Writing for The Express Tribune, author Sarfaraz Khan portrays the potential advantages that could have been realized through the development of the oil refining industry in Pakistan.
The author emphasizes the creation of job opportunities, increased foreign investment, and the potential for exporting refined petroleum products. All these factors had the potential to stimulate economic activity and contribute to the strengthening of Pakistan’s foreign exchange reserves.
The establishment of a new $10 billion oil refinery, as expressed by Saudi Arabia’s Energy Minister Khalid al-Falih during his visit to Gwadar in 2019, coupled with agreements worth $20 billion signed by Saudi Crown Prince Mohammed bin Salman, showcased the interest and willingness of Saudi Arabia to invest in Pakistan. In addition to the new refinery, the existing five oil refineries in Pakistan had plans to modernize and expand their facilities, with a focus on increasing the production of high-value petrol and diesel while phasing out low-quality furnace oil.
The scale of investment, reaching tens of billions of US dollars, had the potential to create substantial job opportunities and attract foreign direct investment not only from Saudi Arabia but also from other nations such as China. Furthermore, the expansion and modernization of existing refineries, combined with the installation of the new Saudi facility, could have significantly increased Pakistan’s output of refined petroleum products, enabling the country to export excess production and transform the refining industry into an export-oriented sector.
Apart from the economic benefits, the development of the oil refining industry in Pakistan could have led to the growth of the petrochemical sector. Petrochemicals play a vital role in modern civilization and are used in various consumer goods. Developing a petrochemical industry in Pakistan would have not only opened up new avenues for exports but also strengthened other industries that rely on petrochemicals as raw materials.
To realize these ambitious goals, the government needed to implement business-friendly policies and create a favorable climate for the oil refineries. The existing and new participants in the oil sector explicitly sought a new oil refinery policy, which would provide long-term incentives such as tax breaks and tariff protection. Such measures would have instilled confidence in investors and given them a clear understanding of their potential return on investment, facilitating substantial investments without concerns of abrupt changes in the business climate.
Unfortunately, the introduction of a new oil refinery policy has been delayed. Political instability, including changes in key government positions and a shift in power, has contributed to the lack of progress. Furthermore, there seems to be a disinterested attitude and a missing sense of urgency from the government, evident in their repeated requests for refineries to submit audited financial data and details on upgrade projects, seemingly stalling the introduction of the refining policy.
Consequently, the delay in implementing reforms and the lack of political will have had adverse effects on investment in the oil refining industry and the overall Pakistani economy. The expected benefits, including foreign exchange savings, job creation, enhanced energy security, increased domestic fuel production, and growth in both domestic and foreign investment, have failed to materialize. Instead, the economic slowdown has exacerbated problems within the refining industry, such as decreased demand, high fuel prices, limited credit facilities, and increased smuggling of diesel from Iran.
These challenges have prompted some refineries to consider temporary shutdowns or significant reductions in production. Pakistan’s refinery utilization rates, which were already low compared to other countries, may decline further if refineries scale back operations.
In conclusion, the potential growth and prosperity that the oil refining industry could have brought to Pakistan have been hindered by the government’s failure to support the sector and implement necessary reforms. The delay in introducing a new oil refinery policy, along with various challenges faced by the industry, has had a detrimental impact on investment, job creation, and the overall economy.
To read the full article visit www.tribune.com.pk
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