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While Pakistan is in a midst of a fairly critical phase of development, the financial destiny of refineries in Pakistan is linked with international crude oil and product pricing. With little flexibility to vary the throughput levels, refineries in Pakistan survived in essence, from heavy subsidy from the government. Along with this milieu of unhealthy macroeconomic situation the refining industry is faced with an introduction of newer generation technologies, globalization and deregulated market concept, which poses a challenge for refineries in Pakistan.

Analysts told PAGE that the growth potential for the oil products is great, which comes from the population growth rate. As the number of cars in the country is on increase, the greater will be the demand for the fuel products and therefore, the more the company will be profitable. Apart from the growth rate of the population, the increase in demand of lube oils, which are used in machines, and also asphalts, used in the production of roads.

With the deregulation of the fuel products, the opportunities of exporting more of the fuel products will also improve. Apart from the opportunities, a number of threats are also existent in the industry, which help the companies in taking guard and thereby making them more cautious in the future.

Since the existing companies work under somewhat of collaboration, in importing the crude oil and also in sharing the manpower resources as well, then the arrival of the new entrant is a potential threat to all the participants in the industry.

According to the industry sources, the industry is susceptible to changes in the technology of the refining process. The more sophisticated the refinery, the greater its output and therefore more profitable that company is in the industry. Therefore, constant technological changes should be used in order to change this threat into an opportunity. The heavy dependency on the foreign suppliers is also a major threat to the organization. Emphasis should be laid on indigenous crude oil processing, because it will not only help the company in maintaining its foreign exchange reserves, it will also help the companies in maintaining their liquidity.

For the refining industry, de-regulation of fuel oil has been identified as the most important critical factor. De-regulation would allow refineries both in public and private sector to dictate prices and determine their margins.


Keeping in view potential in refinery business, China Huanqiu Contracting and Engineering Corporation (HQC) has shown interest in setting up an oil refinery in Pakistan preferably at Gwadar and Karak, Khyber-Pakhtunkhwa (KPK).

Officials of the company, which subsidiary of China National Petroleum Corporation (CNPC), recently met the Board of Investment (BoI) officials and conveyed about the group's interest in setting up the refinery.

The PML-N led government is encouraging the private sector to set up oil refineries in Pakistan and there is no tax for a period of 20 years in this sector. Laws have been tailored to safeguard and ensure protection of investments.

On the other hand, Al-Motahaden Petroleum Refineries of the United Arab Emirates will invest $500 million in setting up an oil refinery in Pakistan in an attempt to reduce imports and meet the country's growing energy needs. The refinery will be set up preferably in Khyber Pakhtunkhwa and will enhance the country's refining capacity and help boost economic development.

In this regard, a memorandum of understanding was signed by Al-Motahaden Petroleum Refineries and the Board of Investment (BoI). The refinery would have the capacity to process about 15,000 to 20,000 barrels of oil per day. Al-Motahaden Petroleum Refineries will form a consortium consisting of local and foreign companies to develop the project and make the required foreign direct investment in Pakistan.

The initiative will support Pakistan's efforts to fulfill its energy requirements and enhance economic development. It will encourage investors to develop such other projects through foreign direct investment and international expertise.

On the other hand, the Ministry of Petroleum and Natural Resources drive against non performing oil and gas exploration companies is continuing as it issued notices to 12 more inactive license-holders for their failure to start exploration work as per agreement.

"The Ministry of Petroleum and Natural Resources have revoked 16 such licenses so far and permits of all oil and gas companies failing to start exploration activities as per their obligation will be canceled," sources said.

Keeping in view the prevailing energy situation, the sources said the government had tightened the noose around non performing Exploration and Production (EandP) companies, who obtained licenses and were reluctant to initiate exploration work.

The sources informed that the action was being taken against the inactive EandP companies holding licenses for last several years without any ground work. "More inactive licenses will be revoked shortly after completing all formalities." The sources said licenses were not canceled instantly, rather such companies were given notices and provided an opportunity to present their cases, adding that all the process was completed in a transparent manner before revoking licenses.

Further, Oil and Gas Development Company (OGDCL) has made payments of around Rs229.733 billion on account of oil and gas royalty to the provinces during last 15 years, official sources said Monday.

"OGDCL has paid around Rs229,733 million royalty to Sindh, Punjab, Balochistan and Khyber Pakhtunkhwa provinces from financial year 2001-02 to 2015-16," the sources said.

Giving break-up, the sources informed that the company paid Rs124.558 billion to Sindh, Rs35.244 billion to Punjab, Rs19.645 billion to Balochistan and Rs50.327 billion to Khyber Pakhtunkhwa during the said period.
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Publication:Pakistan & Gulf Economist
Geographic Code:9PAKI
Date:May 22, 2016

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