Saudi Arabia commits USD 10 billion to construct Pak's largest oil refinery

Four Pakistani stateowned petroleum companies have signed a memorandum of understanding with Saudi Arabia to build Pakistans largest oil refinery with an investment of USD 10 billion in the strategic Gwadar Port according to a media report on FridayThe MoU to set up the facility with a production capacity of 300000 barrels per day was signed on Thursday with the stateowned Oil and Gas Development Company Ltd OGDCL Pakistan State Oil PSO Pakistan Petroleum Ltd PPL and Government Holdings Private Ltd GHPL signed the MoU to join hands and provide comfort to the Saudi firm to enter Pakistan with a major investment the Dawn newspaper reportedAccording to news agency PTI the four SOEs would join the project through equity participation The government headed by Prime Minister Shehbaz Sharif is reportedly in the advanced stages of negotiations with Saudi giant Aramco to execute the greenfield refinery project at the strategic Gwadar Port and wants to complete the initial paperwork before its tenure ends in two weeksThe tenure of Pakistans current government will end on August 14 To facilitate the Saudi investment in refining the government has recently passed a new policy under which a new deep conversion oil refinery of a minimum of 300000 bpd achieving financial close of the project within five years shall be eligible for a customs duty of 75 per cent for 25 years on petrol and diesel of all grades produced effective from the date of commissioning of the refineryThe project envisions setting up an integrated refinery petrochemical complex with a crude oil processing capacity of a minimum 300000 bpd along with a petrochemical facility The integrated complex shall comprise various components such as marine infrastructure petrochemical complex storage for crude oil and refines utilities pipeline connectivity etcAccording to the Petroleum Division despite being integral to the growth of the economy no new refinery project has materialised in Pakistan for more than a decade and only two refineries have been added in the last 40 years Compared to the 20 million tonnes of refining capacity the actual capacity utilisation is at around 11 million tonnesThis is mainly due to the decreasing furnace oil demand in the country as a result of a change in the energy mix in the power sector and the fixed production slate of refineries that cannot produce just petrol and highspeed diesel and all products are produced simultaneouslyThus as furnace oil demand declines refineries have to lower their overall production and struggle to maintain their throughput at optimal levels This is despite the fact that independent consultants forecast Pakistans demand for petrol and diesel to grow beyond 33 million tonnes per annum by 2023The said refinery shall also enjoy a 20year tax holiday and would also be entitled to exemption from levy of customs duties surcharges withholding tax general sales tax any other ad valorem tax or any other levies and duties on import of any equipment to be installed or material to be used in the refinery projects without any precondition for obtaining certification by the Engineering Development BoardThese fiscal incentives and other facilitation would be recorded and protected under the project agreements between the project company the key sponsors investors and the concerned government and would be protected through a grant to Special Economic Zones ActMinister for State Musadiq Malik who witnessed the MOU signing ceremony said the Saudi oil firm showed a willingness to inject the entire equity into the multibilliondollar refinery project leading the Pakistani government to decide on a joint venture with key SOEs the report addedPTI