Bidding for refinery near Hub cancelled: Govt to sign accord with UAE company
By Khaleeq Kiani
ISLAMABAD, Nov 6: The government has cancelled its decision to hold International Competitive Bidding (ICB) for setting up of a $4-5 billion coastal refinery at Khalifa Point near Hub in Balochistan, and instead, has decided to sign an agreement with a UAE-based company for the project without any bidding.
In the process of shelving ICB, the estimated cost of the project has increased by more than 100 per cent to over $4 billion from $1.7 billion over a period of just six months.
Similarly, instead of saving time required by doing away with ICB, the project completion date has been delayed by more than a year to an unspecified date in 2011-12 instead of December 31, 2010, official document revealed.
The government would hand over about 1,000 acres -- out of a total 1,800 acres belonging to State Petroleum Refining and Petrochemical Company (Perak) -- to the UAE-based investors free of cost but this would not be treated as its equity but a facilitation incentive in addition to complete tax holidays as available to other Export Processing Zones (EPZs) in the country and crude imports will be completely duty-free.
To be the largest refinery in Pakistan so far, the capacity of Khalifa-Coastal Refinery of up to 13 million tons would be higher than the country’s total existing capacity of about 12.5 million tons. The refinery would now be a joint venture between International Petroleum Investment Limited (IPIC) and Pak-Arab Refinery Limited (Parco) on 75:25 per cent basis. The IPIC is a company directly owned by the Abu Dhabi government while Parco is a joint venture between Pakistan and Abu Dhabi government.
As such, IPIC’s total shareholding in the refinery would come to 84 per cent but IPIC would have maximum voting rights of 74 per cent, said Muhammad Rasheed Jung who is managing director of Multan-based Parco and has been given the assignment to complete the Khalifa-Coastal Refinery.
He has so far set up three refineries including one in Pakistan that he now heads as managing director.
On April 14 this year, the prime minister-led Economic Coordination Committee (ECC) of the cabinet decided to set up a $2 billion mega oil refinery at Khalifa Point for commissioning by December 31, 2010.
Dr Ashfaq Hassan Khan, the government spokesman on economic issues had announced that the ECC directed the ministry of petroleum and natural resources to award the contract through an international competitive bidding on BOO basis.
M/S Enar Petrotech Services, the consultants appointed by the petroleum ministry, prepared a “BLUE BOOK” and worked out the project cost at $1.7 billion. The blue book containing terms and conditions and incentives was shared with a number of interested investors and as a result a number of Chinese, Japanese, Saudi and other Arabian companies showed interest in the project, official documents suggest.
Mr Jung, who was transferred by IPIC to Pakistan to set up Parco in 1989, told Dawn that he convinced secretary petroleum and his team that there was no need for the ICB since the project would be export-oriented and the products to be marketed in the domestic market would be sold under the existing pricing mechanism available to all other companies and hence his parent company "IPIC" be facilitated to set up the project that would bring in a sizable foreign direct investment, so direly needed by the country.
He said the secretary petroleum and director general oil visited the UAE last month and within three days of their stay, the IPIC management issued a letter of acceptance to set up the project as per terms and conditions approved by the government of Pakistan but without ICB.
With the completion of Khalifa Refinery, the UAE group would have a capacity to refine about 17.5 million tons (including 4.5 million tons of Parco) of petroleum products in a total refining capacity of 25.5 million tons, compared with just eight million tons capacity of all the remaining five refineries - an ideal situation for POL monopoly.
Mr Jung said following IPIC’s consent, the ECC withdrew its April 14 decision of holding ICB. Instead, it decided on October 31 (last week) to allow IPIC to enter into a joint venture with its subsidiary Parco to set up the refinery “at an estimated cost of $4-5 billion for commissioning by the year 2011-2012,” says the relevant summary.
Dr Ashfaq said after the ECC meeting on October 31 that IPIC of the UAE and Parco jointly owned by the governments of Pakistan and Abu Dhabi had been allowed to set up a $4-5 billion coastal refinery at Khalifa Point to have the capacity to process 200,000-300,000 barrels of oil per day. He declined to comment about the bidding.
According to the summary, out of IPIC’s 75 per cent stake, half of the stake would be retained by IPIC while the remaining half to be taken over by other UAE government institutions including companies from the Emirates of Abu Dhabi and Dubai. Parco will be the operator of the new coastal refinery.
The Asian Development Bank (ADB) has also shown interest to be the partner in the project and Parco would be at liberty to sell its 20 per cent shareholding to the ADB with the GOP’s approval. As such, Pakistan’s shareholding would practically reduce to about three per cent in view of envisaged 20 per cent offloading of shares by the Parco.
The refinery would be a state-of-the-art deep-conversion project with hydrocracker and delayed cocker facilities and would produce high quality middle distillates and other value added products and would not produce furnace oil and hence overcome diesel deficit which currently stands at about 4.5 million tons per annum.
It would export motor spirit and generally produce EURO-IV specific products - environmentally much better than EURO-II products currently produced by local refineries, Mr Jung said.
At present the country consumes 16 million tons of petroleum products, of which 82 per cent requirement is met through imports. Total refining capacity in Pakistan currently stands at 12.8 million tons.
This 1800-acre land was purchased by the state-owned Perac in the 1980’s for setting up a refinery in the public sector in collaboration with Iran. However, the project could not materialise due to differences between the two governments over guaranteed rates of return.
Besides other incentives, 80/20 rule, which requires export of 80pc of total production to foreign countries, applicable for industrial units established under EPZA rules would stand relaxed for this project. There would be no restriction on import of crude oil. All crude oil imports would be exempt from customs duties and tax. All other incidental charges associated with the import would, however, be applicable.
Moreover, the government would facilitate the installation of supporting infrastructure including Single Point Mooring (SPM), sub-marine pipelines, product pipelines and electric power supply from national grid. The government would, however, not provide any guarantee for return on investment and the refinery would have to optimise its own operations for reasonable margins.
