ISLAMABAD: Saudi Aramco has shared its terms with the Pakistani government to invest in a greenfield refinery capable of refining 300,000 barrels of crude oil per day, energy ministry officials told JEE News.
In its terms, Aramco is willing to invest if it is granted a 7.5 percent deemed duty on Mogas and diesel for the life of the project and a tax holiday for 20 years, including a tax holiday on import of plant and equipment. Increase in profits can be ensured. Up to 15 percent.
The oil company has also made it clear to the government that it will invest in Pakistan only if its conditions are met.
Prime Minister Shehbaz Sharif will be briefed on the progress at today’s meeting or other meetings this week on Aramco’s offer for a final decision on the mega project.
The Prime Minister, being the Minister in-charge of Petroleum Division, will also be informed that the section of the Refining Policy related to the up-gradation of existing refineries has been finalized and is ready to be submitted to the Economic Coordination Committee for approval.
According to the final draft for the upgradation of local refineries available with JEE News, existing refineries will be extended tariff protection equal to the current customs duty (10%) on imported Mogas and diesel. The funds to be channeled through tariff protection will be used for six years after the financial close for the purpose of upgrading the refinery, which may contribute about 25% to 30% of the project cost.
The Oil and Gas Regulatory Authority (OGRA) will monitor the fund utilization process as per its work plan and milestones which will be verified by one of the top four audit firms.
Local refineries produce about 11 MTPA of refined products (including 30% local crude processing). Deficit crude oil and petroleum products are imported at about $10 billion annually. Local and imported crude oil is refined through five local refineries.
Refineries are a strategic asset that fulfills the fuel requirements of transportation, energy, defense, etc., which play an effective role in emergency situations like epidemics and war situations. Local refineries need to be upgraded to produce Euro-V specification fuel and minimize residual fuel (furnace oil) production, requiring a huge investment of around $4 billion to $4.5 billion and government funding. Financial support is required.
However, in response to a query, an official involved in the talks with Saudi Aramco said the cost of the mega project would be between $9.5 billion and $12 billion, depending on the project’s salient features. which had to be finalized. Once the Prime Minister decided on the terms and conditions of Aramco.
Officials say that if Aramco’s conditions are adjusted, the country’s revenue from refined POL and crude oil will be severely affected. The oil company has also asked for a waiver of the 5 percent customs duty already imposed on crude oil imports for the refinery.
Saudi Aramco had refused to accommodate Pakistan State Oil’s offer of 10 percent deemed duty for 10 years with a 10-year tax holiday for a new mega-refinery, the official said.
“Saudi Aramco in its Charter of Demands also called for third-party investment in critical infrastructure to reduce CAPEX (Capital Expenditure) and urged the participation of Chinese investors risking their investment. has the capacity to reduce”.
He added that if Prime Minister Shehbaz accepts the incentive package sought by the Saudi firm, it will be made part of the refining policy for the new refineries.
The official said that if the incentive package for the new refinery sought by the Saudi oil company is implemented, the pre-tax (internal rate of return) would be 15 percent, but the post-tax IRR would be 14.9 percent and the meeting During. Aramco’s hurdle rate of 12-15%, the need to reduce tankage for crude and liquid products will further increase IRR.
Mentioning the implications of accepting Saudi Aramco’s terms, the official said Pakistan could earn $9 billion in net foreign exchange over 25 years. Aramco will supply the entire crude for use in the proposed refinery. The first mega-refinery of 300,000 barrels per day will be set up in Pakistan and this will open the door to further investment from other parts of the world, especially China.
“Establishment of greenfield refinery will protect Pakistan from any future fluctuations in the supply chain of petroleum products across the country,” he said. He added that the incentives sought by Aramco would also apply to all other potential investors. to a greenfield refinery.
Therefore, Saudi Aramco is yet to agree on the above terms, which will be later included in the draft oil refining policy for greenfield and new refineries.
