$5 bn Hub refinery

[LahoreEstate]

Monday, March 30, 2009
Pakistan gives 60-day deadline to UAE

By Khalid Mustafa

ISLAMABAD: Pakistan has asked the United Arab Emirates (UAE) government that if its state-owned International Petroleum Investment Company (IPIC) failed to start work on the Khalifa Coastal Refinery in the next two months, Islamabad will decide to expand the capacity of the Pak-Arab Refinery to refine another 100,000 barrels of oil per day.

Adviser to Prime Minister on Petroleum Dr Asim Hussain unveiled the government’s stance on the issue in an exclusive talk with The News. The adviser said he conveyed Pakistan’s stance to the UAE in a meeting held in Dubai on March 16.

“We want the UAE decision with regard to initiating the much delayed project in two months, otherwise Pakistan would seek and explore investment from other investors including making a decision to expand operational capacity of Parco to refine crude oil.” It is pertinent to mention that the UAE government earlier on Jan 10, 2009 backed out of an agreement to install a $5 billion Coastal Refinery at Khalifa Point near Hub in Balochistan.

An accord on implementation of the Khalifa Coastal Refinery Project had been signed at the Prime Minister House in Islamabad on November 13, 2007. The UAE minister of energy, senior officials from the IPIC, Ministry of Petroleum and Natural Resources and Parco had attended the signing ceremony. Under the agreement inked on November 13, 2007, the project was to be commissioned by 2012, but under the new scenario, so far the UAE government has not initiated any work on the project.

While walking out of the agreement on the project, with the capacity to refine 250,000 barrels of crude oil a day, the UAE had linked the establishment of the giant plant to taking charge of the country’s strategic asset of Parco (Pak-Arab Refinery Company).

Mr Hussain said he has some concerns over the huge cost of the Khalifa refinery, which is $5 billion as Pakistan wants reduced cost of the mega project. He admitted that the UAE government earlier refused to construct the Khalifa refinery for many reasons, which also included the desire to buy some government of Pakistan’s shares in Pak-Arab Refinery for getting the operational command of Parco.

Pakistan has 60 percent equity and the UAE 30 percent in Parco - located in Mehmood Kot area of Multan. The $886 million country’s largest refinery, capable of purifying 100,000 barrels of oil a day, was commissioned well within its budget and a month ahead of schedule in September 2000. The White Oil Pipeline transports imported oil from Port Qasim to the Pak-Arab Refinery.

UAE had also developed dispute with the Pakistan Government and insisted on extension of the Managing Director of Parco Muhammad Rasheed Jung. Mr Asim said that Mr Jung has been given extension. He has already availed three extensions, each for one year.

He said in the March 16 meeting, the UAE government did not come up with any time frame to start the Coastal Refinery to be established at Khalifa Point in Balochistan.

The UAE government argued that because of the global economic meltdown that adversely affected the UAE economy it is unable to immediately start work on the refinery with huge investment. Keeping in view the expected delay in initiating the project, the government will ask Parco to start working by enhancing its capacity to refine another 100,000 barrels of oil per day to cater to the country’s future needs. For this purpose, Parco top management will arrange investment from potential investors.

However, Mr Rasheed Jung, for whom the UAE government fought with Pakistan’s government for seeking his extension as MD Parco, told The News that the UAE government has invested 36 percent of its economy in down and upstream oil sector in its country, but in the wake of economic meltdown it is not possible for UAE to start working on Khailfa Refinery. Mr Jung said he is of the view that after two to three years, the oil prices will surge that will make the project for the UAE government financially viable to start, meaning thereby that the project will be delayed by another one to two years.

However, he said that another meeting with the UAE government is going to be held in April 7 in Dubai in which chances are bright that the UAE government would give time frame for building the mega project.

During an exclusive talk, Mr Hussain also updated The News on the proposed Iran-Pakistan-India gas pipeline project. He said once the federal cabinet ratifies the proposal to import gas from Iran on 80 percent of crude parity price based on Japan Cocktail price, then Pakistan and Iran would formally initial Gas Sales and Purchase Agreement (GSPA). The adviser said at 80 percent of crude oil price, Pakistan would import gas from Iran at $6 per MMBTU per day.

He said Pakistan is to import one billion cubic feet gas per day purely for 5,000 MW power generation not for domestic consumption. Mr Hussain argued that if the gas even gets imported at 80 percent of the crude oil price, then Pakistan would be saving $1 billion if compared with the average crude oil price and $375 million if compared with cost of the LNG. The ECC examined the proposal of Steering Committee on IP gas line. The gas to be imported under IP gas line from Iran would constitute 25% of Pakistan’s current gas production in order to support 5,000 MW of power generation capacity.

He said that the government has decided to allow refineries to impose 10 percent of the diesel as processing fee to ensure their smooth operational running. Earlier the government had imposed 10 percent deemed duty on POL products, but later on it was reduced to 7.5 percent with the pledge that government would further reduce the said duty. But with massive reduction in oil prices, the margin of refineries have tumbled manifold, rather all the refineries went in loss. In a bid to rehabilitate the refineries, the government instead of deemed duty, has decided to impose 10 percent processing fee on POL products.

To a question, he said in the wake of huge reduction in crude oil price in global market, the government has decided to hedge POL for future needs and for this Ministry of Petroleum and Natural Resources and Ministry of Finance has started working out modalities and modus operandi for hedging POL products at the existing prices for future needs.

“The oil prices in future will go up when the stimulus package in USA will start giving dividends and strengthening the US economy. At that time Pakistan will need the availability of oil at lowered prices and that is possible only if we hedge POL products at the existing lower oil prices,” he argued.

http://www.thenews.com.pk/top_story_detail.asp?Id=21227