Pakistan Refinery Limited (PRL) has announced its intention to sign a supplemental agreement with the government to upgrade its refinery, aiming to leverage maximum incentives offered through amendments in the refinery upgradation policy dated February 2024.

The amended policy now allows refineries to withdraw a maximum of 27.5% funds from the escrow account for refinery upgrades, compared to the 25% offered in the original policy notified in August 2023.

In a notification to the Pakistan Stock Exchange (PSX), the state-owned refinery stated on Wednesday, “Pakistan Refinery Limited intends to opt for the amended provisions/incentives of the Policy (Brownfield Refining Policy 2024) and execute a supplemental to the PRL Upgrade Agreement and Escrow Account Agreement.”

The notice further stated that following its earlier announcement in November 2023 regarding the PRL Upgrade Agreement signed with the Oil and Gas Regulatory Authority (OGRA) under the Brownfield Refining Policy 2023, certain amendments had been made, leading to the promulgation of the Brownfield Refining Policy 2024. Earlier, PRL initiated a refinery expansion and upgrade project (REUP) with an estimated investment of $1.7 billion, aiming to double its installed crude processing capacity to 100,000 barrels per day. This expansion also aims to boost the production of high-profit-margin products and low-sulphur fuel, including petrol and diesel.

Read PRL launches $1.7b refinery upgrade project

According to a press statement, the upgrade will significantly increase the production of motor spirit (petrol) by more than six times, high-speed diesel (HSD) by three times, and ultimately eliminate the production of furnace oil (FO) from its product portfolio.

“Without these upgrades and expansion, the long-term sustainable operation of the company will remain a question mark,” it said in the statement.

PRL MD/CEO Zahid Mir stated recently that the project aims to achieve financial close soon, potentially by the end of December 2024, by securing all financial arrangements amounting to $1.7 billion. The project is expected to be completed by the end of the calendar year 2028.

Regarding the financing, Mir elaborated that 25% of the financing would be provided by the government, while the refinery would arrange $200 million annually through furnace oil exports.

The government is collecting a 10% duty on sales of petroleum products and depositing it in an escrow account. Funds from the account will also be available to the refineries for upgrade projects.

The press statement highlighted that the project will also enable PRL to produce EURO V standard fuel, “which will save the company billions of rupees annually in penalties for non-compliance with environmental regulations.”

These agreements follow a deal with the regulator, the Oil and Gas Regulatory Authority, to access incentives outlined in the new refinery policy. The upcoming signing of the supplemental agreement will significantly enhance the incentives offered in the amended brownfield policy approved in February 2024, reflecting PRL’s proactive approach to regulatory compliance and its determination to capitalise on the incentives outlined in the new refinery policy.

Meanwhile, PRL is focusing on operational excellence to ensure the sustainability of its existing operations. “Consequently, PRL achieved and surpassed production targets for the second quarter of 2023-24, demonstrating a significant improvement in its production mix and setting new industry standards,” the statement noted.

Despite economic challenges and low local demand for furnace oil, PRL’s financial performance remains robust. The company recorded a second-quarter financial close at Rs2 billion, following the record profit of Rs4.5 billion in the first quarter of this year. The six-month profit stands at Rs6.5 billion, marking the fourth consecutive year of profit for PRL, which includes the highest ever profit of Rs12.5 billion in 2022.

Published in The Express Tribune, April 4^th, 2024.

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