Pakistan engages in diplomatic efforts for $10bn green refinery project with KSA, Sinopec

Pakistan has embarked on a diplomatic mission to secure collaboration with the Kingdom of Saudi Arabia (KSA) and Sinopec, a major Chinese corporation specializing in refinery construction, for a $10 billion deep conversion refinery. This project aims to refine 300,000 barrels of crude oil per day.

The Pakistani ambassador in Saudi Arabia has been instructed to approach KSA authorities, while the Foreign Office has been directed to use diplomatic channels to engage Sinopec in China for their participation in the project.

This initiative follows unsuccessful attempts by Pakistan State Oil (PSO) and the Petroleum Division to secure agreements with Saudi Aramco and Sinopec.

The new green refinery policy, announced and notified by the Pakistan government, offers incentives including a 7.5 percent deemed duty for 25 years and a 20-year tax holiday, aligning with KSA’s preferences. However, further progress requires additional effort.

Saudi Aramco previously suggested that Pakistan award engineering, procurement, and construction (EPC) contracts to Sinopec. In response, PSO, representing the Pakistani government, has been coordinating with the Bank of China and Sinopec.

Despite Sinopec’s established reputation from providing various services in Saudi Arabia, a response from Aramco regarding Sinopec’s involvement in the project has not been received.

Aramco’s management, having gained a degree of deregulation from the Saudi government, expressed reluctance to invest in global refinery businesses, citing reduced profitability in the sector.

Instead, Saudi Aramco has shown interest in developing a crude-to-chemical petrochemical complex in Pakistan.

In light of these developments, Pakistani authorities are now pursuing diplomatic channels as a last resort to actualize the green refinery project.

Discussions and information exchange about the project with Sinopec have already begun through these channels.

The proposed financial structure for the refinery is based on a 30:70 equity-to-loan ratio, with $3 billion in equity and $7 billion in loans.

Saudi Aramco is expected to contribute 50 percent of the equity, while the remaining will be shared by Pakistan. The loan component will be arranged by Aramco through international financial institutions.

Additionally, the China Road and Bridge Corporation (CRBC) will secure loans from Chinese banks under an EPC-F model. PSO, along with other Pakistani companies, will hold shares in the Pakistani equity contribution.

Aramco has completed a pre-feasibility study and marketing assessment and will proceed with a detailed feasibility study before launching the project.

The refinery will meet at least Euro 5 specifications for petroleum products and will have the liberty to sell domestically or export surplus products, subject to regulatory approvals.