Pakistan’s refinery project hangs in limbo due to Saudi Aramco’s weak response

Aramco executives have told Pakistan the refinery business is no longer as attractive as it used to be, officials say

An Aramco worker walks near an oil tank at the Saudi Aramco oil refinery and oil terminal in Saudi Arabia.  - Reuters/File
An Aramco worker walks near an oil tank at the Saudi Aramco oil refinery and oil terminal in Saudi Arabia. – Reuters/File
  • Aramco executives believe the refinery business is no longer attractive.
  • Indications have been given to Pakistan that it can reduce equity in the project.
  • Officials say Aramco is more interested in the petrochemical complex.

ISLAMABAD: Despite the government’s efforts to woo Saudi Aramco to develop a $10 billion state-of-the-art deep conversion refinery, it seems the company is not interested in investing in the project, reports said. news Citing officials who spoke on condition of anonymity.

According to the publication, the refinery will have the capacity to refine 300,000 barrels per day (bpd) of crude oil if it undergoes deep conversion.

Enticing Aramco to invest in the project has become a concern for Islamabad as the government has notified a new green refinery policy that includes 7.5% deemed duty for 25 years and 20 years of tax holidays as per the wishes of the Saudi government. There are huge incentives involved. Senior officials related to development told news,

“Now, top Saudi Aramco officials, in recent talks with Pakistani officials, have indicated that Aramco has separated itself from the Saudi government and has regained a considerable degree of regulation. This is why its management is no longer interested in investing in refinery business across the world. It said the refinery business is no longer as attractive as it used to be.

The official said Pakistan had been indicated by Aramco that it could reduce its equity in the refinery by up to $900 million out of the total equity of the project. The $900 million investment is equivalent to 30% of the total $3 billion equity in the project.

“Earlier, the total equity worked out was $3 billion and initially, KSA wished to invest $1.5 billion. The remaining equity of $1.5 billion was to be arranged from Pakistan. According to the earlier understanding, Saudi Aramco was to lead the project and use its influence to arrange a $7 billion loan for the project. Now Pakistan has been informed that Aramco will not lead the project, and the Government of Pakistan will have to arrange the loan itself.

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

He further said, “Aramco has developed more interest in setting up a petrochemical complex rather than a refinery and this has put the authorities in trouble.”

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

Pakistan had signed an MoU with China Road and Bridge Corporation (CRBC) on 27 July during the Pakistan Democratic Movement-government. As per the MoU, CRBC will participate in the refinery as a contractor and will also arrange appropriate amount of loan from Chinese banks for the mega project.

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

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

In response, the PSO, nominated by the Pakistani government, is in touch with the Bank of China and China Sinopec.

Sinopec is also providing services to Saudi Arabia including rigs, well-service, geophysical exploration, pipelines, roads and bridges and other EPC projects. Sinopec has been serving Aramco, SWCC, RC and many Saudi local cities, and has earned a good reputation among customers as well as the Saudi people.

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