Pakistan Refinery Limited (PRL) successfully increased its petrol and diesel production to 60% in the financial year FY2021. The refinery decided to use light crude for now in order to counter the issue of upgrading its existing plants.

The company intends to utilize its capacity at 100% in order to increase production and is considering the following two options. It can either opt to procure and install advanced technology for its production facility operating in Karachi or it can choose to acquire an operational advanced refinery in the global market.

As reported in the Annual Report 2021 provided to the Pakistan Stock Exchange (PSX), the company has an objective of producing two new products via the upgraded refinery; Euro 5 and Euro 6 petrol.

Premium products such as petrol and diesel can be increased in production through light crude in comparison to heavy crude that produces around 30-50% of furnace oil.

It must be taken into consideration that the upgradation of a refinery could take 4-5 years and would require a huge investment of nearly $1billion. Currently, PRL has the capacity of producing 47,000 barrels of crude oil into multiple products. According to industry officials, previously almost all of the 5 refineries in the country were operating at 40-50% of their installed capacity because of the excess production of furnace oil.

Petroleum products are produced simultaneously using crude oil. The significant decrease in demand of furnace oil led to the oil being stored in huge quantities taking over more storage capacity consequently hampering the production of other petroleum products.

Deep-conversion facilities essentially decrease the furnace oil production enough to bring it to manageable levels, increasing the importance of the upgradation of refineries to this effect.

The annual report elaborated on the reduction of furnace oil and stated “The company continued its altered operational philosophy by using higher amount of lighter crudes and operated at 60% capacity. This allowed the company to reduce the production of high Sulphur furnace oil (HSFO) and increase the output of high-speed diesel (HSD) and motor spirit (MS).”

PRL also abandoned its policy to use only selected grades from the Middle East and incorporated new crudes in order to switch up its crude recipe this year.

“Through this change, the company produces high-value marine residual fuel (MRF) and Euro-II compliant high-speed diesel without undertaking any upgrade project,” it said.

“However, sustained production of these products requires long-term agreements with relevant crude suppliers. The company continues its discussions with various crude suppliers to secure arrangements, ensuring sustainable profitability by making the production mix favorable.”

Premium products being produced by PRL also include MS 92/ 95 and 97 RON which contributed to increasing the revenues in FY21.

Last year, Pakistan Refinery limited realized huge losses to the tune of Rs 7.59 billion. However, it has managed to make profits this year amounting to an after-tax profit of Rs 937.15 million.

According to the report “To comply with the revised Euro-V product specifications of MS (petrol) and HSD (diesel), the company is exploring two options. It is considering acquiring pre-owned refining units with deep conversion capability or mulling over the option of having technologies which give required upgrade capability with new units but with low capex (capital expenditure),”.

It must be noted, that the Finance Act 2021 has incentivized the refining sector. It has reduced the rate of minimum tax on turnover from 0.75% to 0.5%   and allowed for a decrease in the customs duty rate on crude oil from 5% to 2.5%.

However, a sales tax of 17% has been levied on crude oil effective July 1, 2021 consequently adding pressure on the liquidity of refinery companies as highlighted by the report.

The story was filed by the News Desk.
The Desk can be reached at info@thecorrespondent.com.pk.

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