May 10, 2006	Wednesday	Rabi-us-Sani 11, 1427

KARACHI, May 9: The overall earnings of oil refineries listed on the stock exchanges declined to Rs2,882 million for the nine months of financial year 2006, as against Rs5,011 million in the corresponding period of the previous year. That depicted a drop of 43 per cent on year-on-year basis.

The fall in earnings has been attributed to depleting gross margins. “This is mainly because of the fact that import parity prices have not increased with the same proportion during the period vis-à-vis substantial increase in the FOB premium and C&F prices of international crude”, says Faisal Shaji, analyst at Capital One Equities.

Between September 2005 and March 2006, the import parity prices of white oil and black oil declined up to 1 per cent and nearly 16 per cent, respectively, as against substantial increase in an average C&F prices of 11 per cent in the case of white oil and 15 per cent in the case of black oil, which is stated to be understandable as they portray the disparity for refineries. However, this aspect has been mitigated by OGRA in a recent April 30, 2006 notification, wherein the corresponding import parity prices have been increased by 9 per cent on an average on white oil and nearly 16 per cent in the case of black oil.

The analysts point out that overall gross refining margin (GRM) of the sector had stood slashed due to the above mentioned disparity. Average industry GRMs of the industry was relegated to 3 per cent as against 7 per cent reported in the same period last year.

Besides such disparity that plagues the industry, refineries also suffered from piled up inventories during the period, owing to fewer intakes coming from the Oil Marketing Companies (OMCs). Low storage capacities have also created hurdles in the onward throughputs of products such as JP-1 and HSD.

There is a need for new refineries and the government has been encouraging foreign entrepreneurs to invest in the sector to meet the impending shortfall expected in supplies of petroleum products. According to the analysts, current refining capacity of the country is 13.2 million tons per annum whereas the total capacity utilisation during FY05 stood at 12.2 million tons per annum, representing capacity utilisation at 89 per cent. As per estimates, total demand of the petroleum products is likely to reach 16.2 million tons during FY06 and 18 million tons during FY10.