To construct Pakistan’s largest oil refinery, Saudi Arabia invests $10 billion in Gwadar

According to a report in the media on Friday, four state-owned petroleum corporations in Pakistan have signed a memorandum of understanding with Saudi Arabia to construct Pakistan’s biggest oil refinery with a $10 billion investment in the important Gwadar Port.

The state-owned Pakistan State Oil (PSO), Pakistan Petroleum Ltd (PPL), and Government Holdings Private Ltd (GHPL) signed the MoU on Thursday to work together and give comfort to the Saudi company to enter Pakistan with a significant investment, according to the Dawn newspaper. The facility will have a production capacity of 300,000 barrels per day.

The four SOEs would participate in the initiative by investing equity.

In order to implement the greenfield refinery project at the important Gwadar Port, the government led by Prime Minister Shehbaz Sharif is said to be in advanced stages of discussions with Saudi giant Aramco. The government aims to finish the basic paperwork before its term as in office expires in two weeks.

On August 14, the present Pakistani government’s term will come to an end.

The government recently passed a new policy to help Saudi Arabia’s investment in refining. According to it, a new deep conversion oil refinery with a minimum capacity of 300,000 bpd that achieves financial close of the project within five years is eligible for a customs duty of 7.5% for 25 years on gasoline and diesel of all grades produced starting from the date of commissioning of the refinery.

The project calls for the construction of a petrochemical plant and an integrated refinery petrochemical complex with a least 300,000 bpd capacity for processing crude oil.

The integrated complex must include a variety of elements, including pipeline connections, petrochemical facilities, storage for crude oil and refined products, and maritime infrastructure.

 

Despite playing a crucial role in the expansion of the economy, just two new refinery projects have materialized in Pakistan in the last ten years, according to the Petroleum Division.

 

In actuality, only around 11 million tonnes of the 20 million tonnes of refining capability are being used.

 

This is primarily caused by the country’s declining need for furnace oil as a consequence of a shift in the energy mix in the power sector and the refineries’ set production schedule, which prevents them from producing only gasoline and high-speed diesel but all products concurrently.

 

In order to maintain their throughput at optimum levels, refineries must reduce their total output when furnace oil demand drops.

Despite the fact that independent specialists predicted Pakistan’s demand for gasoline and diesel to increase to over 33 million tonnes annually by 2023, this is the case.

The aforementioned refinery will also be granted a 20-year tax holiday and will not be subject to any requirements for Engineering Development Board certification prior to being exempt from customs duties, surcharges, withholding taxes, general sales taxes, other ad valorem taxes, or any other levies and duties on the import of any equipment or materials needed for the refinery projects.

The project agreements between the project firm, the major sponsors, investors, and the relevant government would record and safeguard these financial incentives and other facilitations, and they would also be protected by the Special Economic Zones Act.

The Saudi oil company demonstrated a readiness to put all of the equity into the multibillion-dollar refinery project, according to Minister for State Musadiq Malik, who was present at the MOU signing event. This convinced the Pakistani government to choose a joint venture with significant SOEs.