Pakistan is poised to increase its annual imports of Russian crude oil by up to 3.6 million tonnes starting in January 2024. The move, driven by economic considerations, involves two refineries in Pakistan finding it more cost-effective to refine the URAL grade of crude oil and conduct transactions in yuan, rather than U.S. dollars. This strategic pivot has been revealed by top officials of Pakistan’s Energy Ministry.
Cnergyico PK Limited, a private sector refinery, has initiated plans to import two cargos of 100,000 tonnes each every month under a long-term agreement with a Russian company. Cnergyico has the capacity to refine 156,000 tonnes per day and can easily process 200,000 tons of Russian crude in a month. Meanwhile, Pakistan Refinery Limited (PRL) will import up to 1.2 million tonnes of URAL crude annually under a flexible business-to-business model, contingent on pricing and volume considerations.
The decision to carry out these transactions in yuan is expected to bring several advantages, including significant cost savings for the refineries, avoidance of premium costs related to U.S. dollar transactions, and the preservation of substantial foreign exchange reserves.
In addition to the financial benefits, both refineries are projected to undergo significant upgrades over the next six years, enabling them to substantially reduce the production of furnace oil from URAL to just 7-8 percent. This shift will allow a higher proportion of URAL to be converted into finished products, potentially increasing profitability.
Importantly, the transactional model allows PRL to independently import Russian crude under a business-to-business framework, exempt from PPRA (Public Procurement Regulatory Authority) rules. Additionally, SOE (State-Owned Enterprise) rules do not apply to PRL. The government owns just 32 percent of shares in PRL, with the remaining shares held by the public, banks, and investment houses.
Furthermore, it has been disclosed that a Chinese company, United Energy Group (UEG), is currently in talks to acquire a 30 percent stake in PRL, with due diligence underway. UEG is expected to provide $1 billion in funding and enter into an engineering, procurement, and construction (EPC) contract with PRL. This partnership aims to boost PRL’s refining capacity from 50,000 tonnes per day to 100,000 tonnes, in addition to facilitating the refinery’s modernization.
The profits generated from these import arrangements are intended for the refinery’s enhancements rather than being passed on to consumers as fuel price relief.
