KARACHI: Pakistan State Oil signed a Memorandum of Understanding (MoU) with the Government of Khyber Pakhtunkhwa (GoKP) for the establishment of an oil refinery in the province. The MoU was signed in Peshawar on Thursday.

According to the MoU, PSO would set up a technologically advanced refinery with a capacity of 40,000 barrels per day (BPD) on about 400 acres of land in district Kohat-Khyber Pakhtunkhwa.

The project was envisaged to be set-up through a public-private partnership and would utilise crude oil from nearby indigenous supply sources. The project was expected to be fully commissioned by 2016-17, a statement by PSO said.

The MoU was signed by Additional Secretary, Ministry of Petroleum and Natural Resources Naeem Malik, PSO Managing Director Naeem Yahya Mir and GoKP Secretary Energy and Power Zaffar Iqbal. Also present were KP Chief Minister Tariq Pervaiz Khan, Minister for Energy and Power Muhammad Yunis Marwat and a team of PSO officials.

The PSO statement said that the refinery would help improve the overall availability of POL products across the country as well as result in sizeable foreign exchange savings. It would also increase PSO’s operational base through diversification in the midstream segment and lower distribution cost in the related supply envelopes.

The refinery was also looked upon to help create job opportunities for the local populace. “It is also expected that substantial foreign direct investment will also take place as a result of this project,” the statement said.

In reply to queries PSO MD Naeem Yahya Mir told Dawn on phone that the projected cost of the refinery was $700-$800m. It would be financed by mix of debt and equity in the ratio of 80:20.  Naeem Mir was confident that the debt portion would be raised as several large banks had expressed interest in the refinery. He believed that the banking sector was flush with liquidity and required a visibly viable project for investment.

In regard to the 20 per cent equity portion of financing, the MD PSO said that GoKP would contribute 20pc share, while the balance would be taken up by PSO. The company would retain the operational and management control of the refinery, he said.

Naeem Mir brushed aside the issue of circular debt and said that PSO was financially strong to subscribe to its portion of equity. He pointed out that the company, which has average 60 per cent market share, generates net cash of Rs8 billion daily. He did not think that security issues could surface in setting up the project in the KP.

In regard to the bidding for acquisition of Chevron (formerly Caltex Oil Pakistan Limited) Marketing Affiliates in Pakistan, which includes 12 per cent stake in Pakistan Refinery Limited (PRL), Naeem Mir stressed that PSO had the “first right of refusal” to buy out the PRL holdings in Chevron.

He said PSO held 18 per cent of PRL while Shell Pakistan had 30 per cent shares. The MD PSO affirmed that PSO was interested in the Chevron's stake as it still had an eye on an eventual buy-out of PRL.