ISLAMABAD, Oct 14: Faced with a severe liquidity crunch, Pak-Arab Refinery Limited (Parco) - the country’s largest oil refinery owned by the governments of Pakistan and Abu Dhabi - has decided to sell 20 per cent shares in the $500 million White Oil Pipeline Project (WOPP).

Parco sources told Dawn on Sunday that a decision in principle has been taken to transfer $25 million equity to Oman Oil Company (OOC) and only the mode of sale is under consideration of the federal government for approval.

Jehangir Bashar, spokesman and senior joint secretary petroleum ministry, however, said that he was totally unaware of the proposal or decision to that effect.

Documents made available to Dawn suggest that Parco management has submitted three options to the federal government for approval to divest 20 per cent equity in WOPP.

Abu Dhabi government is said to have already given consent to the proposal, Parco sources claimed. Negotiations between OOC and Parco have also completed.

WOPP registered in the name of Pak-Arab Pipeline Company (PAPCO) is owned by Parco with majority shareholding of 51 per cent besides 49 per cent shares jointly held by Shell, Caltex, and Pakistan State Oil (PSO) under a shareholders participation agreement.

Under option one, Parco will form a new Pak-Arab Investment Company (PAIC) to acquire full shares in PAPCO. Thirty nine per cent of PAIC’s shares would then be transferred to Oman Oil at a cost of $25 million and 61 per cent to be retained by Parco. In this way, Parco’s contribution through cash payment will be adjusted correspondingly and provide relief to Parco in cash flows.

Parco has put all the support to this option saying it will improve its cash flow position without diluting its management and financial holdings besides bringing in fresh direct investment, Karachi based sources said.

Option two suggest that Abu Dhabi Petroleum Inc (ADPI) - formerly International Petroleum Inc - owned by the UAE government should sell its 20 per cent shares in Papco to Oman Oil.

In this way, Pakistan government shares would remain at 31 per cent but ADPI would be out of the business and replaced by Oman Oil Company. This will have however no cash inflow for Parco because of shares sale by ADPI.

The third option required sale of Parco shares in Papco to Oman Oil at a premium but the amount of this premium would be negotiated later. Under this mechanism, cash flow will depend on the premium size and the number of shares to be sold. In the current situation, however, the project is difficult to get an acceptable premium, said the Parco sources.

WOPP, now under construction, would be used to transport diesel from oil jetty at bin Qasim port Karachi to Parco’s terminal station and onward to oil marketing companies terminal at Mahmood Kot, near Multan in Punjab. The 817 kms and 26 inch diameter pipeline would have a capacity of 12 million tons per year.

PAPCO, the joint venture company, has a debt-equity ratio of 75:25. Equity is owned 51 per cent by Parco and 49 per cent by other partners. China petroleum is the engineering, procurement and construction contractor of the pipeline.