. However, in the last four to five months — both sides agreed to make strides so as to re-activate the project. So far three to four meetings had been held.

The refinery project was approved by the Economic Coordination Committee (ECC) in September 1998, but failed to make any headway due to economic conditions of Pakistan at that time. The refinery is planned to be set up at Hub, Balochistan. The government of Balochistan had allotted 2,000 acres for the refinery and its residential colony.

Coming back to Tehran’s meeting, both the sides agreed on parameters outlining the assumptions for evaluation of the project in line with those adopted by the financial institutions. The present criteria adopted internationally is to assess the project’s rate of return under 100 per cent equity.

Iranian side felt that any project showing rate of return (ROR) of less than 15 per cent should not be considered as feasible unless supported by other potential of the project.

On the basis of this, project’s ROR at 100 per cent equity was observed at 15.48 per cent in the meeting. According to production slate, the refinery will be processing six million tons of Iranian Heavy Crude Oil per year at price of $124.79 per ton. The expected yield of basic products are — diesel 3.689 million tons, unlead gasoline 1.1 million tons, naphta 293,000 tons, sulphur 48,763 tons, coke 412,571 tons and LPG 93,000 tons. The first year capacity utilization is 90 per cent and 100 per cent from remaining life of the project. The project’s economic life is to be taken at 25 years. The annual operating cost is estimated at $45 million. However, the total project cost is estimated at $1.23 billion.

Crude and product prices are to be average FOB Persian Gulf for the period July 92-June 2001 (Platts Gram Oil) plus all insurance and freight with 10 per cent tariff protection on price of diesel as per NIOC policies.

The meeting also discussed tariff protection of 10 per cent on diesel. The Iranian side was of the view that the project’s profitability depends on tariff protection to some extent provided by the Government of Pakistan, therefore, NIOC would like to have commitment that this would be available for special period after the project comes on-stream.

Pakistani side informed the NIOC team that Pakistan had already deregulated its petroleum sector under which oil prices are being revised fortnightly in light of prevailing global prices.