Aftab Husain, Managing Director of the Pakistan Refinery Limited, is a chemical engineer from the Sindh University Engineering College (now Mehran University of Engineering and Technology), and an MBA from IBA, Karachi.
His career in oil refining at PRL spans over 33 years, and he has led operational, technical and commercial functions in the refinery.
Recognised as a refining expert by the industry, Mr Husain has served as a refining specialist for the National Integrated Energy Plan in the Energy Expert Group of the economic advisory committee of the ministry of finance. He is currently on the energy panel of the Pakistan Economic Forum of the Pakistan Business Council and the OICCI Energy Committee.
Mr Husain, who was appointed to his current position on November 1, 2011, would now — about two years later — oversee a major PRL expansion project.
Q1. Pakistan Refinery has announced to invest $50 million to double its petrol production. What is the current status of the project? Where will the financing come from? Will the technology upgrade/higher capacity improve efficiency and cut costs?
Ans. Pakistan Refinery (PRL) has already awarded the engineering, procurement and construction (EPC) contract to an international firm, and the engineering work has started. We are confident that the isomerisation plant, which will convert export naphtha into petrol, will be commissioned within the target date — the third quarter of 2015.
The financing would be from internal resources. However, the technology and capacity will improve the overall bottom line of the refinery.
Q2. There is a wide gap between local production of petrol and domestic demand. Why is investment in oil refining so slow in coming to fill this huge gap? How is the gap being made up, and what is the future scenario?
Ans. The refining sector is a capital-intensive industry with very sensitive and volatile margins, depending upon many unavoidable factors that are beyond the control of refineries. However, all refineries are geared up for up-gradation and capacity enhancement under the current refinery pricing formula.
The total refining capacity in the country is around 13 million tonnes, while demand for the product is around 21 million tonnes, thus creating a gap of eight million tonnes.
This can only be narrowed down by incentives under a policy regime by the government with a specific timeframe, and thereafter, the deregulation of the refining sector. We are in constant touch with the policymakers, and hopefully a new refining policy will contain investment-friendly prepositions.
Q3. How can investment in the sector be stepped up? What kind of policy package and facilities are required?
Ans. The refining industry requires a high amount of investment. It costs around $10,000 for refining one barrel of crude oil. Say, for a 100,000-barrel-per-day refinery, the capital requirement is about $1 billion.
For such a high magnitude of investment, the policy package needs to comprise some very carefully thought out guidelines; for example, the irrational 0.5 per cent turnover tax, which is based on revenue in a documented sector, is beyond comprehension. This is severely impacting investment in refineries.
Secondly, the rupee-dollar parity should be stable and given some sort of forward cover for investment to be made. In this context, may I point out that Pakistan Refinery sustained an exchange loss of Rs677 million in the entire year ended June 30, 2013, and booked an exchange loss of Rs775 million only in the last quarter, i.e. July to September 2013. This turned the profit earned in the quarter into a loss.
Q4. How do you see the outlook for international oil prices (Light Arab crude), and how can the local industry soften its impact?
Ans. Nobody can predict future international oil prices, because they are now not only dependent on fundamentals such as demand, supply and inventories, but on other factors as well. International oil prices exhibit a cyclical trend, and the new addition from the United States of shale oil and gas will be a ‘game changer’.
For example, the gas price at Henry Hub (USA) is less than $3 per million btu, while WTI Crude is $15 below Brent. This has never happened before.
The local oil industry can play a role in the supply of sustainable and uninterrupted oil to consumers at their cost, plus the margin refining formula. There is no fixed margin and the margins are dependent upon the international price spread between crude oil and the product.
Product oil prices are based on import parity, and 80 per cent of international prices are taken as local prices. But the erosion of the rupee-dollar parity and government taxes are the main factors of price fluctuations.
Q5. A new petrol consumption pattern is slowing emerging, with more and more taxies going off the road, and many car-owners in the middle income group, who cannot afford petrol costs, are trying to balance their transport budget by buying motorcycles. Then there is some effort to rehabilitate the railways. Is this trend sustainable?
Ans. As you are aware, 60 per cent of the vehicular population is made up of two wheelers, and this form of transport has witnessed an unprecedented growth due to a pathetic public transport system in the country in general, and in Karachi in particular. Until and unless we have a robust public transport system in place, this trend will continue, and we will be dependent on high cost petrol import. Public transport comprises buses, metro and railways; but taxis or cabs are not the solution.
The only relief we can give to the commuter is to have a public transport system that is in line with international standards, and includes cross-country upgraded state of the art rail network and intra-city modern metro systems.
Q6. Diesel production and imports are not picking up. Why?
Ans. The main factor for diesel production being limited, even though refineries are operating at their maximum capacity, is the economic slowdown. Once the economy grows, the transport sector will grow and ultimately diesel production will increase. It is this depressed local demand that is also responsible for imports not picking up.