Pakistan refinery project stalled due to lackluster response from Saudi Aramco

Officials say Aramco officials have told Pakistan that the refinery business is no more lucrative than in the past.

An Aramco employee walks near an oil tank at a Saudi Aramco refinery and oil terminal in Saudi Arabia. — Reuters/Archive
  • Aramco officials believe the refinery business is no longer lucrative.
  • Pakistan has been given hints that it could reduce equity in the project.
  • Officials say Aramco is more interested in a petrochemical complex.

ISLAMABAD: Despite the government’s efforts to woo Saudi Aramco for the development of a $10 billion state-of-the-art deep conversion refinery, it appears the company is not interested in investing in the project, reported News citing officials who spoke on condition of anonymity.

According to the publication, the deep conversion refinery, if completed, would have the capacity to refine crude oil of 300,000 barrels per day (BPD).

Luring Aramco to invest in the project has become a concern for Islamabad as the government notified a new green refinery policy loaded with huge incentives of 7.5% deemed duty for 25 years and a 20-year tax holiday. years according to the wishes of the Saudi government. said senior officials aware of the development News.

“Now, senior Saudi Aramco officials, in recent interactions with Pakistani authorities, have indicated that Aramco has disassociated itself from the Saudi government and has achieved deregulation to a reasonable degree. That is why its management is no longer willing to invest in the refinery business around the world. He says the refinery business is no longer lucrative as it was in the past.”

The official said Aramco gave Pakistan a hint that it could reduce its equity in the refinery to $900 million of the project’s total equity. The $900 million investment is equivalent to 30% of the project’s $3 billion total capital.

“Previously, the total capital had been estimated at $3 billion and from the beginning KSA had shown its willingness to invest $1.5 billion. The remaining capital of $1.5 billion would be raised from Pakistan. Under the previous agreement, Saudi Aramco would lead the project and use its influence to arrange a $7 billion loan for the project. “Pakistan has now been told that Aramco would not lead the project and that the Pakistani government would have to manage the loans on its own.”

The official said, “The current scenario may change after the general elections in Pakistan if the Nawaz-led PML-N government is established.”

He added: “Aramco has also shown greater interest in setting up a petrochemical complex, not a refinery, and this has put the authorities in a bind.”

The government expected to complete and commission the project under the engineering, procurement and construction financing (EPC-F) model. In the case of Pakistan, the project was planned to be completed with a 30:70 equity loan ratio, meaning $3 billion in equity and $7 billion in loans.

Pakistan, during the Pakistan Democratic Movement government on July 27, had signed a memorandum of understanding with China Road and Bridge Corporation (CRBC). As per the MoU, CRBC would participate in the refinery as a contractor and would also secure a reasonable amount of loans from Chinese banks for the mega project.

On the same date, four MoUs were also signed under which Pakistan State Oil would have a 25% stake in the country’s capital of $1.5 billion, while Oil & Gas Development Company Ltd (OGDCL), Pakistan Petroleum Limited (PPL) and Government Holdings Private Limited (GHPL) will hold a 5% stake each.

Later, Riyadh asked Islamabad to approach China’s Sinopec and include it in the project. He requested that the engineering, procurement and construction (EPC) contract be awarded to the Chinese company.

In response, PSO, which has been nominated by the Pakistani government, is in contact with the Bank of China and China Sinopec.

Sinopec also provides services to Saudi Arabia, including drilling equipment, well services, geophysical exploration, pipelines, roads and bridges, and other EPC projects. Sinopec has served Aramco, SWCC, RC and many local Saudi cities, and has earned a good reputation among customers as well as Saudi people.

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