Cnergyico PK, formerly known as Byco Petroleum, the largest oil refinery in Pakistan, has announced that it may sign a “final agreement” with the government soon to upgrade its both refineries under the amended Pakistan Oil Refining Policy for Up-gradation of Existing/ Brownfield Refineries, 2023.

Talking to The Express Tribune, an official involved in the process of upgrading the refinery said “Cnergyico has not yet signed the final agreement…but expects to ink the deal soon with the government.” “The company is all set … to do everything to upgrade its plants,” he said.

The upgrade will allow the refinery to significantly reduce the production of outdated product ie, furnace oil and boost output of high-profit-margin and premium products like petrol and diesel. This will result in a significant fall in imports of expensive refined products and save foreign exchange.

The refinery, having total installed capacity of processing 156,000 barrels per day of crude oil into refined products, reported to Pakistan Stock Exchange (PSX) on Friday “the anticipated investment by the company is set to exceed $1 billion (for the upgrade).”

“However, precise cost estimates will be established post Front-end Engineering Design (FEED) of the upgrade project,” the notification read.

FEED is the basic engineering work done at the completion of the conceptual design or feasibility study. This is the pre-EPC (engineering, procurement and construction) stage.

According to the official, the newly amended policy gives a five-year time to complete the upgrade since the inking of the final agreement. “Cnergyico will complete the process within the stipulated time frame,” he said.

The source said the policy gave six-month time for achieving financial close (arranging full financing) and expected the company to meet the goal within the given time frame.

He pointed out that the refinery was using a mix of light and heavy crude to reduce the production of furnace oil. Despite this, it is still producing a significant quantity of fuel oil.

Rough estimates suggest the refinery is producing 40-45% furnace oil from crude processing. The heavy crude carries a higher amount of furnace oil compared to the lighter one. Until a few years ago, furnace oil was being heavily utilised in electricity generation. However, the setting up of new, cheaper power plants forced the government to phase out the oil-run plants.

Besides, the UN maritime agency also banned the use of high sulphur-containing furnace oil in sea transportation from January 2020. “Furnace oil is being sold at a price lower than that for crude oil,” an industry official said the other day. Some of the refineries are exporting furnace oil to get rid of the unnecessary product. Plant upgrades under new technology will help convert furnace oil into petrol and diesel.

Cnergyico PK, in its notification, said it had already committed to upgrading its both refineries during 2020 and 2021 to manufacture Euro-V standard gasoline (petrol) and diesel, while concurrently reducing fuel oil production. It said the government had recently approved amendments, after consultation with all refineries, to the Pakistan Oil Refining Policy for Up-gradation of Existing/ Brownfield Refineries, 2023.

The policy will bring an investment of approximately $5-6 billion in the refining sector in Pakistan. Earlier, Pakistan Refinery Limited (PRL) announced that it had launched the plant upgrade project with an estimated investment of $1.7 billion under the amended policy.

The company aims to double its installed processing capacity to 100,000 barrels per day from 50,000 barrels. It is expected to complete the project by the end of 2028, according to PRL officials.

Arif Habib Limited, a local research house, said recently “ATRL (Attock Refinery Limited) will reach a refinery upgrade agreement soon.” “Our expectations stem from ATRL having the strongest balance sheet in the refinery sector and massive cash position of Rs66 billion (Rs616 per share) with no debt,” it said. At present, Pakistan has five oil refineries including Pak-Arab Refinery (Parco), Attock Refinery, National Refinery, PRL and Cnergyico PK.

Published in The Express Tribune, March 10^th, 2024.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.