A Chinese investment corporation has committed to investing $1 billion in Pakistan Refinery Limited (PRL) for its expansion project. The deal is expected to transform PRL’s production capacity, doubling output in the coming years.
However, according to a news report, the Chinese firm has made it clear that it wants no government involvement in the deal. The company expects the repayment of its investment in dollars, free from government control or intervention.
Currently, the State Bank of Pakistan allows the private sector, including refineries, to retain dollars for investments. However, the Chinese corporation has stressed the need for further easing of such controls to ensure smooth repayment of the loan. The company seeks a seamless process for remitting funds back to China.
Sources from the Petroleum Division confirmed that PRL assured the Chinese investors that the required dollars for repayment would be generated through the export of petroleum products.
China Export & Credit Insurance Corporation (SINOSURE), a state-backed insurance entity promoting China’s foreign trade, also supports the non-involvement of the Pakistani government in the financial arrangements.
The PRL upgrade aims to double its production capacity from 50,000 barrels per day to 100,000 barrels per day. The refinery has signed an agreement with China’s United Energy Group (UEG) to execute this expansion project.
The upgrade will help meet rising domestic demand and transition PRL from a basic hydro-skimming process to a deep-conversion process. The project also aims to produce Euro 5-compliant diesel and petrol, eliminating furnace oil production, which has been a loss-making product.
Following the expansion, PRL’s annual motor spirit production is expected to jump from 250,000 tonnes to 1.5 million tonnes, while high-speed diesel (HSD) output is projected to increase from 600,000 tonnes to 2 million tonnes.
In October 2023, PRL and UEG signed a memorandum of understanding (MoU) in China to strengthen cooperation in Pakistan’s energy sector. This partnership is anticipated to significantly benefit Pakistan’s energy landscape by contributing to cleaner, more sustainable fuel production.
Additionally, PRL has entered into licensing agreements with Honeywell UOP and Axens to produce Euro 5 gasoline and diesel. However, PRL and other refineries still await the signing of a supplemental agreement with the Oil and Gas Regulatory Authority (Ogra) to finalize the upgrades under the new refinery policy.
The government has already notified the amended “Pakistan Oil Refining Policy for Up-gradation of Existing/Brownfield Refineries 2023.” This policy aims to upgrade refineries to produce Euro-V fuels and reduce furnace oil production by offering incentives, including a 10% duty on petrol and a 2.5% incremental duty on HSD. These incentives will help fund up to 27.5% of the upgrade costs.
With this investment and expansion, PRL is set to play a crucial role in reshaping Pakistan’s energy sector, ensuring cleaner fuels and meeting growing domestic demand.
