KARACHI: Pakistan Refinery Ltd (PRL) has decided to expand and upgrade its production capacity at an estimated cost of $1.2 billion, a securities filing said on Tuesday.

Speaking to Dawn, PRL Managing Director Zahid Mir said the project will double the company’s installed refining capacity to 100,000 barrels per day in five years.

“Daily petrol production will increase from 750 tonnes to 4,000 tonnes while diesel production will rise from 2,000 tonnes to 5,000 tonnes,” he said.

PRL is currently operating at around 60pc of its installed capacity, he said. That’s mainly because the demand for its major product — furnace oil — went down substantially post-2017 as the country changed its fuel mix for power generation in favour of imported liquefied natural gas (LNG). The capacity utilisation levels are low across all five refineries for the same reason.

The government is now encouraging the refineries to start producing Euro V and VI fuels while phasing out their furnace oil production capacities.

“The share of furnace oil, which is currently 30pc of our output, will go down to just 2pc. We’ll use that for internal consumption,” said Mr Mir.

Producing Euro V–compliant diesel and petrol, increasing the overall installed capacity and reducing the production of furnace oil are the three stated objectives of the $1.2bn expansion and upgrade project.

In the immediate term, PRL is going to undertake a front-end engineering design (Feed) study for the expansion project at an estimated cost of $50m, he said. The Feed study, in turn, will determine the exact project cost and lead to the financial close and the award of an engineering, procurement and construction (EPC) contract.

Mobilising resources

Like all other refineries, PRL has been in a tussle with the government in recent weeks after it ran out of capacity to store furnace oil.

The country’s energy managers imported excess furnace oil for power producers while expecting a shortage of LNG in winter months given its unusually high international prices. Their miscalculation created a glut in the local market as the five refineries were left with huge stocks that power producers refused to lift. As a result, PRL had to shut down its production on Dec 16 temporarily because of operational and ullage constraints.

Mr Mir said PRL will easily mobilise the funds required to undertake the $1.2bn project. “It’s a strong and economically viable project. With the backing of Pakistan State Oil (PSO), we don’t see any problem in raising funds because the economics of the project is very good,” he said while referring to its parent company that holds 63.56pc shareholding in PRL.

He said the $1.2bn expansion project will have a 35pc or $420m equity portion. PSO has committed to providing $273m or 65pc of the $420m equity portion, he said. “We’ll raise the rest of $147m or Rs26bn through different sources, including commercial loans, rights shares, sukuk and term finance certificates,” Mr Mir said.

As for the $780m debt portion of the $1.2bn project cost, the PRL MD said about half of it will be from foreign sources. “It’s too early to comment on its breakdown,” he said, adding that the award of the EPC contract will have the finance aspect as well. “It’ll be EPCF… our contractor will most probably be Chinese,” he said.

PRL ran a net loss of Rs378m in the most recent three-month period against a net profit of Rs282m a year ago. Its share price increased 2.13 per cent on Tuesday to Rs12.48 apiece.

Published in Dawn, December 29th, 2021

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